I am just learning about insurance terminologies. I need to know the above mentioned terminoligies
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Posted: Sat Nov 20, 2010 03:18 pm Post Subject:
PERIL is the immediate (or "proximate") cause of a loss. It is the thing you may be able to insure against. It differs from HAZARD, which is something that increases the likelihood of a loss occurring or the severity of the loss when it occurs.
EXAMPLE: Fire is always a "peril" not a hazard. Rain is never a peril, but it is often a hazard. Driving too fast is a hazard. If you drive too fast in the rain, you may not be able to stop quickly enough to avoid a collision, which is a peril. The collision could cause the car to burst into flames, and the fire could destroy the car, even though the collision might only have caused repairable damage. The car would not normally burst into flames on its own, so the fire, in this case, is known as a "contingent" event or loss that resulted from the collision, the proximate cause of the loss. The total loss of the vehicle would be covered.
Rain did not cause the accident, nor did it cause the fire. Driving too fast did not cause the accident, nor did it cause the fire. But these were both contributing factors -- hazards, in combination, which increased the likelihood of the loss, and resulted in a more severe loss.
The accident was caused by the inability to stop as the result of decreased friction between the tires and the road, and the lack of safe following distance. Driving more slowly and giving yourself more space in which to stop might have avoided the collision and fire.
Having said that rain is never a peril, water damage, on the other hand, can be a covered peril.
EXAMPLE: You are cooking some french fries on your gas range in the kitchen. The flame of the burner is a fire. But it is also "controlled" -- by itself in this circumstance, it will never cause a loss. It is still a peril, not a hazard.
But the oil in which you are cooking the french fries is flammable -- a hazard. If you overheat the oil, it can ignite when the oil vapors come in contact with the open flame beneath the pot. The oil ignites and you panic, throwing a bowl of water onto the fire. Unfortunately, not enough water to extinguish the flames. And, the water is heavier than the oil and it falls into the overheated oil.
The heat of the oil (flash point about 475 degrees) instantly vaporizes the water (steam point 213 degrees) on contact but this reaction takes place within the oil and the pressure of this sudden release of water vapor expels burning oil all over the stove, the floor, and the walls. The resulting larger fire burns through the ceiling into the attic space before the fire department arrives with their much larger volume of water to cool and extinguish the flames. They save the house and most of the contents outside the kitchen, but not before a couple of firefighters cut a hole in your roof to put out the fire in the attic.
Next thing you know, the big winter storm they've been talking about on the news all day lets loose, dropping 1" of rain in the next few hours. The rain enters through the man-made hole in the roof causing damage to other portions of the home and contents not affected by the fire.
This additional damage caused by the rain ("water damage") will be covered as a "contingent" event. It would not be covered under ordinary circumstances -- no hole in the roof, no damage. The hole in the roof was also a "contingent" event -- the direct result of the fire and the response of the fire department. You have a responsibility to prevent additional loss, but in this case, because of the sequence of events, you were unable to make even a "reasonable" attempt to protect your property.
Insurance will cover the property damage caused directly by the fire -- the peril which was the proximate cause of the loss. And it will also cover the human-induced damage caused by the fire department (hole in the roof, water damage to contents while fighting the fire), and the additional damage resulting from the intrusion of rainwater -- both of these types of damage caused losses that would not normally be covered, except that they are covered, because they are known as "contingent losses due to a loss resulting from a covered peril".
Posted: Sat Nov 20, 2010 03:18 pm Post Subject:
PERIL is the immediate (or "proximate") cause of a loss. It is the thing you may be able to insure against. It differs from HAZARD, which is something that increases the likelihood of a loss occurring or the severity of the loss when it occurs.
EXAMPLE: Fire is always a "peril" not a hazard. Rain is never a peril, but it is often a hazard. Driving too fast is a hazard. If you drive too fast in the rain, you may not be able to stop quickly enough to avoid a collision, which is a peril. The collision could cause the car to burst into flames, and the fire could destroy the car, even though the collision might only have caused repairable damage. The car would not normally burst into flames on its own, so the fire, in this case, is known as a "contingent" event or loss that resulted from the collision, the proximate cause of the loss. The total loss of the vehicle would be covered.
Rain did not cause the accident, nor did it cause the fire. Driving too fast did not cause the accident, nor did it cause the fire. But these were both contributing factors -- hazards, in combination, which increased the likelihood of the loss, and resulted in a more severe loss.
The accident was caused by the inability to stop as the result of decreased friction between the tires and the road, and the lack of safe following distance. Driving more slowly and giving yourself more space in which to stop might have avoided the collision and fire.
Having said that rain is never a peril, water damage, on the other hand, can be a covered peril.
EXAMPLE: You are cooking some french fries on your gas range in the kitchen. The flame of the burner is a fire. But it is also "controlled" -- by itself in this circumstance, it will never cause a loss. It is still a peril, not a hazard.
But the oil in which you are cooking the french fries is flammable -- a hazard. If you overheat the oil, it can ignite when the oil vapors come in contact with the open flame beneath the pot. The oil ignites and you panic, throwing a bowl of water onto the fire. Unfortunately, not enough water to extinguish the flames. And, the water is heavier than the oil and it falls into the overheated oil.
The heat of the oil (flash point about 475 degrees) instantly vaporizes the water (steam point 213 degrees) on contact but this reaction takes place within the oil and the pressure of this sudden release of water vapor expels burning oil all over the stove, the floor, and the walls. The resulting larger fire burns through the ceiling into the attic space before the fire department arrives with their much larger volume of water to cool and extinguish the flames. They save the house and most of the contents outside the kitchen, but not before a couple of firefighters cut a hole in your roof to put out the fire in the attic.
Next thing you know, the big winter storm they've been talking about on the news all day lets loose, dropping 1" of rain in the next few hours. The rain enters through the man-made hole in the roof causing damage to other portions of the home and contents not affected by the fire.
This additional damage caused by the rain ("water damage") will be covered as a "contingent" event. It would not be covered under ordinary circumstances -- no hole in the roof, no damage. The hole in the roof was also a "contingent" event -- the direct result of the fire and the response of the fire department. You have a responsibility to prevent additional loss, but in this case, because of the sequence of events, you were unable to make even a "reasonable" attempt to protect your property.
Insurance will cover the property damage caused directly by the fire -- the peril which was the proximate cause of the loss. And it will also cover the human-induced damage caused by the fire department (hole in the roof, water damage to contents while fighting the fire), and the additional damage resulting from the intrusion of rainwater -- both of these types of damage caused losses that would not normally be covered, except that they are covered, because they are known as "contingent losses due to a loss resulting from a covered peril".
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