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Utah Course Update January 2020

Utah Insurance courses have been updated with annual outline changes effective January 1, 2020. Continue reading to view the Utah life & Health and Property & Casualty course addendums.
Utah Life & Health Addendum
Utah Property & Casualty Addendum


Addendum: for use with Utah Life & Health online ExamFX courses and study guide version 23956en/23957en, per exam content outline updates effective 1/1/2020.

Please note that Utah is changing testing providers. Effective 1/1/2020, state insurance exams will be administered by Prometric. For additional information about exam requirements and complete exam content outlines, please review the Licensing Information Bulletin at

Please note that the number of questions per exam has changed:
100 questions per single-line exam (e.g., Life only, or Health only), and 150 questions for a combination Life & Health exam.

The new exam breakdowns are as follows:

Utah Life Insurance Examination

  • 100 Questions
  • Time Limit: 2 hours


Percentage of Exam

General Insurance


Life Insurance Basics


Life Insurance Policies


Life Insurance Policy Provisions, Options and Riders




Qualified Plans


Federal Tax Considerations for Life Insurance and Annuities


Insurance Regulation



Utah Accident and Health Insurance Examination

  • 100 Questions
  • Time limit: 2 hours


Percentage of Exam

General Insurance


Accident and Health Insurance Basics


Disability Income and Related Insurance


Medical Plans


Group Accident and Health Insurance


Dental Insurance


Health Insurance for Senior Citizens and Special Needs Individuals


Federal Tax Considerations for Accident and Health Insurance


Insurance Regulation



Utah Life, Accident and Health Insurance Examination

  • 150 Questions
  • Time limit: 2.5 hours


Percentage of Exam

General Insurance


Life Insurance Basics


Life Insurance Policies


Life Insurance Policy Provisions, Options and Riders




Qualified Plans


Federal Tax Considerations for Life Insurance


Accident and Health Insurance Basics


Disability Income and Related Insurance


Medical Plans


Group Accident and Health Insurance


Dental Insurance


Health Insurance for Senior Citizens and Special Needs Individuals


Federal Tax Considerations for Accident and Health Insurance


Insurance Regulation



The following are content additions to supplement your existing text:


Life Insurance Basics

Life Settlements

The term life settlement refers to any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party for some form of compensation, usually cash. While viatical settlements are still used for persons who are terminally ill, most states regulate policies that are sold to a third party for compensation under the term Life Settlements.

In life settlements, the seller (the policyowner) could have a life expectancy of more than one year. 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.

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.

Classes of Life Insurance Policies

There are many types of life insurance products available for consumers. Although all life insurance products offer death protection, each type also includes its own unique features and benefits and is designed to serve different insureds' needs.

You will study different types of policies in greater detail later in this course. For the purposes of this chapter, however, you need to understand some basic definitions and characteristics of different classes of life insurance policies.

1. Permanent vs. Term

Regarding the length of coverage, all life insurance policies fall into 2 categories: temporary and permanent protection.

Term life insurance is temporary life insurance provided for a specific period of time. It is also known as pure life insurance.

Permanent life insurance is a general term used to refer to various forms of whole life insurance policies that remain in effect to age 100, as long as the premium is paid. Permanent insurance provides lifetime protection, and includes a savings element (or cash value).

2. Participating vs. Nonparticipating

A participating (mutual) life insurance policy refers to any policy that distributes its dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance. A nonparticipating policy does not pay dividends to the policyowners.

3. Ordinary vs. Industrial (Home Service) Life

Industrial or Home Service insurance is life insurance written on an individual basis. The following are its distinguishing features:

  • Written in small amounts (usually with a face amount of less than $1,000);
  • Premiums are payable on a weekly or monthly basis;
  • Premiums are collected by a representative of the insurance company at the home of the insured; and
  • Policies are written as nonmedical (no medical exam is required; however, medical history information is still collected).

Ordinary Life insurance is also written on an individual basis; however, it differs from Industrial Life in the following areas:

  • Larger face amounts (at least $1,000);
  • Premiums can be paid annually, semiannually, quarterly or monthly;
  • Premiums are paid by the insured directly to the insurance company; and
  • A physical examination may be required to prove the applicant's insurability.

4. Group vs. Individual

Individual life insurance is written on a single life. The rate and coverage is based upon the underwriting of that individual. Group life insurance is written as a master policy covering the lives of more than one individual covered under the single policy. Individuals covered do not receive a policy but instead receive certificates of insurance. The rate and coverage is based upon group underwriting, with all individuals covered for the same amount and rate.

5. Fixed vs. Variable

Fixed life insurance or annuities are contracts that offer guaranteed minimum or fixed benefits that are stated in the contract. Variable life insurance or annuities are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance. Variable annuities keep pace with inflation, and are determined by the value of securities backing it.

Qualified Plans – new chapter on the outline; however, all of the required information is currently included in the Federal Tax Considerations for Life Insurance and Annuities chapter, under Qualified Plans Requirements, Types of Qualified Plans, and Taxation of Qualified Plans.

Federal Tax Considerations for Life Insurance and Annuities

Section 1035 Exchange

In accordance with Section 1035 of the Internal Revenue Code, certain exchanges of life insurance policies and annuities may occur as nontaxable exchanges. When a policyowner exchanges a cash value life insurance policy for another cash value life insurance policy, or a cash value life policy for an annuity, or an annuity for an annuity, the policies or annuities must be on the same life. There will be no income tax on these transactions.

The following are allowable exchanges:

  • A life insurance policy for another life insurance policy, an endowment contract, or an annuity contract;
  • An endowment contract for another endowment contract or an annuity contract; or
  • An annuity contract for another annuity contract.

Note that a policyowner may not exchange funds from an annuity into a cash value life policy. Nor would term life be used in a 1035 Exchange since it has no cash value. The key is that the exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. "Same to same" is acceptable.


Accident and Health Insurance Basics

Common Exclusions from Coverage

The following losses are typically not covered in individual or group medical expense policies:

  • War or act of war injuries or sicknesses; active military duty may be also excluded from coverage;
  • Intentionally self-inflicted injuries;
  • Elective cosmetic surgery; however, if treatment is required to correct a condition due to an accident or a birth defect, or is medically necessary, then coverage may be available;
  • Experimental/investigation procedures;
  • Conditions covered by workers compensation if they are covered under workers compensation laws or other legislation;
  • Government plans: health insurance policies exclude expenses either paid or eligible for payment under Medicare or other federal, state, or local medical expense program;
  • Participation in criminal activity: if a person is injured while committing an illegal act, health insurance will not cover the expense of the injury;
  • Injuries resulting from drug or alcohol intoxication (unless administered by a physician).

Considerations in Replacing Accident and Health Insurance

When an agent attempts to replace the insured’s current health insurance policy with a new one, the agent needs to be careful not to mislead the insured or provide coverage that is to the insured’s detriment. It is the agent's responsibility to carefully compare the benefits, limitations and exclusions found in the current and the proposed replacement policy. The agent also must make sure that the current policy is not cancelled before the new policy is issued.

Once the insurer determines that a sale will involve a replacement, the insurer or its agent must provide the applicant the Notice Regarding Replacement, prior to issuance or delivery of the policy. For the consumer's information and protection, the notice must advise the applicant of possible effects of the new policy coverage and benefits on the applicant's insurance protection.

Underwriting is important when replacement is involved. It is an underwriter's duty to evaluate risk and decide whether or not a person is eligible for coverage. The insured may be under the assumption that a replacing policy is in his/her best interests, but after being evaluated by an underwriter, where premium and risk are exchanged, an insured may not be paying the same premium or receiving the same benefits.

Pre-existing conditions are a very important consideration when replacing a policy. A pre-existing condition is a medical condition for which the insured sought medical advice or treatment within a specified period of time prior to the policy issue. Health conditions covered under the current policy may not be covered under the new policy because of pre-existing condition limitations, or new waiting periods may be required in a new policy.

If an agent or broker engages in misrepresentation during the replacement of health insurance contracts, he/she may be exposed to errors and omissions liability, as well as having their insurance license suspended or revoked.

Medical Plans

HIPUtah (Health Insurance Pool)

The purpose of the Comprehensive Health Insurance Pool Act is to provide low-cost access to health insurance coverage to residents of Utah who are denied adequate health insurance and are considered uninsurable.

A board of 12 directors administers the pool based on a plan of operation submitted to the Commissioner for approval. The board includes the Commissioner, the Executive Director of the Department of Health, and 10 members appointed by the Governor with Senate consent.

1. Eligibility

An individual who is not eligible for HIPAA may be eligible for the Comprehensive Health Insurance Pool coverage, provided the individual

  • Pays the premium;
  • Is a resident of the state; and
  • Meets the health criteria.

However, the following individuals would not be eligible for the pool coverage: 

  • If eligible for health care benefits under either Medicaid or Medicare;
  • Have terminated coverage in the pool within the last 12 months, had the coverage involuntarily terminated for any reason other than nonpayment of premiums;
  • Have received the maximum lifetime benefit from the pool;
  • Are inmates in a public institution;
  • Eligible for a public health plan;
  • Do not qualify due to a health condition;
  • Eligible for similar coverage under an employer group;
  • Covered under any other health benefit plan;
  • Have not resided in Utah for at least 12 consecutive months prior to application; or
  • Work for an employer who pays any part of that individual’s health benefit plan premium.

If otherwise eligible, an individual whose health insurance care from a state high-risk pool is terminated because of nonresidency in another state may be eligible for coverage under this pool. In these instances, coverage must be applied for within 63 days of the previous coverage’s termination.

2. Coverages and Limits

The pool offers major medical expense coverage to every person eligible for coverage. The coverage to be issued by the pool, its schedule of benefits, exclusions and other limitations are established by the board and approved by the Commissioner.

The pool is required to offer at least one plan through a managed care program. A health insurance policy offered by the pool may exclude coverage for pre-existing conditions for no longer than 6 months after the effective date of coverage. Covered benefits available from the pool may not exceed a lifetime maximum of $1,500,000.

3. Exclusions

A pool policy may contain provisions under which coverage for a pre-existing pregnancy is excluded during a 10-month period following the effective date of the plan. However, this provision does not apply to HIPAA-eligible individuals.

The pool will waive the pre-existing condition exclusion for individuals changing health coverage to the pool – if the individual applies within 63 days of the previous coverage’s involuntary termination.

4. Deductibles and Coinsurance

Pool policies impose a deductible based on calendar years, and must offer at least 2 deductible plans to insureds.

In most cases, a mandatory coinsurance requirement of at least 20% of eligible medical expenses must be imposed in addition to the deductible.

When the enrollee has incurred the maximum aggregate out-of-pocket payments, an additional coinsurance requirement may be imposed. This additional coinsurance must be no more than 5% of eligible medical expenses.

Uniform Health Benefit Plan Information Card

Insurers must use and issue a health benefit plan card for applicants who purchase or renew a health benefit plan. The health benefit card must include

  • Name of the insured;
  • Name of the insurer;
  • Contact information for the insurer;
  • Information on copayments and deductibles; and
  • An indication of whether the health benefit plan is regulated by the state.

Group Accident and Health Insurance

Marketing Considerations

Health insurance advertising must be truthful and not misleading. Words and phrases may not be used if their meaning is clear only by implication or familiarity with insurance terminology. In advertisements of benefits payable, losses covered, and premiums payable, words, phrases or illustrations cannot be used in a manner which misleads, or has the tendency or capacity to deceive, concerning any policy benefit payable, loss covered, or premium payable. Advertisements must be sufficiently complete and clear as to avoid deception or the capacity or tendency to deceive.

Regulatory Jurisdiction/Place of Delivery: Group insurance can often provide coverage for employees in more than one state. The question then becomes which state law has jurisdiction over the policy. Generally speaking, the state in which the coverage was delivered would have jurisdiction. Most state laws governing group insurance say that multi-state policies are acceptable if the policy is approved by the issuing state, written in substantial compliance with the laws of the delivery state, and if the laws governing group insurance are substantially similar between the issuing state and the delivery state.

Types of Funding and Administration

1. Conventional Fully-Insured Plans

A conventional fully-insured plan is administered and guaranteed by an insurance company. In return for the premium collected from the insured by the insurer, the insurer assumes the risk of paying the cost of medical expenses that may or may not occur during the policy period.

2. Fully Self-Funded (Self-Administered) Plans

Under some circumstances, it is possible for a business or other organization to engage in the same types of activities as a commercial insurer dealing with its own risks. When these activities involve the operation of the law of large numbers and predictions regarding future losses, they are commonly referred to as self-insurance. Self-insurance applies when an organization develops a formal program for identifying, evaluating and funding its own losses.

Self-insurance is when an organization develops a formal program for identifying, evaluating and funding its own losses.

For a self-insurance program to be dependable, it must:

  • Be big enough to permit the use of a sufficiently large number of exposure units so as to make losses predictable. (The program must be based on the operation of the law of large numbers.)
  • The plan must be financially dependable. This means it will likely require the accumulation of funds to meet losses that occur, with a sufficient accumulation to safeguard against unexpected deviations from predicted losses.
  • The individual units exposed to loss must be distributed in such a manner as to prevent a catastrophic loss. A loss that could affect all units at one time could cause financial failure to the program.
  • Until the fund reaches the size where it is adequate to pay the largest loss possible, the possibility of loss is not eliminated for the individual exposure units.

Smaller losses which occur frequently are a better subject for self-insurance as opposed to large infrequent losses. Self-insurance is frequently used for workers compensation where losses are fairly predictable, and most states have established regulations for self-insurance.

Small Employer Benefit Plans

When used in connection with a health benefit plan, the term “small employer” refers to any employer with an average of between 2 and 50 eligible employees on each business day during the preceding calendar year, and at least 2 employees on the first day of the plan year.

When determining whether to provide coverage to a small employer, requirements must be applied uniformly among all small employers with the same number of employees. A covered carrier may require that a small employer have a minimum of 2 eligible employees. Once an employer is accepted for coverage, the carrier may not increase the employee requirement at any time.

1. Basic Coverage

Individual carriers offering health care plans must offer a choice of coverage that is at least equal to or greater than basic coverage. The following benefits apply to Basic Health Care Plans:

  • The maximum benefit per person for the entire period of coverage is $1,000,000;
  • The maximum annual benefit per person must not be less than $300,000; and
  • The annual out-of-pocket maximum per person is $5,000.

Any waiting period cannot exceed 12 months with credit for prior coverage. The major medical deductible may not be less than $1,500 per person. An annual deductible for prescription benefits may not be less than $500 per person. A copayment may not be less than $25 per office visits, and $150 per visit to the emergency room.

2. Availability of Coverage

As a condition of transacting business in this state with small employers, every small employer carrier is required to actively offer to small employers at least 2 health benefit plans. One plan offered by each small employer carrier must be a basic health benefit plan and one plan must be a standard health benefit plan.

3. Open Enrollment

Individual carriers must establish a procedure to determine the order of applications. All applications must be treated consistently. A written notice of the decision must be communicated to the applicant within 30 days of the decision. If the application is incomplete, a carrier must notify the applicant within 15 days of the application's receipt. However, before an application can be filed as incomplete, applicants must have at least 30 days to provide addition information.

A small employer carrier must permit an eligible employee or dependent to enroll for coverage under the terms of the plans – if the employee requests enrollment no later than 30 days after the eligibility date.

All records regarding enrollment applications must be retained for the current year plus 3 years.

4. Renewability of Coverage

A small employer health benefit plan is renewable with respect to all eligible insureds at the option of the plan sponsor. However, a small employer health benefit plan may be discontinued if

  • The plan sponsor:
    • Fails to pay premiums;
    • Performs an act that constitutes fraud; or
    • Makes an intentional misrepresentation;
  • The covered carrier:
    • Elects to discontinue the coverage;
    • Provides notice of the discontinuation to each plan sponsor and insured at least 90 days before the coverage will be discontinued; and
    • Provides notice of the discontinuation to the Commissioner at least 3 working days prior to date the notice is sent to sponsors and insureds.

An eligible employee that is discontinued may reenroll

  • 12 months after the date of discontinuance; and
  • If the plan sponsor’s coverage is in effect at the time the eligible employee applies to reenroll.

Regulation of Employer Group Insurance Plans


The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that was enacted to ensure that employees receive the pension and other benefits promised by their employers. ERISA also incorporates and is tied to provisions of the Internal Revenue Code (IRC) designed to encourage employers to provide retirement benefits and other benefits to their employees. Many provisions of ERISA and the IRC are intended to ensure that tax-favored pension plans do not favor the highest-paid employees over rank-and-file employees in the way benefits are provided. To achieve these ends, ERISA has a complex series of rules that cover pension, profit-sharing stock bonus, and most "welfare benefit plans," such as health and life insurance. ERISA supersedes almost all state laws that affect employee benefit plans and has thus created a single federal standard for employee benefits.


All forms of health care, life insurance, prepaid legal services, and disability insurance (both long-term and short-term) are considered employee welfare benefit plans. Unfunded benefits or payroll practices, such as vacation, holidays, overtime premiums, holiday gifts, and compensation paid for time not worked are not included. Group-type voluntary insurance programs to which the employer makes no contribution are also excluded.

ERISA treats as pension plans any form of deferred compensation such as deferred profit-sharing, stock purchasing, or savings and thrift plans, as well as pension plans.

Cash bonus plans, cash profit-sharing plans, and severance pay of less than 2 years are considered compensation and are not regulated by ERISA. A bonus plan, payment of which is systematically deferred and paid out over several years, is considered a pension plan.

Fiduciary Responsibilities

An employer's responsibilities under ERISA vary, depending on the type of plan involved. Pension plans, for example, are subject to all rules, including reporting and disclosure, financial management of benefit plan assets, administration of benefit plans, and participation, vesting, and funding requirements. Welfare plans (such as health insurance) need only worry about reporting and disclosure rules and financial management and plan administration standards.

Reporting and Disclosure

Different parts of ERISA are administered by different federal agencies. In general, the Internal Revenue Service (IRS) administers the taxation of contributions and benefits. In the retirement-plan area, IRS is responsible for enforcing funding, participation, and vesting standards. The Pension Benefit Guarantee Corporation is in charge of pension insurance provisions. And the U.S. Department of Labor (DOL) administers reporting and disclosure and the fiduciary requirements of ERISA that regulate the management of plan assets.

There are reporting and disclosure exemptions for small unfunded welfare plans. Governmental and church plans, plans established solely to comply with unemployment compensation laws, workers compensation law, disability insurance laws, and plans that are designed to provide benefits in excess of the deduction limits to certain employees are exempt from ERISA requirements. Unfunded plans maintained "primarily" to provide deferred compensation for a select group of management or highly compensated employees are exempt from the participation and vesting, funding, and fiduciary responsibility requirements of the law. These plans are commonly referred to as top hat plans. They are generally subject (unless some other exemption or partial exemption applies) to the reporting and disclosure, and administration and enforcement provisions of ERISA.

2. Age Discrimination in Employment Act (ADEA)

The Age Discrimination in Employment Act of 1967 serves to promote employment of older persons based on their ability rather than age, to prohibit arbitrary age discrimination in employment; to help employers and workers, and to find ways of meeting problems arising from the impact of age on employment.

Applicability to Employees and Workers

It is illegal for an employer, or a labor organization to discriminate against an employee based on his or her age. Unfair discrimination means any of the following actions:

  • Failing or refusing to hire, discharging, or refusing to refer for employment any individual, or discriminating against any individual with respect to compensation, terms, conditions, or privileges of employment;
  • Limiting, segregating, or classifying employees in any way which would deprive them of employment opportunities, or otherwise adversely affect the employee's status;
  • Reducing the wage rate of any employee;
  • Printing or publishing any notice or advertisement relating to employment indicating any preference, limitation, or specification based on age.

It is not illegal for an employer, employment agency, or labor organization to take any action otherwise prohibited where age is a bona fide occupational qualification reasonably necessary to the normal operation of the particular business, or where the differentiation is based on reasonable factors other than age, or where such practices involve an employee in a workplace in a foreign country, and compliance with such subsections would cause such employer, or a corporation controlled by such employer, to violate the laws of the country in which such workplace is located.

Permitted Reductions in Insured Benefits

An employer may reduce benefits based on age only if the cost of providing the reduced benefits to older workers is the same as the cost of providing benefits to younger workers.

Permitted Increases in Employee Contributions

An employee's contribution may be increased whenever the cost of providing benefits is increased on all employees, but not solely related to the increased age of the employee.

Requirements for Medical Expense Coverage

The obligation of the employer for retiree health benefits is to provide the value of benefits that is at least comparable to benefits provided under the Social Security Act for the retirees below age 65, and at least one-fourth for the value of Social Security benefits for the retirees age 65 or older. The values are adjusted on the annual basis, based on the Consumer Price Index.

3. Civil Rights Act/Pregnancy Discrimination Act Applicability

The Pregnancy Discrimination Act is an amendment to the Civil Rights Act of 1964. The Act states that pregnancy, childbirth and any related medical conditions must be covered to the same extent as any other medical condition under the policy. The Act applies to employers with 15 or more employees.

An employer may not refuse to hire, promote, discharge, demote, or terminate any person, or to retaliate against, harass, or discriminate in matters of compensation or in terms, privileges, and conditions of employment against any person otherwise qualified, because of race, color, sex, pregnancy, childbirth, or pregnancy-related conditions, age, if the individual is 40 years of age or older, religion, national origin, or disability.

An applicant or candidate for any job or position may not be considered "otherwise qualified," unless the applicant or candidate possesses the education, training, ability, moral character, integrity, disposition to work, adherence to reasonable rules and regulations, and other job-related qualifications required by an employer for any particular job, job classification, or position to be filled or created.

An employment agency may not refuse to list and properly classify for employment, or refuse to refer an individual for employment, in a known available job for which the individual is otherwise qualified, because of race, color, sex, pregnancy, childbirth, or pregnancy-related conditions, religion, national origin, age, if the individual is 40 years of age or older, or disability.

A labor organization may not exclude any individual otherwise qualified from full membership rights in the labor organization, expel the individual from membership in the labor organization, or otherwise discriminate against or harass any of its members in full employment of work opportunity, or representation, because of race, sex, pregnancy, childbirth, or pregnancy-related conditions, religion, national origin, age, if the individual is 40 years of age or older, or disability.

An employer, employment agency, or labor organization may not print, or circulate, or cause to be printed or circulated, any statement, advertisement, or publication, use any form of application for employment or membership, or make any inquiry in connection with prospective employment or membership that expresses, either directly or indirectly any limitation, specification, or discrimination as to race, color, religion, sex, pregnancy, childbirth, or pregnancy-related conditions, national origin, age, if the individual is 40 years of age or older, or disability.

An employer, labor organization, joint apprenticeship committee, or vocational school, may not deny to, or withhold from, any qualified person, the right to be admitted to, or participate in any apprenticeship training program, on-the-job-training program, or other occupational instruction, training or retraining program because of race, color, sex, pregnancy, childbirth, or pregnancy-related conditions, religion, national origin, age, if the individual is 40 years of age or older, or disability.

An employer, labor organization, joint apprenticeship committee, or vocational school, may not discriminate against or harass any qualified person in that person's pursuit of such programs, or to discriminate against such a person in the terms, conditions, or privileges of such programs, because of race, color, sex, pregnancy, childbirth, or pregnancy-related conditions, religion, national origin, age, if the individual is 40 years of age or older, or disability.

It is not a discriminatory or prohibited employment practice for an employer to hire and employ employees, for an employment agency to classify or refer for employment any individual, for a labor organization to classify its membership or to classify or refer for employment any individual or for an employer, labor organization, or joint labor-management committee controlling apprenticeship or other training or retraining programs to admit or employ any individual in any such program, on the basis of religion, sex, pregnancy, childbirth, or pregnancy-related conditions, age, national origin, or disability in those certain instances where religion, sex, pregnancy, childbirth, or pregnancy-related conditions, age, if the individual is 40 years of age or older, national origin, or disability is a bona fide occupational qualification reasonably necessary to the normal operation of that particular business or enterprise.

Health Insurance for Senior Citizens and Special Needs Individuals

Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)

The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) amended the Social Security Act to

  • Extend expiring Medicare provisions;
  • Improve access to preventive and mental health services;
  • Enhance low-income benefit programs; and
  • Maintain access to care in rural areas.

1. Plans A - D

The following are among the major changes MIPPA enacted:

  • Provisions Relating to Part A:
    • Authorizes grants to increase mental health and other health care services for veterans of Operation Iraqi Freedom and Operation Enduring Freedom living in rural areas.
  • Provisions Relating to Part B:
    • Provides incentive payments for electronic prescriptions for medicine.
    • Allows the expansion of the Medicare Medical Home Demonstration Project if it will improve the quality of care without increasing spending and reduce spending without reducing the quality of patient care.
    • Directs the establishment of programs to increase awareness of and screening for chronic kidney disease, and extends Medicare coverage to kidney disease patient education services.
    • Institutes a system of quality incentives for service providers and renal dialysis facilities in the end-stage renal disease (ESRD) program.

  • Provisions Relating to Part C:
    • Revises requirements for certain non-employer Medicare Advantage (MA) private fee-for-service plans, as well as MA plans for special needs individuals.
    • Places a limitation on out-of-pocket costs (cost-sharing) for dual eligibles and Medicare beneficiaries enrolled in a specialized MA plan for special-needs individuals.
  • Provisions Relating to Part D:
    • Requires prompt payment of clean claims by prescription drug plans (PDPs) and MA-Prescription Drug plans under Medicare part D, and establishes interest payments for late claims.
    • Requires each PDP contract with a PDP sponsor to provide that the pharmacy located in, or having a contract with, a long-term care facility has between 30 and 90 days to submit claims for reimbursement.
      • Directs the Secretary to identify medications for which
      • Restricted access would have major consequences for individuals who have a disease treated by them; and
      • There is significant clinical need for such individuals to have access to multiple drugs within a class because of unique chemical actions and pharmacological effects of such drugs.

2. Other

MIPPA also does the following:

  • Provides for the elimination of copayments for Medicare psychiatric services (treatment of mental, psychoneurotic, and personality disorders of an individual who is not an inpatient of a hospital at the time such expenses are incurred);
  • Prohibits certain sales and marketing activities under Medicare Advantage (MA) plans and prescription drug plans, including
    • Providing gifts or prizes as enrollment inducements;
    • Unsolicited means of direct contact;
    • Cross-selling (the sale of other nonhealth-related products, such as annuities and life insurance, during any sales or marketing activity or presentation conducted with respect to an MA plan); or
    • The provision of meals to prospective plan enrollees;
  • Eliminates Medicare Part D late enrollment penalties.


Addendum: for use with Utah Property and Casualty online ExamFX courses and study guide version 19566en, per exam content outline updates effective 1/1/2020.


Please note that Utah is changing testing providers. Effective 1/1/2020, state insurance exams will be administered by Prometric. For additional information about exam requirements and complete exam content outlines, please review the Licensing Information Bulletin at

Please note that the number of questions per exam has changed: 

  • 100 questions per single-line exam (e.g., Property only, or Casualty only)
  • 150 questions for a combination Property & Casualty exam.

The new exam breakdowns are as follows:

Utah Property Insurance Examination:

  • 100 Questions; Time Limit: 2 hours


Percentage of Exam

General Insurance


Property and Casualty Insurance Basics


Dwelling Policy


Homeowners Policy


Commercial Property Policies (CPP)


Businessowners Policy


Other Coverages and Options


Insurance Regulation




Utah Casualty Insurance Examination:

  • 100 Questions; Time Limit: 2 hours


Percentage of Exam

General Insurance


Property and Casualty Insurance Basics


Homeowners Policy


Auto Insurance


Commercial Package Policy


Businessowners Policy


Workers Compensation Insurance


Other Coverages and Options


Insurance Regulation



Utah Property and Casualty Insurance Examination:

  • 150 Questions; Time Limit: 2.5 hours


Percentage of Exam

General Insurance


Property and Casualty Insurance Basics


Dwelling Policy


Homeowners Policy


Auto Insurance


Commercial Package Policy (CPP)


Businessowners Policy


Workers Compensation Insurance


Other Coverages and Options


Insurance Regulation



The following are content additions to supplement your existing text:


Businessowners Policy

Section I – Property

1. Covered Property

Businessowners property coverage must be activated on the Declarations page, and is available for buildings, business personal property, or both. The definitions of buildingand personal property are similar to those in the building and personal property coverage form. A separate limit of insurance for property of others is not used in the businessowners form as it is included in the business personal property (BPP) limit. The same radius (100 feet) that applied in the commercial package section applies to BPP of the insured in the businessowners form.


  1. Buildings, business personal property, or both



  1. Money and securities;
  2. Aircraft and vehicles;
  3. Watercraft while afloat;
  4. Accounts, bills, and other evidence of debt;
  5. Computers permanently installed in any aircraft, watercraft, or vehicle (unless being held as stock);
  6. Contraband or property in the course of illegal trade or transportation;
  7. Land, water, crops, or lawns;
  8. Outdoor fences, radio and television antennas, satellite dishes, detached signs, trees, plants and shrubs;
  9. Electronic data, except as covered under the electronic data additional coverage and except for the insured's stock of prepackaged software; or
  10. Animals (unless owned by others and boarded with the insured).



2. Causes of Loss, Limitations, and Exclusions

The Businessowners Property Coverage Form covers risks of direct physical loss to covered property, subject to certain limitations and exclusions.

This form contains several coverage limitations, so the policy will not pay for loss or damage to the following:

  • Steam boilers, steam pipes, hot water boilers or other water heating equipment caused by any condition inside the equipment; however, loss to the equipment from an explosion of gases or fuel in the device is covered;
  • Hot water boilers or other water heating equipment for events inside the equipment other than explosion;
  • Property that is missing with no physical evidence to show what happened to the property or if only detected by an inventory shortage (mysterious disappearance);
  • Property transferred to a person or place outside the premise in the Declarations based on unauthorized instructions;
  • Loss to the interior of any building or structure caused by rain, snow, sleet, ice, sand or dust unless the outside of the building or structure is damaged first. Coverage also applies if the loss results from the melting of snow, ice or sleet on the building or structure;
  • Restrictions on coverage for animals, glassware, marble, porcelain unless caused by a list of named perils known as specified causes of loss. These perils are listed in the definitions section of the property portion of the policy and include fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; sprinkler leakage; sinkhole collapse; volcanic action; falling objects; weight of snow, ice, sleet; water damage; or
  • Special limits of liability exist for theft losses. The sublimit of $2,500 applies to furs, jewelry, watches, precious stones, gold, silver, platinum, patterns, dies and molds. Jewelry and watches worth $100 or less per item are not subject to the limitation.


The exclusions found in the businessowners property coverage are similar to those already discussed:

  • Ordinance or law;
  • Earth movement;
  • Governmental action;
  • Nuclear hazard;
  • Utility service (power failure);
  • War and military action;
  • Water (flood, waves, mudflow, and waterborne material);
  • Certain computer-related losses (failure, malfunction, or inadequacy of hardware, software, networks, etc.);
  • Fungi, wet rot, and dry rot except as covered in the additional coverage for fungi, and wet or dry rot;
  • Virus or bacteria;
  • Electrical apparatus (artificially generated electrical current);
  • Consequential losses (delay, loss of use or loss of market);
  • Smoke, vapor, gas (smoke from agricultural smudging or industrial operations);
  • Explosion of steam apparatus;
  • Frozen plumbing;
  • Dishonesty;
  • False pretense (voluntarily parting with property if induced by trick, scheme, or device);
  • Exposed property damaged by rain, snow, ice, or sleet;
  • Collapse (except as provided in the additional coverage);
  • Pollution;
  • Neglect;
  • Expected losses (wear and tear, gradual deterioration, mechanical breakdown, etc.);
  • Errors or omissions;
  • Installation, testing, repair;
  • Electrical disturbance;
  • Continuous or repeated seepage or leakage of water;
  • Weather conditions (but only if weather conditions contribute to an otherwise excluded cause of loss);
  • Acts or decisions, including failure to act or decide;
  • Negligent work;
  • Loss or damage to products resulting from an error or omission;
  • Business income and extra expense that results from delays or cancellation of a lease; and
  • Accounts receivable: loss or damage caused by or resulting from alteration, falsification, concealment, or destruction of records of accounts receivable done to conceal the wrongful giving, taking, or withholding of money, securities, or other property, and loss or damage caused by or resulting from bookkeeping, accounting, or billing errors or omission.


3. Additional Coverages

The businessowners property coverage contains several additional coverages explained below. Pay close attention to the numbers associated with each coverage:

Debris removal — 25% / 180 days / $10,000:

Coverage is provided for up to 25% of the direct loss, plus the deductible if reported within 180 days of the loss or the end of the policy period, whichever is earliest. If the amount of the debris removal and direct loss exceed the limit of insurance, or if the debris removal expense exceeds the 25% limitations, the policy will pay an additional $10,000 under the debris removal coverage.

Preservation of property — 30 days:

This coverage, commonly called removal coverage, provides 30 days coverage for property that is temporarily removed to protect it from damage.

Fire department service charge — $2,500:

The $2,500 limit is included as an additional amount of insurance, unless a different limit is shown in the Declarations.

Collapse — Collapse of a building is covered if caused by one of the specified causes of loss: hidden decay, insect or vermin, weight of people or property, or use of defective materials if the collapse occurs during construction. This additional coverage is included only in the special form.

Water damage, other liquids, powder or molten material damage — If loss or damage is caused by any of these causes of loss, the policy also will pay to tear out and replace any part of the building to make repairs to the system or appliance from which the water or other substance escaped. This additional coverage is included only in the special form.

Business income — Actual loss sustained / 12 months / ordinary payroll — 60 days / 72-hour waiting period:

Loss of business income is included during the period of restoration following a direct loss to covered property. Coverage is limited to 12 months following the loss for business income, and 60 days following the direct loss for ordinary payroll. This additional coverage is not subject to the limit of insurance.

Extended business income — 30 days:

The policy will cover necessary suspension of business operations from the time property is repaired, rebuilt, or replaced and operations are resumed, to the earlier of the date operations are restored to the level that would have existed without the loss, or 30 days after property is repaired, rebuilt, or replaced and operations are resumed.

Extra expense — Actual loss sustained / 12 months / no waiting period:

Extra expense is also covered in the businessowners policy for up to 12 months following a direct loss to covered property. This additional coverage is not subject to the limit of insurance.

Pollutant cleanup and removal — $10,000 / 12 months / 180 days:

The policy will pay up to $10,000 for expenses incurred in a 12-month period to extract pollutants from land or water at the described premises if the pollution resulted from a covered cause of loss and is reported to the insurer within 180 days. This is an additional amount of insurance. This coverage does not apply to the cost to test for the existence or effects of pollutants.

Civil authority — 72 hours / 4 weeks:

Loss of business income or extra expense that results from action of civil authority that prevents access to the premises due to a direct loss elsewhere also is covered. Coverage for business income begins 72 hours after the action and continues for up to 4 consecutive weeks.

Money orders and counterfeit paper currency — $1,000
The policy also will pay up to $1,000 for losses that occur from the good faith acceptance of counterfeit currency or unpaid money orders. The limitation for money and securities, noted early in this section, does not apply to this coverage.

Forgery and alteration — Up to $2,500 for losses that result from altered or forged checks or drafts is also covered to include defense coverage.

Increased cost of construction — $10,000:

Buildings insured on a replacement cost basis are covered for increased costs incurred to comply with enforcement of an ordinance or law while rebuilding, repairing, or replacing damaged parts of the property if the damage was caused by a covered cause of loss. This coverage is not subject to the ordinance or law exclusion, and is subject to a sublimit of $10,000.

Glass expenses — The policy will pay for expenses incurred to put up temporary plates or board up openings in damaged glass and for the expense to remove or replace obstructions when replacing or repairing glass that is not part of a building.

Business income from dependent properties — $5,000:

Loss of business income due to physical loss or damage at the premises of a dependent property caused by a covered cause of loss in the insured's policy is covered up to $5,000. This coverage does not apply to loss to electronic data.

Fire extinguisher systems recharge expense — $5,000:

The policy will pay up to $5,000 for the cost of recharging or replacing fire extinguishers if discharged on or within 100 feet of the premises. Loss from accidental discharge of chemicals from extinguishers also is covered.

Electronic data — $10,000:

The policy will pay up to $10,000 (or more if a higher limit is shown in the declarations) for the cost to replace or restore electronic data that has been damaged by a covered cause of loss. Losses are valued at replacement cost of the media the data is stored on. Viruses are included as a covered cause of loss for this coverage.

Interruption of computer operations — $10,000:

The coverage provided under business income and extra expense may be extended to apply to the suspension of operations caused by an interruption in computer operations due to damage of electronic data caused by a covered cause of loss, including collapse and computer virus. The policy will pay up to $10,000 for this coverage unless a higher limit is shown in the declarations.

Limited coverage for fungi, wet rot, and dry rot — $15,000:

The policy will pay up to $15,000 for loss or damage by fungi, and wet or dry rot. Loss must be the result of a specified cause of loss other than fire or lightning.

4. Coverage Extensions

Coverage can be extended from the building or business personal property coverage section when the applicable limit of insurance is shown in the Declarations. The policy includes several coverage extensions that are in addition to the limit of insurance:

Newly acquired or constructed property — $250,000 for buildings / $100,000 for BPP:

The insured may extend up to $250,000 coverage to buildings being built on the premises and buildings acquired at a new premises. Up to $100,000 is available for newly acquired business personal property. Coverage will only apply for 30 days after the insured acquires the property or the end of the policy period, whichever comes first.

Personal property off premises — $10,000:

Up to $10,000 coverage is available for business personal property, other than money and securities, during transit or temporarily at the premises the insured does not own, use, lease, or operate.

Outdoor property — $2,500 total / $1,000 per tree, shrub, plant:

The insured may extend the coverage to apply to outdoor radio and television antennas, detached signs and trees, shrubs and plants if the loss results from fire, lightning, explosion, riot or civil commotion, or aircraft. The insurer will pay up to $2,500 for this coverage extension, but not more than $1,000 for any one tree, plant or shrub.

Personal effects — $2,500:

Business personal property coverage may be extended to apply to personal effects owned by the insured, officers, partners or members of the insured, and employees. The insurer will pay up to $2,500 at each described premises.

Valuable papers and records — cost of research — $10,000 on premise / $5,000 off premise:

Up to $10,000 is available for the cost to research, replace, or restore lost information for which duplicates are not available on premises, and $5,000 for valuable papers and records not at the described premises. Losses will be valued at the cost of restoration or replacement.

Accounts receivable — $10,000 on premise / $5,000 off premise:

The insured may extend the insurance that applies to business personal property to apply to accounts receivable. The policy will pay the following:

  • All amounts due from the insured's customers that the insured is unable to collect;
  • Interest charges on any loan required to offset amounts uncollectible pending the insurer's payment of these amounts;
  • Collections expenses in excess of normal collection expenses that are made necessary by loss or damage; and
  • Other reasonable expenses that the insured incurs to re-establish records of account receivables that result from direct physical loss or damage by a covered cause of loss to the insured's records of accounts receivable.


The most the policy will pay under this coverage extension for loss or damage in any one occurrence is $10,000, unless a higher limit of insurance for accounts receivable is shown in the declarations. For accounts receivable not at the described premises, the most the extension will pay is $5,000.


5. Limits of Insurance

The policy will pay up to the limits of insurance stated in the Declarations. The following specific limits apply:

  • Outdoor signs attached to the building are covered for $1,000 per sign, in any one occurrence;
  • Coverage extensions and the following additional coverages are paid in addition to the limits of insurance:
  • Fire department service charge;
  • Pollutant cleanup and removal;
  • Increased cost of construction;
  • Business income from dependent properties;
  • Electronic data; and
  • Interruption of computer operations.


The Business Property Coverage Form contains 2 provisions that pertain to automatic increases in coverage:

  1. Building Limit — Automatic Increase — The limit of insurance for the building will automatically be increased annually by 8% or the percentage amount shown in the Declarations; and
  2. Business Personal Property Limit — Seasonal Increase — The limit for business personal property will be automatically increased by 25% for seasonal fluctuations unless otherwise specified in the Declarations. This increase is only applicable if the insured carries insurance equal to 100% of the average monthly values for the past 12 months.


6. Deductibles

The most the insurer will pay for any one loss is the applicable limit of insurance, after the deductible is paid. The deductible does not apply to any of the following:

  • Fire department service charge;
  • Fire extinguisher systems recharge expense;
  • Business income;
  • Extra expense;
  • Civil authority coverages; or
  • Optional coverage selections.


7. Property Loss and General Conditions

The following Business Property Coverage Form conditions apply in addition to the common policy conditions:

  • Abandonment;
  • Appraisal;
  • Duties in the event of loss or damage — The following are the insured duties in the event of loss or damage:
    • Notify the police if a law has been broken;


    • Give the insurer prompt notice of loss, and a description of how, when, and where it occurred, including a description of damaged property;
    • Take all reasonable steps to protect covered property from further damage, and keep a record of all expenses;
    • At the insurer's request, provide an inventory of the damaged and undamaged property;
    • Permit the insurer to inspect the property and to examine the insured's books and records;
    • Send the insurer a signed, sworn proof of loss within 60 days of the request;
    • Cooperate with the insurer in the investigation and settlement.
    • Resume all or part of the business operations as soon as possible; and
    • The insurer has a right to examine any insured under oath;
  • Legal action against the insurer — The insured is required to be in full compliance with regard to policy provisions before bringing any legal action against the company, and the action must be brought within 2 years of the date of loss;
  • Loss payment — In the event of loss or damage, the insurer has the option to do the following:
    • Pay the value of the lost or damaged property;
    • Pay the cost to repair or replace the lost or damaged property;
    • Take all or any part of the lost or damaged property at an agreed upon or appraised price;
    • Repair, rebuild, or replace the lost or damaged property with like kind and quality;
    • Insurer will give notice of intentions within 30 days of receiving the sworn proof of loss;
    • If the property is insured, at the time of the loss, for 80% or more of the full replacement value the policy will pay on a replacement cost basis
    • If the property is not insured to 80% of the full replacement value, the policy will pay the greater of ACV or the coinsurance formula;
    • Replacement cost payment will not be made until all repairs are made in a timely fashion. The insured can elect to settle the loss on an ACV basis. If the cost to repair or replace is less than $2,500, then the insurer will not require repair or replacement of the property;
  • Recovered property — If property is recovered after loss settlement, the insured may either retain the property and return any loss settlement payment or surrender property to the insurer;
  • Resumption of operations — The insurer will reduce the amount of business income and extra expense losses to the extent the insured can resume operations in whole or in part by using damaged and undamaged property.
  • Vacancy — Losses caused by vandalism, sprinkler leakage (unless the insured takes protective measures), building glass breakage, water damage, theft or attempted theft will not be covered if the building has been vacant for more than 60 consecutive days. Losses in a building vacant for more than 60 days caused by any other covered perils will be covered for an amount 15% less than normal coverage under the policy. Note that buildings under construction or renovation are notconsidered vacant. When a policy is issued to a tenant, vacancy occurs when the building does not contain enough business personal property to conduct customary operations. When the policy is issued to the owner or general lesee of a building, vacancy occurs when at least 65% of the square footage is unused or is not rented.

Businessowners policy Section I is subject to 4 general conditions:

1. Control of property — Any act of neglect of any person other than the insured beyond the insured's direction or control will not affect this insurance. The breach of any condition of this coverage form at any location will not affect coverage at any location where, at the time of loss or damage, the breach of condition does not exist.

2. Mortgageholders — Protection for a mortgageholder exists in the policy as long as certain conditions are met by the mortgageholder. These conditions were covered earlier in the text (make sure to review them).

3. No benefit to bailee — No person or organization (other than the insured) having custody of covered property will benefit from this insurance.

4. Policy period, coverage territory — The insurer will cover losses or damages commencing during the policy period shown in the declarations and within the coverage territory, or, with respect to property in transit, while it is between ports in the coverage territory. Coverage territory includes the United States of America (including its territories and possessions), Puerto Rico, and Canada.

8. Optional Coverages

There are several optional coverages built into the businessowners property coverage form. In order for coverage to apply, a limit and premium must be shown on the declarations. The optional coverages are the following:

  • Outdoor signs — All outdoor signs owned or in the care, custody, or control of the insured can be insured. The signs are generally insured on an open peril basis for an amount of insurance specified in the declarations. Common exclusions include wear and tear, hidden or latent defects, rust, corrosion, and mechanical breakdown. Without additional coverage, the BOP will pay for loss or damage to outdoor signs attached to the building at $1,000 per sign in any one occurrence. However, this additional outdoor sign coverage allows the insured to purchase larger amounts of insurance for outdoor signs.
  • Money and securities — Loss of money and securities resulting from theft, disappearance, or destruction can be covered. The insured is required to maintain records of the money and securities so that the insurer can verify the amount of loss or damage. In order for coverage to apply, the money or securities must have been at the insured premises, a financial institution, the insured's or employee's home, or in transit from one of these places. Separate limits are specified for losses that occur inside and outside the premises.
  • Employee dishonesty — Loss to business personal property or money and securities that results from dishonest acts of employees is covered. Under this coverage, employees include anyone who is currently employed or anyone who was terminated within in the past 30 days. Acts committed by the insured or partners are excluded. The policy declarations will show the applicable limit of insurance. In addition, coverage automatically terminates on any employee once the insured learns of previous acts of dishonesty.
  • Equipment breakdown protection — This coverage provides protection for a direct loss or damage to covered property caused by a mechanical breakdown or electrical failure to pressure, mechanical or electrical machinery and equipment.

9. Definitions

Definitions found in the businessowners property coverage form include, but are not limited to, the following:

  • Money means currency, coins, bank notes, and travelers or register checks or money orders held for sale;
  • Period of restoration for business income coverage begins 72 hours after the direct loss, or immediately for extra expense coverage. The period of restoration ends on the date the property has been repaired or business has resumed;
  • Pollutants include any solid, liquid, gaseous, or thermal irritant or contaminant;
  • Specified causes of loss means fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, leakage from fire-extinguishing equipment, sinkhole collapse, volcanic action, falling objects, weight of ice, snow or sleet, and water damage; and
  • Valuable papers and records means inscribed, printed or written documents, manuscripts, and records (including abstracts, books, deeds, drawings, films, maps, or mortgages). The term valuable papers and records does not mean money or securities.

Section II - Liability

1. Coverages

Business liability: The liability coverage of the businessowners policy is very similar to the CGL policy. One major difference is that this section is included in all policies, and cannot be written on a monoline basis. The BOP liability section has the following features:

  • Usually written with an occurrence coverage trigger;
  • Includes coverage for bodily injury, property damage, and personal and advertising injury for an occurrence within the coverage period and coverage territory;
  • Supplemental payment features are paid in addition to the limit of insurance noted on the declarations;
  • The limit of liability is the most the insurer will pay subject to an aggregate amount for the policy term; and
  • The insurer's duty to defend ends when the limits of insurance are exhausted.

Medical expenses: Medical payments coverage of a BOP will pay medical, dental, hospital, and funeral services incurred within 1 year from the date of an accident to a person who suffers bodily injury by accident on or next to the insured's premises, or because of the insured's operations.

2. Exclusions

The following exclusions apply to the business liability and medical payments coverages:

  • Expected or intended injury — This exclusion does not apply to bodily injury that results from the use of reasonable force to protect a person or property.
  • Contractual liability — This exclusion does not apply to the insured contracts.
  • Liquor liability — There is no coverage for liability arising out of causing or contributing to the intoxication of a person, furnishing alcoholic beverages to a minor or a person who is already intoxicated, or to any regulation or ordinance relating to the sale, gift, or distribution of alcoholic beverages. This exclusion applies only to insureds in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages (host liquor).
  • Workers compensation and similar laws — There is no coverage for any obligation the insured has under a workers compensation or similar law.
  • Employer's liability — There is no coverage for bodily injury to an employee in the course of employment, including the spouse, children, or siblings of the employee. This exclusion does not apply to any liability assumed under an insured contract.
  • Pollution — Bodily injury or property damage arising out of actual or alleged pollution is excluded. The exclusion does not apply to heat, smoke, or fumes from a hostile fire.
  • Aircraft, auto or watercraft — There is no coverage for bodily injury or property damage caused by the ownership, maintenance, use, or entrustment to others of any aircraft, auto, or watercraft. However, this exclusion does not apply to the following property and perils, which will be covered:
    • Watercraft while on shore at a premises owned by the insured;
    • Nonowned watercraft less than 51 feet long and not being used to carry persons or property for a fee;
    • Parking an auto on or on the ways next to a premise owned or rented by the insured. The auto cannot be owned, rented or loaned to the insured;
    • Liability assumed under any insured contract;
    • Bodily injury or property damage arising out of the operation of machinery or equipment attached to or part of a vehicle that meets the definition of mobile equipment if not subject to a compulsory or financial responsibility law; and
    • Bodily injury or property damage caused by the operation of a cherry picker or similar equipment mounted on trucks, and air compressors, pumps and generators.
  • Mobile equipment — There is no coverage for the transportation of mobile equipment by an auto, or the use of mobile equipment in any speed, demolition, or racing contest.
  • War — There is no coverage for war, including undeclared civil war, warlike actions, insurrections, rebellions, revolutions, or actions taken by government authority.
  • Professional services — There is no coverage for bodily injury, property damage, personal, or advertising injury due to the rendering or failure to render professional services listed in the exclusion.
  • Property damage to property the insured owns or in the insured's care, custody, or control
  • Damage to the insured's product or work
  • Damage to impaired property or property not physically injured
  • Recall of products, work or impaired property
  • Personal and advertising injury exclusions — These are the same as discussed in the commercial general liability coverage form. (Review the exclusions found in the CGL coverage section.)
  • Electronic data — There is no coverage for damages arising out of damage to or loss of use of electronic data.
  • Criminal acts of the insured;
  • Recording and distribution of information in violation of law — There is no coverage for bodily injury, property damage, or personal and advertising injury resulting from a violation of laws such as the Telephone Consumer Protection Act, the CAN-SPAM Act, the Fair Credit Reporting Act, and any federal, state, or local statute, ordinance, or regulation
  • Medical expense exclusions — These are similar to the exclusions already discussed for medical payments in the commercial general liability coverage form. (Review the exclusions found in the CGL coverage section.)
  • Nuclear energy liability exclusion — This is applicable to all liability coverages.

3. Who is an Insured

If the named insured is designated in the Declarations as an individual (or sole proprietor), that individual and his or her spouse are the insureds, but only with respect to the conduct of a business of which they are the sole owners.

If the named insured is designated as a partnership or joint venture, the named insured and his or her spouse, members, and partners also are insureds, but only with respect to the conduct of the business.

If the named insured is designated as a limited liability company (LLC), the named insured and members are also insureds, but only with respect to the conduct of the business. Managers are insureds, but only with respect to their duties as managers.

If the insured is a trust, the named insured and trustees are covered.

If the named insured is designated as an organization other than a partnership (corporations), joint venture, or limited liability company, the named insured is covered. Executive officers and directors are insureds, but only with respect to their duties as officers and directors. Stockholders are also insureds, but only with respect to their liability as stockholders.

Each of the following is also considered to be an insured:

  • Volunteer, while performing duties related to the insured business or its employees;
  • Employee in the course of employment;
  • Any person (other than an employee or volunteer) of any organization acting as the insured's real estate manager;
  • Any person or organization having proper temporary custody of the property if the named insured dies; and
  • The legal representative if the named insured dies, but only with respect to his or her duties as such.

No person or organization is considered to be an insured with respect to the conduct of any current or past partnership, joint venture, or limited liability company that is not shown as a named insured in the Declarations.

4. Limits of Insurance

The amount listed in the Declarations is the most the policy will pay regardless of the number of insureds, claims filed or suits brought, or persons or organizations bringing suit.

Medical expenses are paid on a per person basis and are also subject to the limit on the Declarations.

Aggregate limits exist in the BOP as they did in the CGL policy. The policy includes an aggregate for products and completed operations exposures that is two times the occurrence limit. Another aggregate similar to the general aggregate in the CGL, applies to all bodily injury, property damage, personal and advertising injury and medical expense claims that are not associated with products or completed operations. This aggregate is also twice the occurrence limit listed in the declarations.

In addition, the policy contains a separate limit of insurance for fire damage legal liability which can be included in either aggregate based on the nature of the claim.

The limits of insurance under the liability section apply separately to each consecutive annual period, and to any remaining period of less than 12 months, starting with the beginning of the policy period shown on the Declarations.

5. General Conditions

The following conditions for business liability coverage apply to the liability coverage in addition to the common policy conditions:

  • Bankruptcy — Bankruptcy or insolvency of the insured does not relieve the insurer of any obligation.
  • Duties in event of occurrence, claim or suit — In the event of a loss, the insured's duties include the following:
    • Promptly notifying the insurer of the occurrence (how, when, where, names and address of any injured persons);
    • Prompt written notice of a claim;
    • Promptly notifying the insurer of any legal papers received related to the loss; and
    • Cooperating and assisting in the investigation of a claim.
  • Legal action against the insurer — No party has the right to join or bring the insurer into an action against the insured. In addition, no party can sue the insurer unless all the terms of the policy have been complied with. A party may sue the insurer to recover an agreed upon settlement; however, the settlement cannot exceed the policy limits, nor can it include items that are not covered by the policy.
  • Separation of insured — The limit of insurance is paid only once per occurrence regardless of the number of claimants or the number of insured covered by the policy.

6. Definitions

The Definitions section of the business liability coverage form contains definitions of advertising injury, bodily injury, coverage territory, insured contract, mobile equipment, personal injury, products/completed operations hazard, insured product, and other terms related to liability and medical expenses forms.

Section III - Common Policy Conditions

The BOP includes the common policy conditions applicable to Section I — Property and Section II — Liability that are in addition to the conditions found in those separate coverage sections. These conditions are similar to the common policy conditions, commercial property conditions and commercial liability conditions already discussed. The businessowners common policy conditions are listed below:

Cancellation — The insured may cancel the policy at any time by mailing a written notice of cancellation to the insurance company. In a policy in which 2 or more insureds are listed on the declaration page, only the insured listed first (first named insured) can request the cancellation. The insurer can cancel the policy by mailing a written notice of cancellation to the first named insured.

Advance notice of policy cancellation is required by the insurer so that the insured may obtain other insurance. Additional requirements for notice by mail are the following:

  • Mailed or delivered to the insured 5 days prior to the date of cancellation if any of the following conditions exist at the insured building:
    • Building is vacant or unoccupied for 60 or more consecutive days (buildings with 65% or more of the rental units or floor area vacant or unoccupied are considered unoccupied);
    • Permanent repairs for damage by a covered loss have not been contracted for within 30 days of initial payment of loss;
    • Building has outstanding order to vacate, demolition order, or has been declared unsafe by a government authority;
    • Fixed and salvageable items have been removed from the building and are not being replaced;
    • Insured fails to furnish necessary utilities (heat, water, sewer) for 30 or more consecutive days (except during a period of seasonal unoccupancy); or
    • Insured fails to pay property taxes owed or outstanding for more than 1 year;
  • Must be mailed or delivered to the insured 10 days prior to the date of cancellation if nonpayment of premium is the cause of cancellation;
  • Must be mailed or delivered to the insured 30 days prior to the date of cancellation for any other reason (may vary by state);
  • Insurer has to prove only that the notice was mailed to the first named insured to the mailing address on file with the company, not that the notice was actually delivered; and
  • If cancellation results in a return of premium, the refund is sent to the first named insured.

Changes — This condition states that the policy constitutes the entire contract between the insured and the insurer. The policy can be changed only by a written request by the first named insured and approval by the insurer.

Concealment, misrepresentation, or fraud — The policy will be void if any insured commits fraud relating to the policy, or intentionally conceals or misrepresents a material fact concerning the policy, covered property, the insured's interest in the covered property, or a claim under the policy.

Examination of books and records — The insurer has the right to examine and audit the insured's books and records that relate to the policy at any time during the policy period and for up to 3 years after the policy is no longer in force.

Inspections and surveys — The insurer has the right to inspect the insured's premises and operations at any reasonable time during the policy period. The purpose of these inspections is to determine the insurability of the property and operations, to set proper insurance rates, and to make loss control recommendations. Such inspections do not guarantee that the property or operations are safe, healthful, or in compliance with state laws.

Insurance under two or more coverages — If two or more coverages in this policy apply to the same loss, the insurer will not pay more than the actual amount of the loss.

Liberalization — If the insurer adopts any revision that broadens coverage without additional premium within 45 days prior to or during the policy period, that coverage will apply to the policy immediately.

Other insurance — If a loss is covered by other insurance, the insurer will pay only the amount of the loss in excess of the other coverage, whether or not the insured can collect from the other insurance.

Premiums — The first named insured is responsible for paying the premium under the policy. In addition, if ever the insurer gives any refund, it will be sent to the first named insured.

Premium audit — The policy is subject to audit if a premium designated as an advanced premium is shown in the declarations. The final premium due will be computed when actual exposures are determined. The first named insured must keep records of information needed for premium computation and send copies to the insurer at the insurer's request.

Transfer of rights of recovery against others to the insurer (subrogation) — The insurer has the right to recover its claim payment from a negligent third party.

Transfer of rights and duties under the policy — The insured cannot transfer any rights or duties under the policy to any other person or entity without the written consent of the insurer. Also, upon death, the insured's rights and duties under the policy are automatically transferred to the insured's legal representative.

In New York, cancellation requirements for businessowners policies are as follows:

  • If the policy has been in effect for 60 days or less, the insured must be given 30 days' notice prior to the cancellation unless the cancellation is due to nonpayment of premium, in which case, a 15-day notice is required.
  • If a policy has been in effect for more than 60 days, a 15-day notice must be given by the insurer to the first named insured.

Nonrenewal: notice of nonrenewal must be given to the insured within 60 days of the expiration but not more than 120 days. Conditions are also set for conditional renewals which are renewals with amendments to coverage and premium increases that exceed certain thresholds.

Selected Endorsements

In addition to the optional coverages built into the property coverage form, insurers usually offer other endorsements that can further expand the coverage provided in the policy for an additional premium.

1. Protective Safeguards

Protective safeguards endorsement adds a policy condition requiring the insured to maintain protective safeguards (automatic sprinkler system, fire alarm, etc.) as a condition for coverage. If the automatic sprinkler system is shut down due to breakage, leakage, freezing, or opening of the sprinkler heads, the insured has 48 hours to restore the system before the insured must notify the insurer.

2. Utility Services – Direct Damage

Utility services — direct damage endorsement provides coverage for direct damage caused by utility service disruption stemming from a covered peril. The insured's location and utility service must be indicated in the endorsement. Utility services include water services, communication services, and power supply services.

3. Utility Services – Time Element

The utility services — time element endorsement covers the insured's loss of business income or extra expense in the event of a direct physical loss to a utility service. The insured's location and utility service must be indicated in the endorsement.

Other Coverages and Options

Aviation Insurance

In aviation, hull refers to the fuselage, wings, tail, rudders, and other major structural features of an aircraft. The insurance policy that indemnifies the insured for damage to or loss of the hull is called aviation hull insurance. An aviation hull insurance policy provides physical damage coverage on the aircraft itself, and is the equivalent of the comprehensive and collision coverage of an automobile insurance policy.

There are 2 basic forms of hull coverage:

  1. All-risk on ground and in flight — This is the broadest form of hull coverage and provides all-risk coverage on the aircraft both while it is on the ground and while it is in flight. Deductibles may be purchased applying either the same or different amounts while on the ground or while in flight or taxiing.
  2. All-risk on the ground and limited in flight — This form provides all-risk coverage on the aircraft while on the ground, but coverage while the aircraft is in flight is limited to the perils of fire, lightning, and explosion, but not fire or explosion following a crash or collision.

The major perils not covered in flight are crash or collision. The coverage is usually written with a deductible that applies to all losses except fire, lightning, explosion, vandalism and malicious mischief, transportation, or theft. The deductible applies while the aircraft is not in motion, or when the aircraft is taxiing.

Aircraft Liability

Aircraft liability insurance covers bodily injury or death, and property damage caused by ownership, maintenance, or operation of the aircraft. Aircraft liability usually does not cover the crew. This coverage can be written to include or exclude bodily injury to passengers. Typical exclusions include contractual liability and injury to employees who are covered by workers compensation laws. In addition, there are usually exclusions if the plane is

  • Used for a purpose not described in the declarations;
  • Operated by a different pilot than that named in the policy;
  • No longer considered airworthy; or
  • Used for flying lessons.

medical coverage option, which would pay regardless of fault, with no deductible, may be available. The medical coverage option pays for aircraft occupants' medical and funeral expenses up to the applicable limit. This may include crew members.

Property damage liability: This coverage covers damage to property of others. As with other property damage coverages, there is no coverage for property owned by the insured or property in the insured's care, custody, or control.

Ocean Marine Insurance

Ocean marine is the oldest type of insurance in the world. Edward Lloyd opened a coffeehouse in London in 1689, and it became a meeting place for people buying and selling insurance. Today's Lloyd's of London grew from these beginnings. Lloyd's list provides the name, position, destination, and other important data of every merchant ship in the free world.

Most ocean marine policy forms were adopted by Lloyd's around 1780 with little change since. The forms are full of archaic terms but have proved reliable in courts, and Lloyd's is reluctant to make changes. The forms are brought up to date by adding printed institute clauses to it.


  • Adventure means a trip or voyage.
  • Assured is the insured.
  • Average means loss.
  • Constructive total loss means expense to repair or recover exceeding the value or policy limit.
  • Demurrage is delay of vessel beyond the normal time to on-load or off-load or a charge for the delay.
  • Laid up means in port or at anchor.
  • Loss of specie means the subject matter ceases to be a thing of the kind insured.
  • Misfortune is an accident or occurrence.
  • Particular means partial.
  • Touching means applying to.
  • 1. Hull Insurance

    A hull policy is type of ocean marine insurance that provides physical damage coverage for the ship while it is in transit.

    If the ownership of an insured vessel changes, the hull policy terminates

    • At the time of ownership change;
    • If at sea, upon arrival at the final port; or
    • If the termination is involuntary, 15 days after the ownership transfer.

General average is defined as an ocean marine loss that occurs through the voluntary sacrifice of any part of the vessel or cargo to safeguard the vessel or cargo from a common peril, and all interests at risk contributing to it based on their respective saved values. Simply put, general average is a clause found in ocean marine policies requiring that when there is a sacrifice of property to save the ship, crew, and other cargo, everyone who benefited from this sacrifice must share in the payment for the sacrificed property.

According to the conditions of a hull policy after a loss, wages and maintenance will be paid for the master, officers, and crew when removing the vessel from one port to another for repairs, or on a trial trip to test repairs.

The insurer will not pay maintenance and wages for the master and crew while the ship is laid up for repairs. The insurer can pick the port of repair and can veto any proposed repair facility.

The hull policy pays for sighting the bottom after stranding whether or not damage is found. The hull policy never pays for scraping and painting the bottom of the ship.

American Institute Hull Clauses (AIHC)

American Institute Hull Clauses were created to establish wording to be used in marine policies in order to suppress confusion. Although hull policies could be written for a specific period of time, for a voyage, or for a voyage plus a stated amount of time in port after the voyage, most AIHC policies are issued for a term of 1 year. Explained below are clauses contained within the American institute form.

The assured is listed in the policy. If payment is made to anyone other than the owner of the vessel, it will be made on to the extent that the owner would have collected. It also contains a waiver of subrogation to related entities of the assured.

The loss payee is the party to be paid by the insurer in the event of loss. The loss payee could be a mortgagee or lien holder.

The vessel is the ship itself and is covered for physical damage or loss by the hull policy. Equipment owned by others and installed on the ship will also be covered. No coverage exists for cargo containers, barges or lighters (flat bottom ship used to unload cargo ships).

The duration of the risk on hull policies could be for a specified period of time for a voyage (one place to another and usually for an additional 24 hours after moored at anchor safely at port of destination) or mixed (voyage plus a specified period of time in port after arrival). Most AIHC policies are written with a coverage term of 1 year.

Most hull policies are written on an agreed value basis. The insured and insurer agree upon the value of the ship at the time the contract is made. In the event of a total loss, this amount is paid.

The limit of insurance is called the amount insured hereunder.

Any deductibles applying will be expressed as a dollar amount in the policy. A deductible does not apply for total losses.

Premium is stated in the policy and is fully earned in the event of a total loss.

Return of premium will be applied on a pro rata basis upon a change of ownership of the vessel. Premium also will be returned on a pro rata basis for each 30 consecutive day period laid up in port not under repair and not being used for storage or lighting. If the insurer cancels the policy, a pro rata refund is due. If cancelled by the assured, a short rate refund is due.

Nonpayment of premium after 30 days of an in-force policy can be cancelled by the underwriter with 10 days' notice to the assured or broker who negotiated the contract. If a total loss occurs prior to the cancellation, the full annual premium will be earned.

The adventure clause describes when the vessel is covered and not covered. In general, it will be covered during the period of the policy while at sea, in docks, and while towing other vessels in distress, trial trips and sailed with or without pilots. The vessel may not be towed by other vessels in other than a customary fashion.

In the event of any accident or occurrence that could lead to a claim, prompt notice must be given to the underwriters. The underwriters have the right to appoint their own surveyor to determine the extent of the damage. The underwriters have the right to decide where the vessel will proceed for repairs and have the right to veto any repair firm proposed.

If the underwriters direct the vessel to proceed to a particular port for repair, the insurer will pay the expenses of doing so, including wages and maintenance for the master, officers, and crew. Maintenance and wages also will be paid for the master, officers, and crew during any trip to test the repairs. Maintenance and wages will only be paid while the vessel is underway.

The expenses of sighting the bottom after stranding will be paid new for old without deduction even if no damage is found. In no case does the policy pay for scraping or painting the bottom.

The insurer also will pay for loss or damage to equipment not owned by the assured but installed for use on board the vessel and for which the assured has assumed responsibility.

In the event of a loss or misfortune, the master and crew is required to sue and labor to prevent further loss and keep the loss as small as possible. The insurer will pay reasonable expenses in doing so. If the master and crew do not sue and labor to prevent further loss, the insurer could refuse to pay the claim.

The collision clause of the hull policy is actually a type of liability coverage because it pays for damage to another's ship with which the assured's ship has collided. The assured must have been at fault for payment to apply.

The sistership clause stipulates that in the event the assured collides with a ship also owned by the same assured, each vessel has the same rights as if the collision was with a ship owned by someone other than the assured. If there is a question of liability, an arbitrator will determine the outcome.

When both vessels are at fault for a collision, the indemnity is calculated on the principle of cross liabilities. Each vessel owner would pay the other vessel owner the proportionate amount of damage based on the percentage of fault, subject to its own limit of collision liability. The exception to this is if one of the vessel's ability to collect damages is limited by law.

Although most ocean marine insurance is written on an all-risk basis, its intent is to cover the perils of the sea. Losses due to war, strikers, riot, civil commotion, decay, deterioration, and inherent vice are not covered.

In certain areas of the world there exist narrow waters (ports, straits, etc.). In these areas, so as to complete the voyage in a timely and safe manner, pilotage and towingservices must be used. The insurance coverage remains in effect while the vessel is under tow or the control of the specially qualified pilot in areas where pilotage and towage are the common practice. If the pilotage or towing firm is responsible for the damage, the firm would be liable for paying for it.

In the event of a change of ownership (voluntary or otherwise, such as new management - change from one entity to another, not internal changes of the assured; bareboat charter; or classification change), the coverage automatically terminates unless the following conditions apply:

  • At that time, or if the ship is at sea with cargo, the coverage terminates upon arrival at the final port.
  • In the event of an involuntary temporary transfer by requisition or otherwise, without the prior written consent of the assured, the automatic termination will be 15 days after such transfer.

The insurance will not benefit the new owner.

Additional insurance: other insurance is not allowed, except to cover perils excluded by the policy or to cover the difference between the amount insured hereunder and the agreed value.

Other Hull Coverages

In addition to the AIHC, there are other commonly used hull clauses, such as the Taylor Hull form, that are very similar to the AIHC. These other forms use the same terms, and the coverage works the same.

Not only do ocean marine hull policies cover ships on the high seas, but they also cover coastwise vessels and vessels on inland waterways. Again, all the same terms, conditions, and provisions apply.

Increased value and excess liability (IVEL) clauses work like umbrella policies. They provide excess coverage for the same losses covered by an underlining policy they are written to go with. The underlining policy must pay up to its limit before the IVEL pays anything.

The IVEL clause can provide excess coverage for protection and indemnity, collision, towers liability, general average and salvage, sue and labor, ship repairers liability, charterers liability, wharfingers/or safe berth liability, and others as specified.

2. Cargo Insurance

Cargo policies are written to cover loss or damage to the cargo. The owner of the cargo certifies that the cargo is suitable for shipment. The amount of premium will be partly determined by the packing method used and partly by the type of ship providing the transportation.

Bulk carriers are used to carry coal, grain, phosphates, and other loose cargo. The ship itself is the container for the cargo. Tankers are used to carry liquid cargo such as oil.

General cargo ships carry break-bulk cargo. Things such as steel, rolls of wire, and boxed goods are hauled in general cargo ships. Loading and offloading is slow because each piece of cargo must be individually handled. The cargo is not as well protected using this method, resulting in higher premiums.

Container ships carry cargo packed in 20- and 40-foot containers that also can be moved by trucks or railcars. This method is the more efficient in cargo handling than break-bulk, resulting in shorter port times. Containers provide better protection for the cargo, resulting in lower premiums than break-bulk.

Roll on/roll off ships (ro/ro ships) are used to carry motor vehicles, which roll on and roll off the ship via a stern ramp.

Types of Cargo Losses

An ocean marine total loss may occur by actual total loss or constructive total loss.Actual total loss is damage to the entire property. Constructive total loss is when the cost to repair or recover exceeds the policy limit and the insurer pays the policy's agreed value. An actual loss may occur when all property has been destroyed, when there is a loss of specie, or if an insured is irretrievably deprived of all property, even if it is not totally destroyed. A loss of specie is when all property is damaged as to cease to be a thing of the kind insured. A loss of specie is payable as a total loss.

In the event of a loss, the master and crew are required to sue and labor to protect the insured property from further loss. The policy will pay the cost of doing so. If the crew does not sue and labor to keep losses as small as possible, the insurer could refuse to pay for the loss.

Partial loss could be either a particular average, in which only those involved in the loss are affected, or general average, in which all those involved in the voyage share in the loss.

If the cargo is damaged short of the destination port, an agent of the insurer at an intermediate port may agree to sell it at the best price. Settlement will be based on the difference between insured value and the net proceeds of the sale. This is called a salvage loss.

Open Cargo Policy

Cargo policies may be written on a trip or voyage basis, or for a frequent shipper, such as an importer or exporter, on an open cargo basis. The open cargo policy would cover all the insured cargo for a specified amount of time or for a specified number of shipments.

There is no standardized open cargo policy form. The cargo clauses of the American Institute of Marine Insurers attach to cargo policies for cargo moved on U.S. ships.

Cargo policies are usually written on a warehouse-to-warehouse basis, covering the cargo from origin to destination even though parts of the trip may be over land. The coverage is in effect until the cargo reaches its destination, or 60 days after discharge at the destination port. The American Institute warehouse-to-warehouse clause states the coverage expires 15 days after discharge at the destination port (30 days if the cargo's destination is outside the limits of the port).

3. Freight Insurance

Freight and cargo, although seemingly synonymous, are 2 separate things. The term cargo is used to describe the physical goods that are being shipped from one place to another. The term freight is used to describe the charges made to ship cargo from place to place.

The term freight insurance is used to describe the indirect loss that an insured would suffer if insured cargo is lost or damaged. Such losses include the income that would be generated, or the charges paid to transport such cargo. Freight charges can be prepaid, in which case coverage would be attached to the cargo policy purchased by the cargo owner. Freight charges also can be paid on delivery, in which case the ship owner could purchase coverage to be attached to the hull policy.

4. Protection and Indemnity

Protection and indemnity coverage under ocean marine contracts is essentially liability insurance that protects the owner of the ship from the consequences of his or her negligent acts or the negligent acts of his or her agents. If the owner should be held legally liable for damages to a third party, the P&I coverage would provide protection against financial losses by paying those sums that the insured became legally liable to pay as damages. The P&I coverage may be written with other marine coverages or as a stand-alone policy.

P&I policies are indemnity policies. Indemnity, the basic concept in insurance, attempts to return an injured party to “whole.” Indemnity compensates the injured party for the economic loss, and in insurance, the monetary amount to make the injured party whole again can be up to the policy limit. In a liability policy, the injury to the third party is due to the negligence, or perceived negligence of the insured. Negligence is not exhibiting the same degree of care that a normal person would exhibit under the same or similar circumstances.

The liability of the vessel owner is limited to losses that occur while the vessel is operating on behalf of the vessel owner. Liability coverage will be provided unless there is a stipulation in maritime law that limits the owner's liability.

P&I insures the ship owner against liability:

  • To seaman for injuries resulting from unseaworthiness of the vessel and other negligent acts;
  • To stevedores (laborers who load and unload vessels in a port), longshoreman, and harbor workers;
  • For cargo lost or damaged by negligence;
  • For damage to other property, including fixed objects; or
  • For damage to other vessels not caused by collision.

Losses caused by the insured's intentional acts will not be covered. The P&I policy includes no right of recovery with respect to loss, damage, or expense, either directly or indirectly for several reasons listed below.

P&I coverage provides marine legal liability coverage for the ship owner in the event that the owner is sued for negligence.

For example, under the Jones Act, seamen are covered for their injuries while working on a ship. The law allows that the seaman also may sue the ship owner for negligence and general damages as a result of such injuries caused by negligence.

Also the coverage would apply to suits against the ship owner arising from injuries to longshoremen and harbor workers, loss of cargo caused by negligence, and damage to other vessels caused by collision if the insured's ship was negligent.

Unlike other types of ocean marine insurance on boats, P&I provides coverage for bodily injuries.

The protection and indemnity coverage may be written with other marine coverages, or as a stand-alone policy.


Homeowners policies limit the amount of property and liability coverage available for watercraft. Only $1,500 of coverage is provided in the homeowners policy for damage to watercraft, accessories, equipment, and trailers. Liability coverage is afforded to the insured arising out of owning or using inboard powered boats up to 50 horsepower, outboard powered boats up to 25 horsepower, or sailing vessels up to 26 feet in length.

Additional protection is available either by endorsement or through the purchase of a boatowners policy. The coverage provides that the watercraft must be used solely for private, pleasure use and that coverage is excluded if the boat is hired out, chartered, used in an official speed or race contest, or used to transport people or property for a fee.

The policy consists of 2 sections:

  • Section I contains the physical damage coverages, which includes the perils insured against, exclusions, and conditions applicable to Section I only; and
  • Section II contains the insuring agreements for watercraft liability, medical payments, and uninsured boaters. Also included are Section II conditions, as well as general conditions applicable to both Section I and Section II.

Section I — Physical damage coverage on the boat is designated Coverage A in the boatowners policy. It includes coverage for the actual cash value (ACV) of

  • The motor(s) described in the declarations, including remote controls and batteries;
  • The boat described in the declarations, including its permanently attached equipment;
  • The trailer described in the declarations if specifically designed for the transportation of the boat; and
  • Equipment and accessories manufactured for marine use.

As indicated by the last item, the physical damage coverage usually extends to cover equipment pertaining to the use of the vessel, subject to a dollar limit.

Perils insured against — The boatowners policy insuring agreement is usually of the open peril type, providing that the insurer will pay for direct and accidental loss to the property insured.

In addition to the exclusion for loss by war and nuclear hazard, policies usually excludecoverage for the following types of damages:

  • Due and confined to wear and tear, gradual deterioration, inherent vice, latent defect, mechanical breakdown, faulty manufacture, damage caused by any repairing or restoration process, and service or maintenance operation, unless fire results and then for loss caused by the resulting fire;
  • While carrying persons or property for a fee, or while the covered property is rented to others; and
  • While the covered property, except sailboats, is being operated in any official race or speed test.

Additional coverages for physical damage are the following:

  • Reasonable repairs — Coverage applies for the expenses necessary to repair or to protect the covered property from further damage from an insured peril. Payment for loss under the reasonable repairs provision does not increase the policy limit.
  • Recovery — Coverage applies for the reasonable cost incurred by the insured to recover the insured property in the event of stranding or sinking. This coverage is derived from an ocean marine provision entitled salvage. However, unlike the ocean marine salvage charges, which are payable in addition to the limits of coverage on the hull, the recovery coverage of the boatowners policy does not increase the limits of liability under the policy.
  • Automatic coverage — Automatic coverage is provided on replacements for the boat, motor, or trailer listed in the declarations, provided the insured notifies the insurer within 45 days of acquisition and pays any additional premium required.

Section II — The liability coverages of the boatowners policy parallel the coverages of the personal auto policy. They include the following:

  • Watercraft liability;
  • Medical payments; and
  • Uninsured boaters.

Watercraft liability coverage provides protection up to the specified limits for claims or suits against a covered person for damages because of bodily injury or property damage caused by a watercraft occurrence. In addition to the promise to pay judgments arising out of such suits, the insurer also agrees to defend the insured, but reserves to the insurer the right to make settlement if it deems it expedient. As in the case of other liability policies, coverage for the cost of defense is payable in addition to the policy's limits.

Exclusions under the boatowners policy include bodily injury or property damage that is expected or intended by the insured, and the liability of any person using a watercraft without permission. Other exclusions are bodily injury to persons eligible for workers compensation, damage to owned or rented property in the care, custody, or control of the insured, and liability of a person engaged in the business of selling, repairing, storing, or moving watercraft. The policy also excludes liability arising out of racing, speed tests, war and nuclear hazards.

Claim-related expenses are paid as additional coverage, similar to the personal auto policy. Medical payments coverage pays for accidents occurring while the injured party is in, upon, getting into or out of the insured boat. Some policies include medical payments coverage for persons who are injured while water-skiing.

Uninsured boaters coverage usually provides a stipulated amount of coverage (e.g. $10,000) that can apply for accidents with uninsured watercraft. Increased limits are available for additional premium.

Navigation and territorial definitions — This is an important part of the contract that an insured should be made aware of. The broadest policies cover the watercraft while being operated on any inland body of water within continental United States, Canada, and coastal waters in the same area up to a limit of 10 to 25 miles (depending on the insurer). The most restrictive policies provide coverage only on a specific body of water and within a narrow parameter around that particular area. Many policies provide no coverage for offshore waters, such as the Gulf of Mexico.

Surplus Lines

All states require an insurer to obtain a license or certificate of authority to transact the business of insurance in the state. These insurers are called admitted or authorized insurers. The term nonadmitted insurance means any property and casualty insurance permitted to be placed directly or through a surplus lines broker with a nonadmitted insurer eligible to accept such insurance. Each state makes certain exceptions to allow nonauthorized or nonadmitted insurers to transact business within the state. The permitted types of transactions are usually limited to insurance that is difficult to place, or insurance that is not readily available through an authorized insurer in the state. These unauthorized insurers are called excess or surplus lines insurers. Although the insurance company is unregulated, the insurance may be sold only through licensed excess and surplus lines brokers.

Each state defines those circumstances in which excess and surplus lines insurance may be written. The following are some of the general requirements:

  • After diligent effort, the insurance cannot be written through an authorized carrier;
  • The purpose of writing the insurance through an excess or surplus lines insurer must not be to obtain a better price or better terms; and
  • The coverage must be written through a state-licensed excess or surplus lines broker.

Although these insurers are considered unauthorized, most states compose an approved listing of excess and surplus lines insurers. The NAIC also publishes a listing of excess and surplus lines insurers that it deems acceptable, and many states have adopted this listing.