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Georgia course Update February 2018

Georgia Insurance courses have been updated with annual outline changes effective February 15, 2018. Continue reading for Life and Health and Property and Casualty Addendums.

Georgia Insurance courses have been updated with annual outline changes effective February 15, 2018. Continue reading for Life and Health and Property and Casualty Addendums.

Addendum: for use with Georgia Life & Health online ExamFX courses and study guides version 22229en 22230en, per exam content outline updates effective 2/15/2018.

The following are content additions to supplement your existing text unless otherwise indicated:


Completing the Application, Underwriting, and Delivering the Policy

Contract Law – new topic on the outline

contract is an agreement between two or more parties enforceable by law. Because of unique aspects of insurance transactions, the general law of contracts had to be modified to fit the needs of insurance.

  1. Elements of a Legal Contract

In order for insurance contracts to be legally binding, they must have 4 essential elements:

  1. Agreement — offer and acceptance
  2. Consideration
  3. Competent parties
  4. Legal purpose


Agreement - Offer and Acceptance

There must be a definite offer by one party, and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.


The binding force in any contract is the consideration. Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application. The consideration on the part of the insurer is the promise to pay in the event of loss.

Competent Parties

The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.


Legal Purpose

The purpose of the contract must be legal and not against public policy. To ensure legal purpose of a Life Insurance policy, for example, it must have both: insurable interest and consent. A contract without a legal purpose is considered void, and cannot be enforced by any party.

  1. Unique Characteristics of an Insurance Contract

In addition to required elements, insurance contracts have unique characteristics that distinguish them from other types of legal contracts. It is important to understand these features and how they affect parties to an insurance contract.

Aleatory Contract

Insurance contracts are aleatory, which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.

Contract of Adhesion

contract of adhesion is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. In other words, insurance contracts are offered on a "take-it-or-leave-it" basis by an insurer.

Unilateral Contract

In a unilateral contract, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.

Conditional Contract

As the name implies, a conditional contract requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim.

  1. Underwriting

Stranger-originated Life Insurance (STOLI) and Investor-originated Life Insurance (IOLI)

Stranger-originated life insurance (STOLI) is a life insurance arrangement in which a person with no relationship to the insured (a "stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. In other words, STOLIs are financed and purchased solely with the intent of selling them for life settlements.

STOLIs violate the principle of insurable interest, which is in place to ensure that a person purchasing a life insurance policy is actually interested in the longevity rather than the death of the insured. Because of this, insurers take an aggressive legal stance against policies they suspect are involved in STOLI transactions.

Note that lawful life settlement contracts do not constitute STOLIs. Life settlement transactions result from existing life insurance policies; STOLIs are initiated for the purpose of obtaining a policy that would benefit a person who has no insurable interest in the life of the insured at the time of policy origination.

Investor-owned life insurance (IOLI) is another name for a STOLI, where a third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant.

USA PATRIOT Act/Anti-money Laundering

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, also known as the USA PATRIOT Act was enacted on October 26, 2001. The purpose of the Act is to address social, economic, and global initiatives to fight and prevent terrorist activities. The Act enabled the Financial Crime Enforcement Network (FinCEN) to require banks, broker-dealers, and other financial institutions to establish new anti-money laundering (AML) standards. With new rules in place, FinCEN incorporated the insurance industry into this group.

To secure the goals of the Act, FinCEN has implemented an AML Program that requires the monitoring of all financial transactions and reporting of any suspicious activity to the government, along with prohibiting correspondent accounts with foreign shell banks. A comprehensive customer identification and verification procedure is also to be set in place. The AML program consists of the following minimum requirements:

  • Assimilate policies, procedures and internal controls based on an in-house risk assessment, including:
    • Instituting AML programs similar to banks and securities lenders; and
    • File suspicious activity reports (SAR) with Federal authorities;
  • Appointing a qualified compliance officer responsible for administering the AML program;
  • Continual training for applicable employees, producers and other; and
  • Allow for independent testing of the program on a regular basis.

Suspicious Activity Reports (SARs) Rules

Any company that is subject to the AML Program is also subject to SAR rules. SAR rules state that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financing and/or other illegal activities. Deposits, withdrawals, transfers or any other business deals involving $5,000 or more are required to be reported if the financial company or insurer “knows, suspects or has reason to suspect” that the transaction:

  • Has no business or lawful purpose;
  • Is obtained to prevaricate other reporting constraints;
  • Uses the financial institution or insurer to assist in criminal activity;
  • Is obtained using fraudulent funds from illegal activities; or
  • Is intended to mask funds from other illegal activities.

Some "red flags" to look for in suspicious activity:

  • Customer uses fake ID or changes a transaction after learning that he or she must show ID;
  • Two or more customers use similar IDs;
  • Customer conducts transactions so that they fall just below amounts that require reporting or recordkeeping;
  • Two or more customers seem to be working together to break one transaction into two or more (trying to evade the Bank Secrecy Act (BSA) requirements); and
  • Customer uses two or more money service business (MSB) locations or cashiers on the same day to break one transaction into smaller transactions (trying to evade BSA requirements).

Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery. Reporting takes place on FinCEN Form 108.

Types of Life Policies

  1. Term Life Insurance
  2. Types

Return of Premium

Return of premium (ROP) life insurance is an increasing term insurance policy that pays an additional death benefit to the beneficiary equal to the amount of the premiums paid. The return of premium is paid if the death occurs within a specified period of time or if the insured outlives the policy term.

ROP policies are structured to consider the low risk factor of a term policy but at a significant increase in premium cost, sometimes as much as 25% to 50% more. Traditional term policies offer a low-cost, simple-death benefit for a specified term but have no investment component or cash value. When the term is over, the policy expires and the insured is without coverage. An ROP policy offers the pure protection of a term policy, but if the insured remains healthy and is still alive once the term limit expires, the insurance company guarantees a return of premium. However, since the amount returned equals the amount paid in, the returned premiums are not taxable.

  1. Interest-Sensitive Life Products

Indexed Life

The main feature of indexed whole life (or equity index whole life) insurance is that the cash value is dependent upon the performance of the equity index, such as S&P 500 although there is a guaranteed minimum interest rate. The policy's face amount increases annually to keep pace with inflation (as the Consumer Price Index increases) without requiring evidence of insurability. Indexed whole life policies are classified depending on whether the policyowner or the insurer assumes the inflation risk. If the policyowner assumes the risk, the policy premiums increase with the increases in the face amount. If the insurer assumes the risk, the premium remains level.

Life Policy Provisions, Riders and Options

  1. Policy Riders
  2. Disability Riders

Waiver of Monthly Deductions – new section replaces Waiver of Cost of Insurance

The waiver of monthly deductions rider pays all monthly deductions while the insured is disabled, after a 6-month waiting period. This rider only pays the monthly deductions, and not the full premium necessary to accumulate cash values. The length of time this rider will pay monthly deductions will vary based on the age at which the insured becomes disabled. This rider is usually found in Universal Life and Variable Universal Life policies.

Monthly deductions include the actual cost of insurance charges, expense charges, and costs or charges for any benefits added to the policy by rider, endorsement or amendment, and which are specified in the policy to be deducted from the account value.

Taxes, Retirement, and Other Insurance Concepts

Viatical Settlements

Viatical settlements allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death.

While viatical settlements are not policy options, they are separate contracts in which the insured sells the death benefit to a third party at a discounted rate. There are several important concepts you need to understand about viaticals:

  • The insureds are referred to as viators;
  • Viatical settlement provider means a person, other than a viator, that enters into a viatical settlement contract;
  • Viatical producers represent the providers;
  • Viatical brokers represent the insureds.

Viators usually receive a percentage of the policy’s face value from the person who purchases the policy. The new owner continues to maintain premium payments and will eventually collect the entire death benefit.


Life Settlements

The term life settlement refers to any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash. A life settlement would require an absolute assignment of all rights to the policy from the original policyowner to the new policyowner.

Policyowners may choose to sell their policies because they feel they no longer need their coverage, or the premium costs have grown too high to justify continuation of the policy. In many cases, however, life settlement transactions are offered to senior citizens who may have a life threatening illness and a short life expectancy. In these situations, the owner may elect to sell the policy to a life settlement provider for an amount greater than what they would receive if they surrendered the policy for cash value.

  1. Definitions

Because Life Settlements are not involved in the establishment of new life insurance coverage, the Life Settlement Act defines terms that are not in conflict with the sale of the original life insurance coverage, but which accurately identify the distinctions in the Life Settlement business. Some of the more important definitions are as follows:

The term business of life settlement refers to any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured.

The term owner refers to the owner of the life insurance policy who seeks to enter into a life settlement contract. The term does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust.

Insured is the person covered under the policy that is considered for sale in a life settlement contract.

Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).

Life Settlement Contract establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer, sale, or release of any portion of any of the following:

  • The death benefit;
  • Policy ownership;
  • Any beneficial interest; or
  • Interest in a trust or any other entity that owns the policy.

Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners, and have a fiduciary duty to the owners to act according to their instructions and in their best interest.

Life Settlement Provider is a person (other than the owner) who enters into a life settlement contract with the owner.

Life Insurance Needs Analysis/Suitability

  1. Personal Insurance Needs

Survivor Protection

The death of the primary wage-earner will usually stop the flow of income to a family. The death of a nonearning spouse who cares for minor children can also cause great financial hardship for the survivors. Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of his/her death. Planning for survivor protection requires careful examination of current assets and liabilities as well as determining what survivors' needs may be.

Cash Accumulation

Life insurance may be used to accumulate specific amounts of monies for specific needs with guarantees that the amount of money will be available when needed. An example of a life product that provides cash accumulation would be a whole life policy that offers living benefits in the form of cash values for the policyowner.


Liquidity in life insurance refers to availability of cash to the policyowner. Some life insurance policies offer cash values that can be borrowed against at any time and used for immediate needs.

Estate Creation

A person may create an estate through earnings, savings, and investments over a period of time, but all of these methods require disciplined action. If time is not available, they all will fail. The purchase of life insurance creates an immediate estate. Estate creation is especially important for young families that are getting started and have not yet had time to accumulate assets. When an insured purchases a life insurance policy, he/she will have an estate of at least that amount the moment the first premium is paid. There is no other legal method whereby an immediate estate can be created at such a small cost.

Estate Conservation

Life insurance proceeds may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell assets of the estate to pay these costs.



Types of Accident and Sickness Policies

  1. Limited Benefit Plans


Dental expense insurance is a form of medical expense health insurance that covers the treatment, care and prevention of dental disease and injury to the insured's teeth. An important feature of a dental insurance plan which is typically not found in a medical expense insurance plan is the inclusion of diagnostic and preventive care (teeth cleaning, fluoride treatment, etc.). Some dental plans require periodic examinations as a condition for continued coverage.

Dental expense may be packaged or integrated with other health insurance benefits like major medical. In that case the integrated plan may have a common deductible. On the other hand, some integrated plans maintain separate deductibles for the medical and dental portions of the contract.

Pediatric dental coverage is an essential health benefit under the Affordable Care Act that must be available as part of a health plan or as a stand-alone plan for children 18 or younger. However, insurers do not have to offer adult dental coverage.

Depending on the state, pediatric dental benefits may be offered through one of the following types of plans:

  • A qualified health plan that includes dental coverage;
  • A stand-alone dental plan purchased in conjunction with a qualified health plan; or
  • A contracted/bundled plan.

Vision and Hearing

Some employers provide this form of group health insurance to their employees to cover eye examinations and eyeglasses, or hearing aids on a limited basis. Know that per the Affordable Care Act, pediatric vision benefits are mandatory.

Worksite (employer-sponsored)

With an employer-sponsored group, the employer (a partnership, corporation or a sole proprietorship) provides group coverage to its employees. Eligible employees usually must meet certain time of service requirements and work full-time. The same as group life insurance, group health insurance may be either contributory or noncontributory.

Hospital indemnity

A hospital indemnity policy provides a specific amount on a daily, weekly or monthly basis while the insured is confined to a hospital. Payment under this type of policy is unrelated to the medical expense incurred, but based only on the number of days confined in a hospital. This can also be called a hospital fixed-rate policy.


Short-term medical

Short-term medical insurance plans are designed to provide temporary coverage for people in transition (those between jobs or early retirees), and are available for terms from one month up to 11 months, depending on the state. Unlike regular individual major medical plans, short-term health insurance policies are not regulated by the Affordable Care Act and their enrollment is not limited to the open enrollment period; they also do not meet the requirements of the federally mandated health insurance coverage.

Like traditional health plans, short-term plans may have medical provider networks, and impose premiums, deductibles, coinsurance and benefit maximums. They also cover physician services, surgery, outpatient and inpatient care.


Accident-only policies are limited policies that provide coverage for death, dismemberment, disability or hospital and medical care resulting from an accident. Because it is a limited medical expense policy, it will only pay for losses resulting from accidents and not sickness.

Accident and Sickness Policy Provisions, Clauses, and Riders

  1. Mandatory Provisions

Relation of Earnings to Insurance

The relation of earnings to insurance provision allows the insurance company to limit the insured’s benefits to his/her average income over the last 24 months. If necessary, the benefits are reduced on a pro rata basis.

If the total amount of benefits for a single loss under all policies exceeds the monthly earnings of the insured, or his average monthly earnings for the immediate prior 2 years, the insurer will only be liable for a proportionate amount of the benefit. In that event, the insurer is required to return premiums for that part of the benefit not payable. In no event may the benefit be reduced to less than $200 per month.

Addendum: for use with Georgia Property & Casualty online ExamFX courses and study guides version 22231en, per exam content outline updates effective 2/15/2018.

The following are content additions to supplement your existing text unless otherwise indicated:

Insurance Terms and Related Concepts

  1. Property and Casualty Terms


A tort may result in two forms of injury to another: bodily injury and property damage. In the case of property damage, the extent of the loss is usually simple to determine; it is measured by the actual monetary loss the injured party suffered, which is measured by the value of the property damaged or destroyed and the loss of use of that asset.

In the case of bodily injury, it is more difficult to determine the loss monetarily. Bodily injury may lead to claims by the injured party not only for medical expenses and lost wages, but also for disfigurement, pain and suffering, mental anguish, and loss of consortium. The two classes of compensatory damages that may be awarded are special and general damages. Special damages are specific out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages. General damages compensate the injured person for pain and suffering, mental anguish, disfigurement, and other similar types of losses. (Determination of the amount of general damages is highly subjective and can amount to whatever a judge or jury feels is "right.") A third class is a punitive damage, which is a form of punishment for extreme outrageous behavior, gross negligence or willful intent.

Blanket vs. Specific Coverage

Blanket insurance is a single property insurance policy that provides coverage for multiple classes of property at one location, or for one or more classes of property at multiple locations. All insured properties are written for one total amount of insurance, and no single insured item is assigned a specific amount of insurance. However, different amounts may be shown for buildings in general, equipment in general, and other items.

Specific insurance is a property insurance policy that covers a specific kind or unit of property for a specific amount of insurance.

Policy Provisions and Contract Law

Privacy Protection (Gramm-Leach-Bliley)

The Gramm-Leach-Bliley Act stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons:

  • The insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party.
  • The consumer is given the opportunity, before the time that information is initially disclosed, to direct that information not be disclosed to the third party.
  • The consumer is given an explanation of how the consumer can exercise a nondisclosure option.

The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):

  • When the customer relationship is established (i.e. a policy is purchased); and
  • Before disclosing protected information.

The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not have their private information shared with other parties.

Terrorism Risk Insurance Act (TRIA)

The purpose of the Terrorism Risk Insurance Act (TRIA) was to create a temporary federal program that would share the risk of loss from future terrorist attacks with the insurance industry. The act requires that all commercial insurers offer insurance coverage for acts of terrorism. The federal government will then reimburse the insurers for a portion of paid losses for terrorism.

TRIA defines an act of terrorism as an act certified by the Secretary of the Treasury, in concurrence with the Secretary of State, and the Attorney General of the United States with the following characteristics:

  • The act must be violent or dangerous to human life, property, or infrastructure;
  • The act must have resulted in damage within the United States, to an air carrier as defined in the US Code, to a US flag vessel or other vessel based principally in the US and insured under US regulation, or on the premises of any US mission;
  • The act must have been committed by someone as part of an effort to coerce the US civilian population, to influence US policy, or to affect the conduct of the US government by coercion; or
  • The act must produce property and casualty insurance losses in excess of a specified amount.


Terrorism Risk Insurance Program Reauthorization Acts

The TRIA of 2002 has been amended several times, and the final amendment is the Terrorism Risk Insurance Program Reauthorization Act of 2015, which has further amended and extended the Terrorism Insurance Program through Dec. 31, 2020, and revised several provisions as follows:

  • The insurer deductible was set at 20% of an insurer's direct earned premium of the preceding calendar year and the federal share of compensation was set at 85% of insured losses that exceed insurer deductibles until Jan. 1, 2016. After that, the federal share will be decreased by 1 percentage point per calendar year until it reaches 80%;
  • The certification process was changed to requiring the Secretary of the Treasury to certify acts of terrorism in consultation with the Secretary of Homeland Security instead of the Secretary of State;
  • The aggregate industry insured losses resulting from certified acts of terror which will trigger the federal share of compensation under the Program are now specified as follows:
    • $100 million for 2015;
    • $120 million for 2016;
    • $140 million for 2017;
    • $160 million for 2018;
    • $180 million for 2019; and
    • $200 million for 2020 and thereafter;
  • The mandatory recoupment of the federal share through policyholder surcharges increased to 140% (from 133%);
  • Revised requirements for mandatory repayment form insurers of federal financial assistance provided in connection with all acts of terrorism.

National Association of Registered Agents and Brokers (NARAB) Reform — this title of the Program amends the Gramm-Leach-Bliley Act to repeal the contingent conditions under which the NARAB may not be established. NARAB is also prohibited from merging with or into any other private or public entity.

In addition, without affecting state regulatory authority, the NARAB is required to provide a mechanism for the adoption and multi-state application of requirements and conditions pertaining to

  • Licensing, continuing education, and other qualifications of non-NARAB insurance producers;
  • Resident or nonresident insurance producer appointments;
  • Supervision and disciplining of such producers; and
  • Setting of licensing fees for insurance producers.

In addition to that, the NAIC Property and Casualty Insurance Committee and its Terrorism Insurance Implementation Working Group (TIIWG) recently adopted a Model Bulletin, including an expedited filing form intended to help state insurance regulators advise insurers about regulatory requirements related to providing terrorism insurance under the revised program.

Types of Property Policies

  1. Commercial Lines
  2. Commercial Property

Builders Risk

The builders risk coverage form is used to insure buildings while under construction. It provides coverage similar to that in the building and personal property coverage form. This coverage is most often written on a completed value form but may be written on a reporting form basis.

Property covered under a builder's risk coverage form includes the building or structure, temporary structures, including foundations, fixtures, machinery, equipment, materials, and supplies within 100 feet of the premises if intended to become a permanent part of the building.

Property not covered includes land or water, outdoor lawns, trees, shrubs or plants, radio and television antennas, satellite dishes, and signs (unless attached to the building, then the limit of coverage is $2,500 per sign in any one occurrence).

The same covered causes of loss forms used with the building and personal property coverage form applies to the builders risk coverage form.

There are 4 additional coverages under the Builders Risk coverage form:

  1. Debris removal — applies if reported within 180 days of the loss or damage, or the end of the policy period. The policy will pay up to 25% of the direct physical loss plus any applicable deductible. If covered property has not sustained direct physical loss or damage, the most the insurer will pay is $5,000 at each location. However, if the direct loss and the debris removal expense exceed the limit of insurance, the policy will pay an additional sum for debris removal on top of the amount of insurance ($25,000 per '12 ISO form).
  2. Preservation of property — property removed to a temporary location to protect it from loss or damage is covered while it is being moved or stored at another location, provided loss or damage occurs within 30 days after the property is moved. This coverage is not considered an additional amount of insurance.
  3. Fire department service charge — up to $1,000 coverage is included. The deductible does not apply to this additional coverage.
  4. Pollutant cleanup and removal — the policy will pay up to $10,000 for expenses incurred to remove pollutants if the discharge is caused by a covered cause of loss and reported in writing within 180 days of occurrence. This is the maximum amount the insurer will pay in any 12-month period.

The policy also includes 2 coverage extensions:

Building materials and supplies of others — The insured may extend coverage to include construction materials that would become a permanent part of the building for up to $5,000. This extension is considered an additional amount of insurance.

Sod, trees, shrubs and plants — The insured also may extend coverage to apply to a loss outside the building if the loss or damage is caused by fire, lightning, explosion, riot or civil commotion, or aircraft. The most the insurer will pay for this extension is $1,000, but not more than $250 per tree, shrub or plant.

  1. Others

Watercraft – General Policy Structure

Like many other policy forms, the Watercraft policy form starts with agreement and definitions, and is further divided into the following sections:

  • Part A – Liability Coverage;
  • Part B – Medical Payments Coverage;
  • Part C (not currently used);
  • Part D – Coverage for Damage to Your Watercraft;
  • Part E – Your Duties after Accident or Loss; and
  • Part F – General Provisions.


Some of the terms and definitions unique to the watercraft policy are as follows:

Personal watercraft — a recreational watercraft powered by an inboard motor, capable of carrying one or more persons in a sitting, standing, or kneeling position.

Nonowned watercraft — any watercraft, including its motor and watercraft trailer, which is not owned or available for regular use by the insured.

Outboard motor means any motor designed to be attached to a watercraft, including fuel tanks and electric starting equipment or controls necessary for the operation of the motor.

Watercraft trailer means a vehicle that is designed to be pulled by a private passenger auto, pickup or van, and transport a watercraft on land.

Boating equipment means accessories and other equipment (other than outboard motors) that are owned by the insurer, integral to the operation and maintenance of the watercraft, and are in or upon the covered watercraft.

Covered watercraft — any watercraft, outboard motor, and watercraft trailer shown in the Declarations, and newly acquired property.

A watercraft, outboard motor, or watercraft trailer will be deemed to be owned by a person if leased under a written agreement to that person, and for a continuous period of at least 6 months.


Part A - Liability Coverage

Part A – Liability Coverage will pay for damages for bodily injury or property damage for which any insured becomes legally liable because of a watercraft accident. As deemed appropriate, the insurer will settle or defend any claim or suit asking for these damages. In addition to the limit of liability shown in the Declarations, the insurer will pay all defense costs they incur.

Liability coverage supplementary payments are as follows, and will not reduce the limit of liability:

  • Up to 10% of the limit of liability for Part A;
  • Up to $250 for the cost of bail bonds required because of an accident;
  • Premiums on appeal bonds;
  • Interest accruing after a judgment is entered in the suit;
  • Up to $200 a day for loss of earnings (but not other income) because of attendance at hearings or trials at the insurer's request; and
  • Other reasonable expenses.


Some of the main exclusions to liability coverage are listed below:

  • Intentional bodily injury or property damage;
  • Property damage to property rented to, used by, or in the care of the insured;
  • Bodily injury to a person who is entitled to benefits under the Jones Act, workers compensation benefits, or Federal Longshore and Harbor Workers Compensation benefits;
  • Insured's liability for a watercraft while it is being rented to others, used as a public or livery conveyance, or hired for charter;
  • Losses incurred while the insured is employed or engaged in the business of selling, repairing, servicing, storing, or docking watercraft;
  • Using a watercraft without a reasonable belief that the insured is entitled to do so;
  • Bodily injury or property damage for an insured under a nuclear energy liability policy; and
  • Watercraft that is being operated in any prearranged or organized race, stunt activity, or other speed competition.

Part B - Medical Payments Coverage

Part B – Medical Payments Coverage covers expenses incurred for necessary medical and funeral services sustained by an insured. The policy will only pay for services rendered within 3 years from the date of the accident.

Part B exclusions are similar to those listed in Part A. The main distinction is that bodily injuries sustained while occupying a personal watercraft will not be covered.


Part D - Coverage for Damage to Your Watercraft

Part D – Coverage for Damage to Your Watercraft pays for direct and accidental loss of the covered watercraft and boating equipment minus any applicable deductible shown in the Declarations. If loss to more than one item of covered property results from the same loss, only one deductible will apply.

The limit of liability for Part D will be the lesser of

  • Amount shown in the Declarations;
  • Actual cash value of the stolen or damaged property; or
  • Amount necessary to repair or replace the property.

The insurer will make an adjustment for depreciation and physical condition in determining actual cash value in the event of a total loss.

Additional Coverages

This policy section also provides the following additional coverages:

  • Salvage expense coverage — up to 25% of the Part D limit of liability. This coverage is additional insurance without a deductible.
  • Towing and assistance expense coverage — if the watercraft becomes disabled, the insurer will pay reasonable expenses for
    • Towing it to the nearest repair place;
    • Delivery of gas, oil, or repair parts at the site of disablement;
    • Watercraft trailer roadside repair; and
    • The limit of coverage is $500 for any one disablement, subject to a maximum of $1,000 for any one policy period.
  • Personal effects coverage — the insurer pays for direct and accidental loss to personal effects owned by the insured or the insured's guests (at insured's request). Personal effects include cameras, cell phones, clothing, fishing equipment, water skiing and other sporting equipment. It does not include, however, animals, jewelry, money, watches, or permanently attached equipment. This coverage is limited to $500. It is additional insurance with no deductible.

Part E - Duties after an Accident or Loss

Duties of the insured after accident or loss under the watercraft policy form are similar to any other policy form, and can be summarized as follows:

  • Promptly notify the insurer of how, when, and where the accident or loss occurred;
  • Cooperate with the insurer and provide any documentation as requested;
  • Take reasonable steps after loss to protect the damaged property from further loss;
  • Promptly notify the police, Coast Guard, or other authorities if covered property is stolen; and
  • Permit the insurer to inspect and appraise the damaged property before its repair or disposal.


Part F - General Provisions

The following general provisions apply to watercraft policies. Most of these provisions have already been discussed in other types of property and liability coverages:

  • Abandonment;
  • Bankruptcy;
  • Changes;
  • Financial responsibility — when the policy is certified as future proof of financial responsibility, it must comply with the law to the extent required;
  • Fraud;
  • Lay-up period — insurer will not provide coverage while a watercraft is operated during the lay-up period, or not stored in the lay-up location;
  • Legal action against insurer;
  • Loss payable clause;
  • Insurer's right to recover payment;
  • Out of state coverage;
  • Policy period;
  • Policy territory — coverage only applies to accidents and losses that occur within the Custom Policy Territory shown in the Declarations, or if not specified, coverage applies on land, in inland waters, in coastal waters within 12 miles of the shoreline, or in the Great Lakes within U.S., its territories or possessions, Puerto Rico, or Canada;
  • Termination (including cancellation, nonrenewal, automatic termination, and other termination provisions);
  • Transfer of insured's interest in this policy; and
  • Two or more watercraft policies.

Farm Owners

Farm coverage is unique because it not only insures the property and liability exposures of the business of a farm operation, but also may include the personal residential exposures of property and liability of a family living on the farm premises. As in any commercial package policy, farm coverage may be written together in a single coverage (package), or separately as a single coverage (monoline).

In addition to the common policy declarations and common policy conditions, the farm coverage part must include a Farm Declarations and a Farm Conditions form and one or more farm coverage forms. There are 4 farm coverage forms:

  1. Farm property;
  2. Farm liability;
  3. Mobile agricultural machinery and equipment; and

Farm property coverage forms are subject to the causes of loss selected in the Declarations page. Like the CPP, the cause of loss form will dictate coverage and exclusions for each property form. Farm property can be covered on basic, broad or special form.



Most standard homeowner policies will cover wind damage from minor natural events. This does not usually apply, however, to areas that are considered high risk, such as coastal regions, which are susceptible to hurricanes, and inland areas that are at risk from tornadoes. In these high-risk areas, certain windstorm coverage is removed from the homeowner policy and homeowners are either required or encouraged to purchase a separate windstorm policy.

The terms wind and windstorm have specific definitions that will make it easier to understand the coverages provided by homeowner and windstorm policies. Wind is defined as a natural and perceptible movement of air parallel to or along the ground. A windstorm is defined as a storm with high winds or violent gusts but with little or no rain. Wind and windstorm may be different causes of loss, so even though a homeowner policy covers wind damage, it may not cover damage from a windstorm.

Private insurance companies sell specialty coverage such as "wind and hail" or "windstorm" policies, but in states where there are no offerings from private insurers, state-sponsored insurance pools provide windstorm insurance for these areas. Windstorm policies are written with different classifications that are tied to "trigger" events. Examples of these trigger events include

  • A hurricane or tornado watch issued by the National Hurricane Center or National Weather Service;
  • Sustained winds of 74 or more miles per hour; and
  • A specific, declared geographic location.

Types of Casualty Policies, Bonds, and Related Terms

  1. Workers Compensation, Employers Liability, and Related Issues

Who is an Employee and Employer

An employee is defined as a person hired to perform a service or task in exchange for a wage or salary that is under the control of the employer. The person hired performs a job that is usual and customary to the business operation. Independent contractors do not fall within the definition of an employee unless the classification is only for tax purposes.

For the purposes of Workers Compensation and Employers Liability insurance, an employee includes full-time, part-time seasonal and temporary workers. The definition may also extend to include leased employees, borrowed employees and unpaid volunteers. To determine if a worker meets the definition, the following factors are considered:

  • If the employer exercises control over the person performing the task;
  • If the character of the work being performed is consistent with the nature of the business;
  • If the person is paid a wage or some method of compensation by the employer;


  • If the business has the right to hire or fire the person; or
  • If the business furnishes the materials necessary for the person to perform their task.

An employer is the business that controls or directs (either express or implied) a worker and in exchange, compensates that person for work performed. Employers are bound by state laws to carry Workers Compensation and Employers Liability insurance.

In most states, the occupations of farm workers and domestic servants are exempt from Workers Compensation insurance.


The workers compensation laws vary from state to state. Most states have compulsory laws, which require all employers, except those specifically excluded due to staff size or employment type, to provide workers compensation coverage for those meeting the definition of employee.

The remaining few states have elective laws, which means the employer does not have to be subject to the state's workers compensation laws, but if an employer chooses not to be subject to the state's laws, it loses its common law defenses against liability suits.

All Workers Compensation and Employers Liability policies are based on the National Council on Compensation Insurance's (NCCI) standard policy although they may contain slight variations by different insurers.

The general section is split into 5 different subsections as follows.

  1. The Policy: This section summarizes all the components of the policy. The information page, which is a substitute for the Declarations page in other types of liability insurance, all endorsements, and any schedules constitute the policy. Terms may not be changed unless amended by endorsement. The contract is between the employer stated in the information page and the insurer.
  2. Who is Insured: The employer named on the information page is the insured, and in case of a partnership, a partner is insured but only in the capacity as an employer of the partnership's employees.
  3. Workers Compensation Law: This is an important section because the policy language refers back to the workers compensation laws in effect for states listed on the information page (3A). "3A states" are states in which the employer has employees.

The workers compensation policy is very different from other policies discussed in this course because there are no coverage amounts listed in the policy or on the information page for statutory benefits. The policy will pay whatever is in place in the applicable state where a covered injury occurs. It is important that employers have each state in which they have employees listed in 3A.

  1. State: This section defines a state, which is any state in the United States of America, and the District of Columbia.
  2. Locations: Coverage applies to all locations listed in the information page and in 3A unless states listed in 3A have other insurance or self-insurance in place.

In all states, medical payments are unlimited. There are no dollar limits or time limits set out to pay for necessary medical and surgical expenses, except possibly for certain types of care.

Benefits provide disability income payments for an injured employee's loss of wages. Benefits begin after an initial waiting period, but benefits will be paid retroactive to the beginning of the disability if the disability lasts for more than the period of time defined in the policy. Benefits are usually expressed as a certain percentage of the injured worker's wages, subject to certain weekly maximums and minimums for temporary total disability and permanent total disability. Total disability refers to an individual's total inability to work.

For temporary partial disabilities, which refers to a person's ability to do some work or the need to do alternative work, benefits are expressed as a percentage of lost wages equal to the difference between the wages earned before and after the injury. Some states also provide a schedule of benefits for specific permanent partial disabilities, such as the loss of a limb, hearing, or eyesight. These benefits are usually in addition to any other benefits paid.

Death benefits usually pay a small amount for funeral and burial expenses, and weekly income benefits to the surviving spouse and/or children. The weekly benefit usually equals a certain percentage of the deceased worker's income. Benefits may continue for the remaining life of the surviving spouse or until remarriage.

Rehabilitation expenses include vocational training and necessary medical expenses for physical and mental therapy. Benefits also include board, lodging, and travel expenses. States may impose weekly or maximum benefits, or limit benefits for certain types of rehabilitation.

All states have enacted what is called a second (or subsequent) injury fund. These funds are designed to pay for any additional benefits that may be required when an employee with a previous injury or disability (whether work-related or not) suffers a second injury that causes the disability to be more serious than if there had been no prior disability.

For example, if an employee with only one arm loses use of the second arm, the resulting disability would be much worse, usually resulting in a permanent total disability. Without the second injury fund, employers would be subject to the additional liability imposed by such injuries and would not have any incentive to hire disabled employees.


Employers Liability

The Federal Employer's Liability Act (FELA) is an employer's liability law rather than a workers compensation law. It predated workers compensation and makes an interstate railroad liable for bodily injury sustained by employees. Coverage for liability under FELA is covered under Section II of the workers compensation and employer's liability policy unless specifically excluded.

Although most state workers compensation laws restrict recovery to economic losses only, the FELA typically allows railroad employees to recover the following types of damages:

  • Lost earnings, past and future;
  • Medical expenses if paid out of pocket by the injured employee;
  • Payment for the employee's reduced ability to earn a wage because of the injuries suffered; and
  • Compensation for pain and suffering.

All actions regarding FELA must commence within 3 years from the day the cause of action began.

Exclusive Remedy

Under a compulsory Workers Compensation law, injured employees are barred from seeking damages outside the Workers Compensation law, called the exclusive remedy doctrine. However, there are situations in which employers need insurance for claims that are not covered under Workers Compensation laws. Employers Liability coverage is designed for these situations. The most common types of situations that would be covered under an Employers Liability policy include the following:

  • Exempt or illegal employment;
  • Third-party over claims in which an employee successfully sues a third party, and then the third party brings suit against the employer;
  • Situations which involve another relationship between the employee and employer, referred to as dual capacity (For example, if an employee is instructed to make repairs using tools the employer manufactures, and the employee is subsequently injured because of the tools, the employee can collect both Workers Compensation benefits and additional compensation for being injured by a tool the employer manufactured);
  • Family loss of consortium or the loss of companionship which results from the disability or death of an employee;
  • Consequential bodily injury to family members of an employee which result from the employee's injury;
  • Employees who attempt to seek benefits from parent-subsidiary relationships of the employer (for example, if an employee is injured by a company (subsidiary) which is actually owned by another company (parent), the employee may be able to collect Workers Compensation from the subsidiary company and seek additional compensations from the parent company).


Premium Determination

Workers compensation rating is developed by applying a rating bureau job classification rate to each $100 of payroll. Estimated payroll figures are used when a policy is issued, and the final premium is determined by an audit. Payroll means remuneration. It includes salaries, wages, commissions, bonuses, noncash compensation, vacation pay, and sick leave pay.

Experience modification factor is developed by a rating bureau. The calculations relate an employer's losses, payroll, and premiums, segregated according to classifications of operations, all as reported to the bureau by the employer's insurance company.

A premium discount applies when an insured owes a total standard premium greater than $5,000.

In some states, insurance companies or state workers compensation funds are allowed to write participating policies (also referred to as safety groups). This means the insured is eligible for dividends (partial premium refund) if the experience during the policy term falls within guidelines established by the insurer at the inception of the policy term. Dividends are not guaranteed. To be eligible for participation, the insured must meet the associated underwriting requirements for participation.

In the case of a group policy, the group must qualify for the dividend. In the event the group's loss experience is low, participating members may receive a dividend. (No penalty is levied for a high loss experience.)

Retrospective rating is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term. It is subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based on the current year's losses, although the premium adjustments may take months or years beyond the end of the current year. The rating formula has numerous variations, and is guaranteed in the insurance contract.

  1. Crime

Forgery and Alteration

Forgery or alteration provides worldwide coverage for loss of money resulting from forgery and alteration of outgoing checks, drafts, or promissory notes. Defense coverage is also provided for the insured should the insured be sued in an action arising from failure to honor a financial instrument suspect of forgery.

This insuring agreement also has some of its own conditions such as:

  • Proof of loss — insured must provide to the insurer the altered or forged check;
  • Territory — anywhere in the world; and
  • Electronic signatures — treated as handwritten.



  1. Surety Bonding


Fidelity bonds are used to guarantee honesty and trust as opposed to surety bonds that guarantee performance. A fidelity bond is crime coverage, and is often called honesty insurance. It protects the business from employee larceny, embezzlement, forgery, theft, and identity theft, to name just a few. For example, the bond covers a bonded employee for dishonesty. It can cover an individual or a group for loss of real property, personal property, money, securities, or merchandise.

Insuring Agreement

There are several insuring agreements to a fidelity bond depending on the scope of coverage needed by the company. Following are typical insuring agreements for a fidelity bond:

  • Forgery or alteration;
  • Inside the premises – theft of money and securities;
  • Inside the premises – robbery or safe burglary of other property;
  • Outside the premises – theft of money and securities, and robbery of other property; and
  • Computer fraud.

The insuring agreement may also include additional coverages as needed, such as coverage on partners, extortion threats to persons, extortion threats to property, and registered representatives’ coverage.

Bond Period

The fidelity bond period is the term of coverage by stating the time and date for the effective and expiration dates.

Discovery Period

The discovery period is the span of time after bond termination to discover any losses that occurred during the term of the bond. Some policies may not contain a clause allowing for a discovery period after the bond terminates but do allow the right to purchase a discovery period after termination for an additional premium. Other policies contain a clause allowing for a discovery period. A 1-year period after termination is the most common discovery period, and in some cases it is required. It should allow any potential loss during the bond term to be known.

A discovery bond is available that allows a buyer to protect against undiscovered losses that occurred before the bond was issued. This generally applies to a first-time buyer.


  1. Professional Liability

Medical Malpractice

Medical malpractice coverage is written for doctors, hospitals and other medical practitioners to indemnify the insured for injuries to third parties because of any legal liability for bodily injury or death. There are several different types of medical malpractice coverage on the market today.

In the field of insurance, "professional liability" has replaced the use of the terms "malpractice insurance" and "errors and omission insurance" to describe the coverage of specialists in the various professional fields. There are professional liability policies with coverage tailored to cover the exposures of most every professional. The policies that protect those professionals in the medical field respond to actions resulting from injurious acts resulting from claims that the insured was derelict in a professional duty or the failure of a professional skill or learning, misconduct, negligence, or incompetence in the performance of a professional act.

(Nearly all of the policies written provide coverage on a "claims-made" basis.)

One of the major differences in the coverage of a professional liability coverage compared to personal and general liability coverage is personal and general liability policies cover losses caused by the negligence of an insured but excludes coverage for acts intentionally committed by an insured.

Professional liability policies will also cover some intentional acts. (Recently we have heard of doctors amputating the wrong leg, or performing the wrong surgery.) The doctor intended to amputate that leg, but because of a misdiagnosis, or it caused damage. In the dental field, there have been some instances where the wrong tooth was extracted. These are the kinds of intentional acts that are covered; however, criminal acts are usually specifically excluded from coverage.

Another difference is when a claim is made under a personal or general liability policy. The insurer will decide whether to defend the claim or just to pay the loss. They will usually decide on the option that is the least expensive.

In professional liability coverage, an insurer cannot settle a claim without the consent of the insured. If the insured has not given up this right (for a reduction of premium), the insured can require the insurer to defend the claim and prove in court that they are not liable. (They may want to protect their reputation as a professional in the field.)

Directors and Officers (D&O)

Directors and officers liability coverage provides protection to directors and officers of an organization (past and present) for any claims for losses arising from a wrongful act made while acting in an official capacity.

Coverage is triggered by wrongful acts rather than on an accident or occurrence basis. (Wrongful acts include misstatements made by the directors and officers, as well as neglect and breach of duty.)

Directors and officers liability policies will pay only damages that the corporation would, under the law, be required to reimburse the individual director or officer. The policy generally will not pay for fines, penalties, or punitive damages.

Employment Practice Liability (EPLI)

Employment practices liability refers to exposures employers face in their capacity as an employer. These types of claims are not covered by commercial general liability or the employer's liability portion of workers compensation. This coverage provides protection for liability arising from the following:

  • Refusal to employ, termination of the person's employment, demotion or failure to promote, negative evaluation, reassignment, discipline, defamation or humiliation of the person based on discrimination;
  • Work-related sexual harassment; or
  • Other work-related verbal, physical, mental, or emotional abuse directed at the person relating to race, color, national origin, gender, marital status, age, sexual orientation, physical or mental condition, or any other protected class or characteristic established by any federal, state, or local law.

Cyber Liability and Data Breach

The ISO has recently introduced a new line of insurance that covers cyber risks, called the Internet Liability and Network Protection Policy. The policy includes 5 separate agreements listed below:

  1. Website publishing liability — provides coverage against Internet-related publishing perils, including libel, and copyright, trademark, or service mark infringement;
  2. Network security liability — protects the policyowner against claims for failing to maintain the security of a computer system;
  3. Replacement or restoration of electronic data — covers the cost of replacing or restoring data lost due to a virus, malicious instruction, or denial-of-service attack;
  4. Cyber extortion — covers expenses, including ransom payments, incurred from extortion threats; and
  5. Business income and extra expense — provides coverage for expenses incurred as a result of an extortion threat or e-commerce incident.

Each agreement offers its own aggregate limit of coverage, subject to an overall policy limit. Defense expenses are included within the policy limits. All coverage is written on a claims-made basis, and allows the additional of endorsements for worldwide protection.