4-A COMMERCIAL PROPERTY Flashcards
Four sections in a standard commercial insurance policy:
- Declarations Page
- Conditions
- Coverage Forms
- Causes of Loss Forms
Part 1) The Declarations Page contains:
● Name and address of the insured ● Property covered ● Deductible ● Limits ● Term ● Expiration date ● Coverage forms ● Endorsements
Part 2) Conditions Pages of a policy include:
● Cancellation / Non Renewal ● Vacancy ● Changes in Policy ● Concealment, Misrepresentation, and Fraud ● Control of Property ● Other Insurance ● Legal Action Against an Insurer ● Subrogation ● Liberalization ● No Benefit to Bailee
Cancellation/Non-Renewal:
● Insurer should inform the policyholder at least 45 days before cancellation
● Penalty for not giving 45 days notice: insurer must offer 30 more days of
coverage at same rates
Vacancy definition
● Building is closed for 60 days
● Less than 31% of the building’s available floor space is occupied for 60 days
Legal Action Against Insurer
● Insured must comply with all policy obligations.
● Insured has 2 years from the date of loss to file a lawsuit.
Liberalization
● All current insureds will benefit from increases in coverage that do not raise the premium.
● Applies to changes that go into effect during policy period or up to 45 days before policy start date.
Part 3) Coverage Forms
Types of Commercial Property Coverage Forms Available:
● Building and Personal Property Coverage Form
● Business Income Coverage Form
● Contingent Business Interruption Coverage Form
● Builders Risk Coverage Form
● Condominium Coverage Form
● Leasehold Interest Coverage Form
● Legal Liability Coverage Form
● Differences in Conditions Coverage Form
● Other Coverage Forms and Popular Endorsements
The basis of all Commercial Property Policies
● Coverage A - Buildings and Structures
● Coverage B - Business Personal Property
● Coverage C - Personal Property of Others
Coverage A
Buildings and Structures: Covers building and structures listed on the “Dec Page” as well as:
● Additions
● Additions under construction
● Any construction equipment within 100 ft of insured property
● Machinery & equipment inside the building
● Maintenance property
Coverage B
Business Personal Property: the property of the business that is not affixed to the structure, such as:
● Business owned personal property used for business purposes
● Labor, services, and materials furnished on the personal property of others
● Inventory or products held for sale
● Leased business personal property
● Property within 100 ft of the business premises
Coverage C
Personal Property of Others: applies to property owned by another party when it is in the care of the insured business.
● Commonly $2,500 of coverage
● Only applies to the locations listed on the “Dec Page”
Exclusions
● Currency, bills, accounts, evidences of debt, securities, food stamps, and bullion
● Animals, unless owned by others and boarded by the policyholder
● Automobiles held for sale
● Bridges, roads, patios, walkways or other paved surfaces
● Contraband or property being illegally transported or traded
● The costs associated with excavations, filling, or grading
● Foundations of buildings or structures, machinery or boilers if such foundations
are below ground or lower than the lowest basement floor.
● Outdoor radio and TV antennas or masts and associated wiring
● Underground pipes or drains
● Fences, wiring and masts
● Outdoor signs not attached to buildings
● Trees, shrubs, plants
Universal Exclusions - types of loss or damage not covered under the policy.
● A loss resulting from enforcement of building ordinances which regulate
construction, use or repair of property
● Earthquakes or land movement
● Seizure or destruction by governmental action or authority
● Nuclear reaction, radiation and associated radioactive contamination hazards
● Loss resulting from utility service failures
● War
● Flood, or the rising of water and/ or mudslides, and the backup of water
through sewage pipes or drains
● Damages to wiring or devices caused by artificially generated electrical current
● Explosion of boilers, steamers, pipes and engines (available but requires
endorsements)
Common Additional Coverages
● Debris Removal ● Pollution Clean-Up and Removal ● Preservation of Property ● Fire Department Service Charge ● Increased Construction Costs ● Electronic Data
Debris Removal
● Pays for removal of debris resulting from a covered peril
● Limit: 25% of total claim
● Additional $25,000 of coverage is available if:
○ property damage and debris removal together exceed policy limit
○ debris removal expense exceeds its 25% limit
Example
Susie’s Toy Factory has a $100,000 policy. The factory suffers $60,000 of damage in a fire. Debris Removal could pay up to $15,000 (25% of $60,000), plus an additional $25,000, if needed.
But, if the property damages are so high that the 25% debris removal coverage would exceed Susie’s $100,000 policy limit, Susie would only be allowed up to $25,000 in additional insurance. Her total claim would be limited to $125,000.
Pollution Cleanup and Removal
● Pays up to $10,000 for pollution damages caused by a covered peril.
● Insured must report the loss within 180 days
Example
An insured gas station suffers vandalism, a covered peril under the gas station’s policy. The vandals spread petroleum products all over the grass around the station, and it costs the owner $7,000 to clean it all up. Pollution Cleanup and Removal coverage would pay for this cleanup, leaving $3,000 of available coverage for the remainder of the policy period.
Preservation of Property (Removal Coverage):
● Applies when the insured removes property to protect it from a covered peril
● Property is covered for any cause of loss during removal and storage at
another location
● Coverage lasts up to 30 days.
Fire Department Service Charge:
● Covers the cost of emergency services when insured is trying to protect
covered property
● Limit applies to each premises
● No deductible
Increased Construction Costs
● Applies when the insured has to pay extra in order to conform to new building ordinances when repairing or replacing a covered loss
● Limit is the smaller of two amounts:
● $10,000
● 5% of Coverage A limit
● Only applies to building insured on RC basis
Electronic Data
● Covers costs of replacing or restoring electronic data lost or damaged by a covered loss, such as a hacker planting a virus in the company’s system.
● Up to $2,500 per year, no limit to the number of occurrences
● Limit does NOT apply to electronic data used to operate the building’s:
○ elevator
○ lighting
○ heating
○ ventilation
○ air conditioning
○ security system
Coverage Extensions
Include:
● Only for policyholders who maintain the coinsurance requirement of 80% to the
value
● Not subject to policy limits
Newly Acquired Property extension:
● 30 days of coverage
● $250,000 coverage for buildings and structures
Property Off-Premises extension:
● $10,000 for covered property that is temporarily located off the premises
● Excludes Property off-premises if it’s being sold
Personal Effects and Property of Others:
● Up to $2,500 in coverage for damage or destruction of personal belongings
● Loss must occur on the insured premises
Valuable Papers and Records:
● Up to $2,500 towards the recovery or replacement of valuable papers and
computer records
● Does not cover money and securities
Outdoor Property
● Covers damage to television and radio antennae, detached signs, and trees, plants, or shrubs
● Limit: $1,000
● Limit for trees, plants, and shrubs: $250 per unit
● Covered perils: fire, lightning, explosion, riot, civil commotion, and damage by
aircraft
Non-Owned Detached Trailers extension:
● Up to $5,000 for any non-owned trails being used on the premises
● Only if the trailer is not attached to a vehicle
● Only if insured is contractually responsible for damages to the non-owned trails
Each Coverage Form has its own set of Conditions.
Business and Personal Property Form Conditions:
● Abandonment ● Appraisal ● Duties in the Event of a Loss ● Loss Payment ● Recovered Property ● Vacancy ● Valuation ● Coinsurance ● Mortgagee Clause
Valuation
● Based on coinsurance:
○ If 80% Coinsurance requirement is met: pays RC up to $2,500
○ If 80% Coinsurance requirement is not met: pays ACV
● Stock (sold but not delivered): indemnified at net selling price
● Glass (with safety glaze): valued at replacement cost
Optional Coverages
● Agreed Value Coverage
● Inflation Guard
● Replacement Cost
● Value Reporting
Agreed Value Coverage Option:
policyholder and insurer agree on a specific value for the property before the policy is written.
● Coinsurance requirements are waived
● Often applies to rare property or high-value collector items
Example
A novelty store may place an antique statue near its entrance to attract customers. While the actual cash value of the antique is highly speculative, the novelty store may decide to insure it on an agreed value basis to protect their financial interest in it. If the statue is destroyed, the insurer will pay the agreed value listed in the policy.
Inflation Guard
● Optional coverage
● Policyholder can increase the limit of insurance by a specified percentage
periodically throughout the policy term
● Keeps the amount of coverage consistent with rising prices
Example
The policyholder may choose to implement an inflation guard that increases the policy limits by 3% at each annual renewal.
Changes the loss settlement terms from ACV to Replacement Cost
● Requires Coinsurance minimum
● Does not apply to property of others on the insured premises
● When covered damages occur:
○ Pays ACV up front
○ Pays the remaining difference between ACV and RC once property has
been repaired or replaced
Value Reporting - for businesses whose property values fluctuate or who buy and sell multiple properties throughout the year
● Insured purchases a limit of insurance to cover the highest property value expected that year.
● Every month, insured submits a “value report” of the actual property value.
● If the insured fails to submit a report, the insurer uses the numbers from the
previous month.
● There is a percentage penalty for under-reporting the value of a property.
Other Coverage Forms in Commercial Property Policies:
● Business Income Coverage Form
● Contingent Business Interruption Coverage Form
● Builders Risk Coverage Form
● Condominium Coverage Form
● Leasehold Interest Coverage Form
● Legal Liability Coverage Form
● Differences in Conditions Coverage Form
● Other Coverage Forms and Popular Endorsements
