1.2 - The Evolution of Property Insurance Flashcards
Fire Insurance
Coverage for losses from fire, lightning and limited explosion and also the resultant damage caused by smoke and water. Usually supplemented by extended coverage insurance
-provides coverage for LoD arising from the explosion of natural, coal, or manufactured gas. Many other kinds of explosions are beyond the scope of basic fire ins. policy
Lightning Damage
LoD caused by lightning is covered, but the basic fire policy does not cover damage to or destruction of electrical devices or appliances caused by lightning or other electrical current unless fire originates outside the object. If fire does occur, only the resultant LoD caused by fire is covered.
Ex. - lightning strikes a building that causes a surge that damages the building wiring and some appliances, there is no coverage for the LoD to the electrical devices and appliances. But if lightning strikes the building and causes damage to the electrical wiring and a fire breaks out, the basic fire policy will cover the resultant fire damage
What is an Exclusion
Risks, perils, or properties defined in the policy as not covered
-remove certain losses from the policy’s coverage
-may relate to specific circumstances or causes of an insured peril or may relate to specific types of property
-may be temporary or permanent
-may exclude only a part of the coverage or render the entire policy inoperative
-never expands coverage, always restricts it
-“limited exclusion” may show that there is some coverage in other circumstances
2 groups of exclusions:
- Exclusions for Legislative Considerations
-Electrical Devices exclusion - no coverage for LoD to electrical devices or appliances if the damage is caused by lightning or other electrical currents
-Application of heat exclusion - no coverage for LoD to items of property that occurs as a result of heat being applied to the item, however resultant fire damage to other property is covered. Intent of this exclusion is to exclude loss arising from an insured’s failure to properly protect the items of property being worked on
-War risk Exclusion - no coverage for LoD arising from foreign or civil war, riot, or other civil disturbance
-Nuclear incident exclusion - LoD caused by a nuclear incident is excluded under basic fire policy. Coverage is however provided fir resultant loss caused directly by fire, lightning, or explosion of natural, coal or manufactured gas. This exclusion also rules out coverage for LoD by contamination by radioactive material
2 groups of exclusions:
- Exclusions for UW and rating considerations
-Excluded Property: Money, books of account, securities for money, evidences of debt or title; automobiles, tractors, and other motor vehicles; aircraft; or watercraft. This exclusion identifies types of movable property that may present unusual hazards, require specialized ins., or raise UW issues. Encourages insured to seek specialized ins for such property - benefits both insured and insurer
-Alterations and additions Exclusion - LoD to a building or its conents that occurs during and as a result of alterations or additions to the building is excluded unless the insured has secured written permission from the insurer to undertake the alterations and additions (normal repairs, such as painting, repairing damaged drywall, or repairing a furnace, are not subject to this exclusion
-Vacancy, unoccupancy, or disuse exclusion - LoD occurs where the insured knows the building has been vacant, unoccupied, or shut down doe more than 30 consecutive days is excluded
-Volatile Substance Exclusion - LoD that occurs when the insured knows there is more than a gallon of gasoline, benzene, naphtha, or other substance of an equal or lower flashpoint in the insured building or in building where property is kept is excluded
-Bylaws Exclusion - no coverage for increased costs of repair or replacement arising from the enforcement or application of a bylaw, regulation, ordinance, or law that regulates the zoning or the demolition, repair, or construction of buildings (ex. sprinkler system, wheelchair accessible ramp)
Flashpoint
the lowest temperature at which a liquid gives off sufficient vapours to form an ignitable mixture with the air
Statutory conditions
Special Prescribed and standardized conditions that the provincial and Territorial insurance acts require to be included in insurance policies
-bind the insured and insurer, establishing certain right and obligations for both parties
-Insurance Act requires that the statutory conditions be identified and printed in every fire insurance policy. If insurer fails to do so, it may incur a penalty, stat. conditions will still apply
-IA stats that no variation or omission of or addition to any Stat. condition is binding on the insured. Insured and Insurer may negotiate changes or omissions, but a change that adversely affects the insured may be disputed later, and courts may apply the stat. conditions as they appear in the relevant insurance act
-Stat cond. only govern fire insurance but usual insurers extend to the other perils covered under a property policy
Quebec Statutory conditions
In Quebec, the “civil Code of Quebec” does not require that its articles be inserted in the fire insurance contract. There is no equivalent in Quebec of the stat conditions required in the common law provinces and territories
2 Extensions of coverage
- Removal of insured property
extends any remaining insurance coverage to insured property removed from insured locations to prevent further damage. The extension applied for seven days from the date that removal of the property begins or until the policy expires, whichever occurs first. Coverage for property at temporary locations ends after seven days or when the policy expires (whichever happens first), unless the insured and insurer have agreed otherwise
2 Extensions of Coverage
- Debris Removal
in cases of loss insured under basic fire policy, debris may be left behind, and this debris must be removed, especially in cases where the property is to be rebuilt or repaired. This extension includes the expense of this removal in the amount of insurance chosen by the insured. the amount of the extension is typically calculated as 5 % of the amount of insurance. But the extension will not increase the amount of insurance, which covers both insured loss and debris removal expense.
Basic Fire Policy includes:
- Named Perils - fire, lightning, explosion of natural, coal or manufactured gas
- Exclusions - Electrical devices, application of heat, war risks, nuclear incident, excluded property, alterations and additions, vacancy, unoccupancy or disuse, Volatile substances, bylaws
- Extensions - Removal of insured property, Debris removal
Extended Coverage insurance
An endorsement that enlarges the coverage afforded by the primary policy. Coverages such as windstorm, hail, smoke, and riot are extended coverages on a fire policy
Extended Coverage perils include
-Explosion (beyond the coverage in the basic fire policy)
-Impact by aircraft, spacecraft, or land vehicle
-Riot, vandalism, or malicious acts
-smoke
-Leakage from fire-protective equipment
-windstorm or hail
>Creates “Fire and extended coverage policy”
>coverage under this policy applied to LoD to insured property when the cause of loss was due to one of the named perils
>does not add to the amount of insurance or the property insurance, expands the scope of coverage
>higher premium for the additional perils covered, more losses covered under the policy
>terms of basic fire policy apply to all perils covered in the policy. But some additional perils may require additional terms. Insurer to include provisions such as limitations and exclusions, when added to the policy, apply to specific perils rather than to the policy as a whole
Other additional perils
Some rate individually for additional premium charge, some grouped together and determined additional premium for the group or groups of perils
Included but not limited to the following:
-Falling Object
-Glass breakage
-water damage
Insurance Act requires stat conditions be printed in property policies (except QC), but insurers free to have considerable freedom in the terms and conditions they include in their policies wordings, provided that those terms and conditions are clear and comply with the IA or Civil Code
Multi peril policies
insurer often combine the policy forms (ex, casualty peril theft, loss in transit inland marine peril) covering various classes of business in package policies that are referred to as multi-peril policies
Combining coverage in one package is effcient for insurers and insureds alike
