Professional Documents
Culture Documents
RULES:
1. In general, if there is a covered loss and insurance coverage is equal to or greater than 80% of
replacement cost2 of the building at the time of the loss, then 100% of the replacement cost of
the loss is paid, limited by the face amount of insurance.
2. In general, if the amount of insurance equals less than 80% of the replacement cost of the building
at the time of the loss then the larger of the following two amounts is paid (but maximum
recovery is limited by the face of the policy):
a. Actual cash value of damaged part of building
b. result of the following formula:
amount of insurance purchased
----------------------------------------------------- x replacement cost of the loss
80% x replacement cost of building3
=
=
=
=
=
$100,000
80%
$ 95,000
$100,000
$ 95,000
1Except
=
=
=
=
=
$100,000
80%
$ 95,000
$ 20,000
$ 20,000
HO-8
2Replacement
cost is equal to the amount it would cost to repair or replace with like kind and quality of
material - not reproduction cost.
3Anytime this formula is used, the amount may be reduced by certain types of property that normally are
not destroyed when a loss occurs. Refer to the contract for specifics.
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=
=
=
$100,000
80%
$ 60,000
$100,000
60,000
Recovery formula = ------------------ x 100,000 = $75,000
80,000
Assume the Property is 3/4 depreciated:
Actual Cash Value = $100,000 (replacement cost) x .25 (percent undepreciated) = $25,000
Higher of coinsurance or ACV is $75,000 but recovery is limited to the face value or $60,000.
=
=
=
=
$100,000
80%
$ 60,000
$ 20,000
60,000
--------------- x 20,000 = $15,000
80,000
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100,000 RC bldg.
80% Coinsurance
60,000 Insurance
40,000 Loss (RC)
500 deductible
Building is 1/3 depreciated
PROBLEM
THE FINCH FAMILY
HOMEOWNERS CONTRACT
Assume the Finch family of Charlotte, North Carolina purchased their home in 1966 for $42,000. Since
then, comparable homes in their neighborhood have most recently sold for $84,000. The cost to replace
the home would be $75,000. It is estimated that the house is one-third depreciated. The Finchs have a
$60,000 (face amount coverage A) Homeowners policy in force, similar to the policy shown in the
Appendix. Answer the following questions as if each question were a separate event.
1) How much will the Finchs collect for a total covered fire loss under coverage A?
2) How much will be collected for a $20,000 partial loss under coverage A?
3) What would be your answers to questions 1 and 2 above if the Finchs had only $42,000 of insurance
of Coverage A?
4) What would be your answers to questions 1, 2, and 3 above if there is a $1,000 deductible on Section
I?
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POLICY QUESTIONS
HO-2 and PAP
Mr. Tibbs owns the Homeowners (HO-2) and the Personal Auto Policy found in your text's appendices.
The following limits apply.
HOMEOWNERS
LIMITS:
A = $65,000
B = $6,500
C = $32,500
D = $13,000
E = $100,000
F = $500
A = $100,000/$300,000/$50,000
B = $1,000
C = $100,000/$300,000
D = ACV $200 Ded. Collision
$0 Ded. Other Than Collision
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8. Mr. Tibbs fails to trim his bushes near the street. The bushes obstruct the view of traffic turning the
corner. A motorist, when inching out to see around the bushes, is struck by a car. Both cars are
"totaled" and each driver sues Mr. Tibbs for $135,000 in bodily injury and $5,000 in property damage.
9. Dr. Tibbs is a medical doctor who operates out of an office in his house. A patient comes to see Dr.
Tibbs. While sitting in a chair in the waiting room, the chair breaks causing back injuries to the
patient. The patient sues for medical expenses of $7,000, loss of wages of $16,000, and pain and
suffering $20,000.
10. Mr. Tibbs takes his car to a repair shop. while the mechanic is test driving the car, he negligently rear
ends a car stopped at a red light. The mechanic and Mr. Tibbs are both sued separately for $18,000
each.
11. A tornado causes an unattached garage to collapse on the owned car. The shed and the automobile
are total losses. How much is covered under both contracts?
12. Mr. Tibbs has an argument with his wife and goes bar hopping. On the way home, he loses control of
the car and injures three people. The police find that Mr. Tibbs is legally intoxicated. Each claim
$150,000 in bodily injury. Their car is totaled. And, Mr. Tibbs' car requires $1,200 in repairs.
13. In the above example, Mrs. Tibbs is also in the car. she is injured and sues Mr. Tibbs for $350,000.
14. Mr. Tibbs decides to sell cars. One day, while he is demonstrating a new car, an accident occurs and
the prospective buyer is injured. Mr. Tibbs and the auto company are each named in the suit claiming
$150,000 of bodily injury.
15. Mr. Tibbs decides to move to Nevada so he rents a large (18 wheel) moving truck. During the trip, he
flips the truck on an icy road. The rental company sues Mr. Tibbs for $175,000 of property damage
liability.
16. In the above example, instead of moving his own property, Mr. Tibbs decides to move property of
others for a business. The damage to the truck equals $175,000.
17. Mrs. Tibbs' fur coat (worth $700 ACV) is stolen out of the car after it is parked by an attendant at a
restaurant.
18. Mr. Tibbs' car is at a repair shop. For transportation, he uses his son-in-laws' motorcycle. While
using it, he runs down a pedestrian in a cross-walk. the pedestrian sues Mr. Tibbs for $7,600.
19. Mr. Tibbs buys a second car. Five days after the car is purchased, he collides into a telephone pole.
damage to the car is $2,000. He had not told his agent about the car.
20. While driving his car under a bridge being spray painted by the Department of Transportation, the car
is coated with paint. because of the chemicals being used in the paint, the auto's glass is
permanently pitted. cost to repaint the car is $3,200 and the cost to replace the glass is $1,200.
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ANSWERS
THE FINCH FAMILY
HOMEOWNERS CONTRACT
1) No coinsurance penalty. Collects RC $60,000 if replaced
2) No coinsurance penalty. Collects RC, $20,000 if replaced.
3.1) Does not have at least 80% of RC on building. $42,000 payable; larger of $50,000 and $52,500 but
cant pay more than face amount.
3.2) ) Does not have at least 80% of RC on building. $14,000 payable; larger of $13,333 and $14,000
4.1) $60,000; $75,000 - $1,000 = $74,000 but cant pay more than the face amount.
4.2) $19,000; $20,000 - $1,000
4.3 a) Does not have at least 80% of RC on building $42,000, larger of $49,000 and $51,800. Cant pay
more than policy limit
4.3 b) Does not have at least 80% of RC on building $13,300; larger of $12,333 and $13,300
Applies to all answers: Cant collect replacement cost unless actually repairs or replaces.
ANSWERS
POLICY QUESTIONS
1.
2.
3.
4.
5.
6.
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