Property insurance principles are covered in the national guide. California codifies many of them in the Insurance Code. Its Property exam tests the code sections on insurable interest, proximate cause, valuation, the standard fire policy, and residential cancellation.

Insurable interest and covered events

• An insurable interest in property must exist both when the insurance takes effect and when the loss occurs, but not necessarily in between (CIC 286). For life and health, it need exist only at inception.
• A mere contingent or expectant interest, not based on an actual right or valid contract, is not insurable (CIC 283).
• Any contingent or unknown event that may damage someone with an insurable interest may be insured against (CIC 250).

Causation and intent

• Efficient proximate cause: the insurer is liable when an insured peril is the proximate cause of the loss, but not when it's only a remote cause (CIC 530).
• Earthquake exception. Without earthquake coverage, a loss where earthquake is a proximate cause isn't covered (CIC 10088). Fire following an earthquake still is (10088.5).
• The insurer isn't liable for a loss caused by the insured's willful act, but the insured's negligence doesn't excuse it (CIC 533).

Valuation

• Actual cash value on a structure is the repair or replacement cost less fair depreciation, applied only to components normally repaired or replaced during their useful life (CIC 2051).
• Under a valued policy, a total loss pays the whole amount insured, absent fraud or an unapproved increase in risk (CIC 2054).
• Replacement cost generally requires actual repair or replacement. The insured has at least 12 months to collect it, or 36 months after a state-of-emergency loss (CIC 2051.5).
• Guaranteed replacement cost coverage pays the full cost to rebuild, even above the dwelling limit.

The standard fire policy (CIC 2070, 2071)

Fire policies must be no less favorable than the statutory form. It covers fire and lightning, and includes these conditions:

• appraisal for disputes over the amount of loss
• proof of loss within 60 days
• suit within 12 months (24 for emergency losses)
• pro rata return of premium when the insurer cancels; customary short rates when the insured cancels

Residential cancellation and nonrenewal

• After 60 days, a residential policy may be cancelled only for nonpayment, a hazard-increasing crime, fraud, gross negligence, or physical changes making the property uninsurable (CIC 676).
• Nonrenewal requires 75 days' notice (CIC 678(c)).
• Details are in the Homeowners guide.

Policy contents

Every policy must state the parties, the property insured, the insured's interest if not the sole owner, the risks insured, the policy period, and the premium (CIC 381). A financial strength rating is not required.

Common exam traps

• Property insurable interest must exist at inception and at the time of loss.
• California follows the efficient proximate cause rule, with a statutory exception for earthquake.
• A willful act by the insured isn't covered; negligence is.
• Residential nonrenewal notice is 75 days.