Many states mandate certain types of
insurance for the protection of society in general. If an individual dies, society in general would not be harmed,
but if an individual causes an automobile accident that injures others society
may be injured. If the injured party
has no medical insurance, tax dollars may be needed to care for them. If the injured person no longer can work,
tax dollars may be needed for their support.
Therefore, society would have no reason to mandate life insurance
(although there may be cases where society would be affected), but there is a
reason to mandate automobile insurance.
Some types of insurance deal with many details and the property
and casualty field is one of these. As a result, consumers often find it confusing. Although the property casualty agent has
completed schooling that allowed them to receive their insurance license, we
will still address this course from the standpoint of an individual with little
practical experience.
Why is there a need for insurance?
If there were no risks in life
there would be no need for insurance. If we knew for a fact that we would
never be involved in an automobile accident or experience a house fire, we
could save ourselves the trouble of investigating and purchasing a policy to
protect ourselves from these losses.
The possibility of loss is the reason for insurance.
Although there are varied definitions of the word risk, as it
relates to insurance risk is the uncertainty of a financial loss. We do not know whether or not we will
experience a financial loss that is the uncertainty. For some individuals the uncertainty is a
substantial worry because they have accumulated many assets that would be at
risk in the event they were sued for their part in the misfortune of
another. This worry brings about our
next point: there are two kinds of uncertainty: (1) the concept of the loss,
which is a state of mind, and (2) the actual financial loss itself. Dealing with the uncertainty of a financial
loss has become a business; it is the foundation of the insurance industry.
There are many types of financial uncertainty and resulting
insurance to cover that state of mind.
There are policies to cover death, ill health, accidents, the physical
inability to work, liability claims, and loss of property. In this course we will be looking only at
two types of insurance: casualty and property.
What is risk?
Risk is anything that will result in a physical or financial
loss. As it relates to insurance, there
is only risk if we perceive it. The man
who has no fear of death does not perceive it to be a risk either physically or
financially. Of course, his wife may
well consider his premature death to be a financial risk. We especially see these differences of opinion
when it comes to the purchase of nursing home insurance. The husband assumes
his wife will be able to care for him in his old age so he does not see any
risk involved with aging. The wife, on
the other hand, doubts her ability to care for her husband as he ages. Therefore, she considers his failing health
due to age to be a risk. He would never
consider the purchase of a nursing home policy because he does not perceive the
risk. His wife would purchase such a
policy because aging does pose a threat to her both physically and financially.
The perception of risk is the
basis of insurance sales. The
agents job is to point out the existence of risk. The first step is always identification of possible risks to
individuals or a business. Once the risk
is identified, an analysis of the risk is necessary. It is not usually considered prudent to try to insure all
risks. Most people identify the risks
that would pose a major hardship financially and insure based on those
facts. The process usually is specific:
- Risk identification
- Risk analysis
- Risk measurement
- Risk prevention or treatment
- Review the measures taken
Insurance, of course, places emphasis on risk treatment, which is
also risk prevention. Obviously, buying
insurance will not prevent the risk itself, but insurance does prevent the
financial results of risk. Or, at the
very least, insurance will minimize the results. Buying a nursing home policy will not prevent a nursing home
confinement, but it may prevent the financial devastation it would bring. On the other hand, it might even prevent the
nursing home confinement under the right circumstances.
Example: Bill and Helen bought nursing home
policies. Bill becomes ill. Since they purchased a policy that pays
benefits for care at home they consider this option. The doctor approves care at home, so instead of becoming
institutionalized, Bill can remain where he is outside of the nursing home.
In the property casualty field, such examples are harder to come
by. It is more likely that the policy
will simply prevent financial devastation, but not the results of the risk
itself. There are usually only two ways
to treat risk: control and financing.
Some types of risk can be minimized by preventive measures. Fire alarms in buildings are a way of risk
control. Although a fire may still
happen, the alarm may prevent much damage.
Risk control is as important as covering the financial loss that
occurs. Preventing the loss in the
first place keeps insurance rates down.
Risk control covers several techniques: avoidance of the loss,
prevention of the loss, loss reduction (such as the fire alarms), and
non-insurance transfer. Insuring a
potential loss is the best-known method of risk transfer, but there can also be
non-insurance methods. In our example
of Bill and Helen, they could have drawn up a contract with their
daughter. Bill and Helen could have
agreed to leave her their home in exchange for her care during their elder
years. By this method, they have
transferred the risk of institutionalization without the purchase of a
policy. When it comes to home and auto
insurance, non-insurance transfer of risk would be difficult.
Although there are different definitions of insurance, the key
concept is the anticipation of loss through
prediction processes and the redistribution of the burden of financial loss. Insurance companies are perhaps the best
predictors of financial loss. Through
their studies they know who is most likely to experience loss and under what circumstances. From these studies of loss, the insurance
companies establish an appropriate rate per unit of exposure, which
redistributes the aggregate burden of losses and transfers expenses equitably
among those who purchase the particular insurance for that type of loss. To put it in simple terms, many people with
several apples will put one of their apples into a communal fruit basket. If one of the participants has all of their
apples eaten by an intruder, they will be allowed to replace their lost fruit
from the fruit basket. Since it is
unlikely that the loss would happen to everyone, the fruit basket concept
allows each persons loss to be minimized to one apple. If they must replace their apples, they may
do so without having to personally finance the replacement of all their
fruit. Their predetermined loss is one
apple (the price to participate). They
have minimized their risk by agreeing to give up one apple, knowing all their
apples would be replaced if necessary.
The certain small loss is one apple. In exchange they have received protection from the uncertain
potential large loss of all their fruit.
The purchase of insurance, while an important step, should be the
final step. The first steps involve
risk minimization through safety and preventive measures. Usually it is not possible to eliminate
risk, so insurance will always be part of the solution. In the property casualty field, the risk is
greater than the ability to minimize it.
For example, as our highways get more congested, it would be impossible
to eliminate the risk posed by other drivers.
No matter how careful a person is he or she cannot be certain the other
driver will not cause a financial loss to them physically or to their vehicle. Therefore, we must insure against both
medical and property loss.
According to the National Association of Independent Insurers
(1994), the greatest amount of property and liability insurance is written for
auto liability (including private passengers).
A full quarter of the premium dollars written were devoted to this type
of coverage, followed by Workers Compensation with 13.8 percent. The amount of admitted assets and
policyholders surplus is important because they have a strong bearing on the
U.S. economy. They indicate how much
total capacity is available. Capacity refers to the availability of
property and liability insurance for the public. One might guess that insurance companies will write whatever
amount of insurance is sold. However,
the amount of available insurance is determined by the amount of invested
capital and retained earnings within the business of insurance. Therefore, the companies would not
necessarily issue whatever amount of insurance is sold. It must be pointed out that insurance
business does not stay within the U.S.
It has been estimated that at least 20 percent of all marine insurance
originating in the United States is exported directly to the alien non-admitted
market by brokers and others selling policies.
A considerable amount of business is exported to Lloyds of London. In addition, self-insurers account for a
substantial amount of business.
Self-insured plans and alien companies would not be included in most statistics.
Consumers think of fire and casualty losses in terms of their
insurance, but there are other outlays that affect us financially. Americans must support (through tax dollars
primarily) fire department personnel and equipment, police department personnel
and equipment, investigative units, and the creation and maintenance of water
supply systems. Even our highways must
be maintained for safety and accident prevention. Since there is no specific data collected regarding highway and
water maintenance costs as they relate to accident prevention and related
insurance costs, it is not possible to truly know the tax dollars and related
premium dollars involved.
Premium dollars: a certain loss.
When it comes to insurance, there are certain and uncertain
losses. Premium dollars are considered
a certain loss. Premiums are the
apple we put into the fruit basket in anticipation of an uncertain loss. We each know that we are giving up one
apple. What we do not know is whether
or not we will need to replace our apples due to an uncertain loss.
There has been lots of emphasis put on risk management by
insurance companies and even our government agencies. It apparently has not been successful however. Statistics show that fire losses, for example,
are on the rise. There are some
professionals in the industry that feel insurance has actually contributed to
the rising costs. It is felt that
insurance takes away the pressure to actively work at risk reduction within
industries and private enterprise. Of
course, we are also seeing intentional fires rising in occurrence. Since it is obvious that insurance does not
prevent financial loss and may even contribute to it, does insurance have any
social value? Perhaps the only social
value is the ability to lump specific types of risk and loss together to gather
data. From this data it is possible
that new solutions may come forward.
Aside from any social value, the ability to change uncertain
risks to certain risks (through increased knowledge) allows insurance companies
to better predict future losses with greater precision using the law of
averages. The less uncertainty
involved, the less money is necessary from the insured groups. In other words, when insurance companies
know how many apples are necessary to have in the fruit basket to cover future
losses, they will not over-collect.
Instead of putting in one apple each, perhaps it will be possible to
only put in half an apple for the same amount of financial protection. When insurance becomes more affordable, more
participants will join the group. As
more join the group, it is likely that the cost of joining will go down. When insurance rates become more affordable,
this is always a social benefit because it makes insurance available to those
who might not otherwise be able to obtain it.
Insurance has always had a social aspect to it. Prospective homebuyers must be able to
afford the cost of insurance in order to obtain a loan from the bank. Those who wish to buy a new car must be able
to afford the cost of the insurance or the bank will not make the automobile
loan. Businesses need insurance to
receive financing. Availability of
insurance reduces the cost of practically all commodities by diminishing that
part of the cost of production that a manufacturer must necessarily set aside
as a fund for protection against financial loss. When a manufacturer does not have to set aside funds to cover
risk, they can use those funds for product promotion, product development or
employment opportunities. If the
manufacturer does not have to set aside funds to cover risks, they can afford
to lower prices, which encourages commerce which helps our economy.
Insurance takes away the worry
The early American shippers had a great deal to worry about. Not only were there pirates that would steal
what they were exporting, but weather could also sink them. Because there were so many elements that
could cause a significant loss fees to move goods from one continent to another
was very high. Since shipping costs
were so high, once the goods arrived, the cost to buy them was also high. When insurance took away most of the worry
of moving the goods, prices could come down.
When prices came down, people who would not normally have been able to
purchase the goods now could. Insurance
helped people have more material possessions so insurance helped raise the
standard of living.
The value of insurance has been apparent for a long time. In 1601 the British Parliament (43
Elizabeth, C. 12) wrote the following regarding marine insurance:
whereby it cometh
to pass that upon the loss or perishing of any ship there followeth not the
undoing of any one, but the loss lighteth rather easily upon many men than
heavily upon a few, and rather upon them that adventure not, than upon those
who adventure; whereby all merchants, especially those of the younger sort, are
allowed to venture more willingly and freely.
Most Americans have little or no idea of the social role
insurance plays. Consumers think the
goods are there because they wish to buy them.
Few realize that the goods are in the stores because insurance makes it
possible.
Americans have always owned land more freely than most other
countries. While there are many reasons
for this and no one reason stands alone, a major reason allowing home ownership
is insurance. Few people would be able
to purchase a home with cash. Homes are
bought over time through mortgages.
Lending institutions only make such huge loans because the homes can be
insured. If there is a financial loss,
the lending institution can reclaim the loan amount through the insurance
proceeds. Insurance reduces the gamble
that the lending institution would otherwise be taking.
Insurance also benefits our government. The catastrophic fire losses some cities have seen, or the hurricane
losses experienced along the Gulf Coast, or the earthquake losses in the
Western states would have greatly affected the finances of our government had
there not been insurance in place.
Immediate rebuilding was possible because money immediately came
available through the claims of the insurance policies. Certainly our government has also made funds
available, but there are only so many tax dollars to hand out. Without the insurance proceeds, rebuilding
could be slow in coming.
Insurance is interwoven in nearly every particle of our
economy. If the insurance industry was
ever to collapse, it is possible that our way of living would go with it. Insurance is so interwoven with our private
enterprise system that our economic well-being is clearly dependent upon the
strength of the insurance companies.
Without liability insurance, several types of industry probably wouldnt
even exist. Certainly, segments of our
health care would not be the same if liability insurance were not available.
Charge it!
Americas credit system, while contributing to our national debt,
has also been the reason we have one of the highest living standards in the
world. Financial consultants everywhere
have been working hard to bring the American people into reality so they will
pay down their debt. There is no doubt
that we charge too much too often.
Despite the problems we have with debt in America, there is no doubt
that it supports commerce and industry.
Only about 10 percent of the worlds business is conducted on a cash
basis. The remaining 90 percent is
based on credit.
Most debt is insured. In
fact, debt has become a commodity in America.
Debt is traded and sold like any other commodity. All parties involved in trading commodities,
including debt, do so because they realize that the transaction is backed by an
insurance policy.
Marine
insurance keeps the goods moving
Special mention should be made regarding marine insurance. Huge amounts of goods are moved over the
ocean making marine insurance a fundamental instrument of business and
commerce. Marine insurance is an
important part in the creation of what is called place utility. Place
utility is the difference between the value of the goods at
their starting point where they were manufactured and the arrival point where
the goods will be sold. Countries that
control the insurance of these transporting vessels have been able to control
which countries receive what goods.
Insurance
line development
As we know, most
companies tend to specialize in specific types of insurance. At one time, insurance companies were
restricted by law to either (1) life and annuity business; (2) fire, marine,
and allied lines; or (3) casualty and surety lines of insurance. It was not unusual for a company to have
subsidiaries so that all the lines of insurance could be written. As time went by the laws have changed, but
many companies continue their subsidiaries.
Many companies, during the times of limitations, formed relationships
with other companies so that each supplied the other with the lines
needed. Currently it is possible for
any insurer, except a life insurer, to engage in all lines of property and
liability insurance with only one or two minor exceptions. The separation of life and annuity business
is still separate from the property and liability business, but this has not
seemed to pose any problem for the insurers since subsidiaries still exist in
many companies.
As the limitations were eliminated for the insurers, it was possible
for a single policy to be issued by a single insurer (labeled a multiple-peril
policy). A
multiple-peril policy is any policy that combines coverage for more than a
single peril so simply combining loss from fire and windstorm would make it
such a policy. By definition, a
multiple line policy combined fire and marine lines with casualty and surety
lines. Today we often call these all line policies or contracts. The automobile policy is an excellent
example of an all-line contract since it combines liability insurance and
physical damage insurance. These are
convenient since we can purchase protection for many risks under one policy
jacket.
Theres
always a way
Many insurers utilize a holding company so that they may have an
all-line affiliation. When state laws
prevent a life insurer from owning a property-liability insurer, the two
entities can be owned jointly by a holding company. They may then operate as an all-lines group. The trend is likely to continue since there
has been increased interest in broader financial services. Some major players in the insurance field
have gone this way, including Prudential Insurance Company of America and John
Hancock Mutual Life companies.
All insurance activities tend to be closely regulated by the
government. Much of the regulation has
to do with consumer interest and protection.
A great deal of property and liability insurance is sold by independent
agents that contract with the insurer.
Therefore, they are not an employee of the insurer. These agents sell products through a
contractual agreement with the insurance company. Independent agents own their renewals
(often known as expirations). The contractual agreements usually have a
mutually beneficial clause governing the agents business to protect each
side. Compensation is typically in the
form of commissions, although some companies may also have some type of other
compensation to encourage the agent to leave the business with them. The other compensation may be in the form of
office overhead, for example.
Fire insurance: one of the first forms invented
Although not the first insurance policy, fire insurance was one
of the forerunners. Fire destruction
has been documented for as long as humans have kept records. Although the figure does not include the indirect
costs that would add, according to the U.S. Department of Commerce, another
25 percent in losses, figures do show direct losses to fire at more than $10
billion annually. Indirect losses are
harder to measure. The indirect costs
include lost wages, clean-up, legal fees, health costs, and loss of sentimental
items. Worse yet, fire claims lives,
many of them children and the elderly.
Many more are permanently injured or scarred. Pets are also the frequent victims of fires. Of the fire losses, approximately 15 percent
are thought to be the result of arson.
It is likely that the true figure is much higher.
Many of our present day policies still use practices developed in
connection with fire insurance. This is
true of both property and liability insurance as well as other lines. Fire insurance is one of the more
economically significant types of coverage since it is a type of insurance
widely purchased. It accounts for more
than 21 percent of the premium volume of all property and liability insurance.
Most give the credit for creating fire insurance to Nicholas
Barbon of London. In 1666 a fire
lasting five days destroyed 85 percent of the city. There had been other major fires, including Hamburg in 1640. Immediately following the London fire,
Nicholas Barbon began a speculative business building homes. As part of his sales presentation he
promised to rebuild any house purchased from him if it was destroyed by fire. The idea was so well received that he was encouraged
to develop fire insurance as a business.
In 1680 he opened his business called the Fire Office, which was later
changed to the Phoenix Fire Office. His
contract was simply stated, but it is remarkably similar to forms used
today. At the time most homes were
owned by investors who rented them out to others. Using that as his basis, Nicholas Barbon set the rate at ten
times the annual rental fee. In
addition there were two classifications: timber construction required a rate of
5 percent of the annual rental and the brick homes were rated at 2
percent. That equates to $.50 per $100
and $.25 per $100 of fire insurance.
His rates remain similar to the rates used today in some areas.
In the United States prevention and reduction of loss was the
focus. Catastrophic fires in major
cities prompted building codes to reduce loss and save lives. Benjamin Franklin was instrumental in
founding several small local fire
departments that primarily fought fires on members property. In 1752 Benjamin Franklin helped establish
the Philadelphia Contributionship for the Insurance of Houses from Loss by
Fire. He obviously did not intend
to put the company name on a business card!
For the next 100 years most of the companies formed were for members of
local chapters.
Making the policy practical
As individuals became more familiar with the ups and downs of
trying to develop a fire loss contract, several things became apparent: the
insurer needed to protect itself from unwise risk, the insurer needed to
protect itself from unethical people (including the writing agent), and it was
necessary to require all information prior to issuing the policy. Other elements would also eventually enter
into the equation. Early on it became
evident that those who purchased the insurance realized they could cause the
fire themselves and be paid. It became
essential that the policy contain some type of requirement that the property be
maintained in a safe manner. It also
became evident that there would have to be a full description of what was
insured. As more and more requirements
became evident, some of the policies became very large.
Another problem that evolved were the various wordings of
policies. Each insurer used language of
their choosing. Those who sought out
the coverage had difficulty knowing what they were buying. Many policies defrauded the insured with
restrictive language that could not be understood by the general consumer. Ironically, some of the court decisions on
policies were as confusing as the policies themselves. The start of the consumers mistrust of
insurance formed from policies that were different from company to company and
with court decisions that did not follow much uniformity. The insured was often defrauded by companies
whose direct intent was to avoid paying claims. The insurance companies were handed opposing court views so that
writing a policy that adhered to each ruling was nearly impossible.
As courts were called upon more frequently to decide interpretations
of policy language we saw a system of court law developed on insurance that
probably still has no parallel in any other line of business. Of course, we must realize that insurance is
a business of language. Since insurance
sells peace of mind rather than tangible goods, it is not surprising that
language is the basis of it.
Standardization
becomes necessary
As consumers became increasingly upset with denial of claims and
courts became increasingly burdened with determining policy language it is not
surprising that our legal system saw the necessity of developing standardized
policy language. Initially cities
developed some standardization since many policies were servicing only local
areas. Then states began to develop
specific policy language. Uniformity in
the use and meaning of terms were required.
Eventually the standards developed were interpreted definitively by the
higher courts. This benefited both the
consumers who bought the insurance and the insurers who developed it.
The first attempt at standardization is credited to the National
Board of Fire Underwriters in 1867 and 1868, but others followed suit. By 1900 several areas had adopted some form
of standardization. The early attempts
were not entirely successful, but they did begin the foundation that later
forms followed. After several attempts
and re-makes of legislation, the National Convention of Insurance Commissioners
(now known as the National Association of Insurance Commissioners) recommended
a revised form known as the 1918 New York Standard Policy. This revision reduced the number of moral
hazards and if violated, rendered the policy void. Changes in language changed the effect of noncompliance from
complete avoidance to mere suspension.
Of course, these changes only solved some of the problems. As time went by, more changes were
made. Many policies continued to be a
battle between the insured and the insurer when claims were made.
Due to the many documented and understood inconsistencies in
policies, a committee was appointed in 1936 by the National Association of
Insurance Commissioners for the purpose of developing a standard fire policy
that would fairly represent both the insured and the insurer. Many people were involved in this, including
agencies and organizations that represented agents, brokers, buyers, and
sellers of insurance. The result was
the 1943 Standard Fire Policy Form. New York made it effective on July 1st,
1943. For the next forty years this
fire form was used in almost all states, the District of Columbia and Puerto
Rico. It is interesting to note how
seldom new forms were developed. The
first standard fire policy was not revised for 31 years, the second form was
not revised for 25 years, and the 1943 form stood for forty years before
revision took place.
What changes were made in 1943?
There were six primary changes made:
1. Damage
caused by lightning or fire caused by riot is covered under the 1943 form.
2. Destruction
by order of civil authority to prevent a conflagration is specifically covered
under the 1943 form.
3. The 1943
form is an interest policy it covers whatever interest the insured may have
in the property without regard to the extent of such interest. This is in contrast to earlier forms that
limited coverage to sole and unconditional ownership.
4. The 1943
policy may be assigned with the written consent of the insurer.
5. The
insured premises may be vacant or unoccupied for up to 60 days without
suspension of coverage under the 1943 form.
Beyond 60 days, coverage is suspended.
6. If more
than one insurance policy covers the same property, the Standard Fire Policy
provides for pro rata liability whether the other insurance is collectible or
not. [1]
It was not
until the 1970s that policy language began to be updated to reflect modern
living. The intent was to make reading an insurance policy user
friendly. Unfortunately, few consumers
actually read their policies. It has
been asserted that many of the selling agents do not read them. Despite the user-friendly intent, all
insurance policies are still legal contracts, which means that they must use
legalese. The policy language must
stand up in court and reflect the meaning that is intended. Policies deal with technical aspects and
require precision language. Court
interpretations will still be influential in deciding future policy language.
Most of us
appreciate any type of language that makes a policy user-friendly for those we
sell to. Standardization is an advantage in most cases. When standardization (especially of language
and terms) makes specific words mean specific things consumers will eventually
understand at least some aspects of their policies regardless of whom they are
insured with. This makes the agents
job easier.
Standardization
is also considered a means of preventing misuse or even outright fraud by those
involved in issuing the policy.
Sometimes it also helps to prevent misuse and fraud by the consumers who
buy them. Standardization saves court
time because an understood meaning prevents consumers from filing court
cases. New court interpretations are
not as likely on matters that have already had a court ruling. Standardization is helpful to the insurers
since it makes agent training uniform and less haphazard.
On the
other side of standardization comes the disadvantage of complacency. As we have seen, long periods of time seem
to pass before policies are reevaluated and updated. In these changing times, many professionals feel standardization
allows those in charge to ignore problems that exist in current policies. Insurance has seen some changes that
probably have not been adequately addressed due to standardization. Insurance companies may not want to see
changes since past court cases have already established procedure. Setting new legal procedures can be costly.
A unique
feature of the Standard Fire Policy is its incompleteness. Additional forms and endorsements are
required to make it a complete policy.
The Standard Fire Policy
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Concealment, fraud. This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto. Uninsurable and excepted property. This policy shall not cover
accounts, bills, currency, deeds, evidences of debt, money or securities;
nor, unless specifically named hereon in writing, bullion or manuscripts. Perils not included. This Company shall not be liable for loss by fire or other perils insured against in this policy caused, directly or indirectly, by: (a) enemy attack by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately impending enemy attack; (b) invasion; (c) insurrection; (d) rebellion; (e) revolution; (f) civil war; (g) usurped power; (h) order of any civil authority except acts of destruction at the time of and for the purpose of preventing the spread of fire, provided that such fire did not originate from any of the perils excluded by this policy; (i) neglect of the insured to use all reasonable means to save and preserve the property at and after a loss, or when the property is endangered by fire in neighboring premises; (j) nor shall this Company be liable for loss by theft. Other Insurance. Other insurance may be prohibited or the amount of insurance may be limited by endorsement attached hereto. Conditions
suspending or restricting insurance.
Unless otherwise provided in writing added hereto this Company shall
not be liable for loss occurring: (a) while the hazard is increased by any means within the control or knowledge of the insured; or (b) while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of sixty consecutive days; or (c) as a result of explosion or riot, unless fire ensue, and in that event for loss by fire only. Other perils or subjects. Any other peril to be insured against or subject of insurance to be covered in this policy shall be by endorsement in writing hereon or added hereto. Added provisions. The extent of the application of insurance under this policy and of the contribution to be made by this Company in case of loss, and any other provision or agreement not inconsistent with the provisions of this policy, may be provided for in writing added hereto, but no provision may be waived except such as by the terms of this policy is subject to change. Waiver provisions. No permission affecting this insurance shall exist, or waiver of any provision be valid, unless granted herein or expressed in writing added hereto. No provision, stipulation or forfeiture shall be held to be waived by any requirement or proceeding on the part of this Company relating to appraisal or to any examination provided for herein. Cancellation of policy. This policy shall be cancelled at any time at the request of the insured, in which case this Company shall, upon demand and surrender of this policy, refund the excess of paid premium above the customary short rates for the expired time. This policy may be cancelled at any time by this Company by giving to the insured a five days written notice of cancellation with or without tender of the excess of paid premium above the pro rata premium for the expired time, which excess, if not tendered, shall be refunded on demand. Notice of cancellation shall state that said excess premium (if not tendered) will be refunded on demand. Mortgagee and interests and obligations. If loss hereunder is made payable, in whole or in part, to a designated mortgagee not named herein as the insured, such interest in this policy may be cancelled by giving to such mortgagee a ten days written notice of cancellation. If the
insured fails to render proof of loss such mortgagee, upon notice, shall
render proof of loss in the form herein specified within sixty (60) days
thereafter and shall be subject to the provisions hereof relating to
appraisal and time of payment and of bringing suit. If this Company shall claim that no liability existed as to the
mortgagor or owner, it shall, to the extent of payment of loss to the
mortgagee, be subrogated to all the mortgagees rights of recovery, but
without impairing mortgagees right to sue; or it may pay off the mortgage
debt and require an assignment thereof and of the mortgage. Other
provisions relating to the interests and obligations of such mortgagee may be
added hereto by agreement in writing. Pro rata liability. This Company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not. Requirements in case loss occurs. The insured shall give immediate written notice to this Company of any loss, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed; And within sixty days after the loss, unless such time is extended in writing by this Company, the insured shall render to this Company a proof of loss, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if required, verified plans and specifications of any building, fixtures or machinery destroyed or damaged, The insured, as often as may be reasonably required, shall exhibit to any person designated by this Company all that remains of any property herein described, and submit to examinations under oath by any person named by this Company, and subscribe the same; and as often as may be reasonably required, shall produce for examination all books of account, bills, invoices and other vouchers, or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by this Company or its representative, and shall permit extracts and copies thereof to be made. Appraisal. In
case the insured and this Company shall fail to agree as to the actual cash
value or the amount of loss, then, on the written demand of either, each
shall select a competent and disinterested appraiser and notify the other of
the appraiser selected within twenty days of such demand. The appraisers shall first select a
competent and disinterred umpire; and failing for fifteen days to agree upon
such umpire, then, on request of the insured or this Company, such umpire
shall be selected by a judge of a court of record in the state in which the
property covered is located. The
appraisers shall then appraise the loss, stating separately actual cash value
and loss to each item; and, failing to agree, shall submit their differences,
only, to the umpire. An award in
writing, so itemized, of any two when filed with this Company shall determine the amount of actual cash value and loss.
Each appraiser shall be paid by the party selecting him and the
expenses of appraisal and umpire shall be paid by the parties equally. Companys options. It shall be optional with this Company to take all, or any part, of the property at the agreed or appraised value, and alto to repair, rebuild or replace the property destroyed or damaged with other of like kind and quality within a reasonable time, on giving notice of its intention so to do within thirty days after the receipt of the proof of loss herein required. Abandonment. There can be no abandonment to this Company of any property. When loss payable. The amount of loss for which this Company may be liable shall be payable sixty days after proof of loss, as herein provided, is received by this Company and ascertainment of the loss is made either by agreement between the insured and this Company expressed in writing or by the filing with this Company of an award as herein provided. Suit. No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss. Subrogation. This
Company may require from the insured an assignment of all right of recovery
against any party for loss to the extent that payment therefore is made by
this Company. In Witness Whereof, this company has executed and attested these
presents; but this policy shall not be valid unless countersigned by the duly
authorized Agent of this Company at the agency hereinbefore mentioned. |
The use of this standardized form has been an important step in
the marketplace. It allows coverage to
be both personal and commercial in nature, depending upon the need.