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Insurance Adjusting > 4/A - Commercial Property Insurance > Flashcards

4/A - Commercial Property Insurance Flashcards

1
Q

Overview of Commercial Property Insurance

A
  • Covers direct and indirect losses related to business property
  • Does not include farms and 1-4 family dwellings
  • Insures on an ACV basis
  • Replacement cost is available as an Endorsement if you follow coinsurance guidelines
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2
Q

The Commercial Property Policy

A

Four sections in a standard commercial insurance policy:

  1. Declarations Page
  2. Conditions
  3. Coverage Forms
  4. Cause of Loss Forms
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3
Q

Contents of the Dec Page

A

Part 1) The Declarations Page contains:

  • name and address of the insured
  • property covered
  • deductible
  • limits
  • term
  • expiration date
  • coverage forms
  • endorsements
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4
Q

Commercial Policy Conditions

A

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
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5
Q

Conditions Specific to Commercial Policies

A

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
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6
Q

Commercial Property Coverage Forms

A

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

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7
Q

Building & Personal Property Coverage Form

A

The basis of all Commercial Property Policies

  • Coverage A-Buildings and Structures
  • Coverage B-Business Personal Property
  • Coverage C-Personal Property of Others
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8
Q

Coverage A

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
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9
Q

Coverage B

A

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
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10
Q

Coverage C

A

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”
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11
Q

Exclusions

A
  • currency, bills, accounts, evidences of debt, securities, food stamps, and bullion
  • animals, unless owned by others and boarded by the poilcyholder
  • 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
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12
Q

Universal Exclusions

A

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
  • explosions of boilers, steamers, pipes and engines (available but requires endorsements)
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13
Q

Common Additional Coverages

A
  • Debris Removal
  • Pollution Clean-Up and Removal
  • Preservation of Property
  • Fire Department Service Charge
  • Increased Construction Costs
  • Electronic Data
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14
Q

Debris Removal

A
  • 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
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15
Q

Pollution Cleanup and Removal

A
  • Pays up to $10,000 for pollution damages caused by a covered peril
  • Insured must report the loss within 180 days
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16
Q

Preservation of Property (Removal Coverage)

A
  • 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
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17
Q

Fire Department Service Charge

A
  • Covers the cost of emergency services when insured is trying to protect covered property
  • Limit applies to each premises
  • No deductible
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18
Q

Increased Construction Costs

A
  • 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
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19
Q

Electronic Data

A
  • 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
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20
Q

Coverage Extensions

A

Include:

  • Only for policyholders who maintain the coinsurance requirement of 80% to the value
  • Not subject to policy limits
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21
Q

Newly Acquired Property Extension

A
  • 30 days of coverage

- $250,000 coverage for buildings and structures

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22
Q

Property Off-Premises

A
  • $10,000 for covered property that is temporarily located off the premises
  • Excludes Property off-premises if it’s being sold
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23
Q

Personal Effects and Property of Others

A
  • Up to $2,500 in coverage for damage or destruction of personal belongings
  • Loss must occur on the insured premises
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24
Q

Valuable Papers and Records

A
  • Up to $2,500 towards the recovery or replacement of valuable papers and computer records
  • Does not cover money and securities
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25
Q

Outdoor Property

A
  • 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, lighting, explosion, riot, civil commotion, and damage by aircraft
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26
Q

Non-Owned Trailers Extension

A
  • 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 trailers
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27
Q

Conditions

A

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
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28
Q

Valuation

A
  • 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
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29
Q

Optional Coverages

A
  • Agreed Value Coverage
  • Inflation Guard
  • Replacement Cost
  • Value Reporting
30
Q

Agreed Value Coverage Option

A

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
31
Q

Inflation Guard

A
  • 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
32
Q

Replacement Cost

A

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
33
Q

Value Reporting

A

For businesses whose property values fluctuate or who buy and set 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
34
Q

Other Coverage Forms in Commercial Property Policies

A
  • 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
35
Q

Business Income Coverage Form

A

a.k.a. Business Interruption Form: provides protection for loss of income due to a covered loss

36
Q

Business Income Coverage: Period of Restoration

A

Time frame within which Business Income Coverage indemnifies the policyholder for loss of income
- Begins exactly 72 hours after damage occurs
- Ends the date that either the damaged property is restored or that business resumes at a new location
What does it pay for?
- The loss of net income on a profit and loss statement
- Any continuing operating expenses incurred during the Period of Restoration:
- rent
- salaries
- payments to the bank
- utilities
- taxes
- administrative costs

37
Q

Profit & Loss

A

Profit and Loss Statement - determines indemnification for Net Income

Terms:

  • Total Revenue: sales & services provided
  • Cost of Goods Sold: materials and labor associated directly with sales and services
  • Operating Expenses: general and administrative
38
Q

Profit & Loss Statement

A

Equations:

  1. Total Revenues - Cost of Goods Sold = Gross Income
  2. Gross Income - Operating Expenses = Net Income from Operations
39
Q

Business Income Coverage Exclusion

A
  • Business Income Coverage excludes Cost of Goods Sold
  • This means any expenses that go into making or selling a product:
    • inventory
    • labor
    • material
    • supervision
40
Q

Extra Expense Coverage

A

Business Income Coverage with Extra Expense:
covers the costs of getting a business running again after a covered loss

Covered extra expenses must be:

  1. Necessary
  2. Incurred during the period of restoration
  3. A type of expense that would not have been incurred had there been no loss to the covered property
41
Q

Extra Expense: 2 Categories

A

“True extra expenses”: necessary to avoid or minimize the halt in business operations
These can include:
- Subcontracting work
- Relocation expenses
- Rental of generators to run power at a damaged property
- Leasing and rentals to continue a disrupted business

“Expediting expenses”: the cost of repairing or replacing property in order to get the business going again

Note: expediting expenses are only covered to the extent that they reduce the amount of income lost

42
Q

Extra Expense Coverage, Locations

A

Extra Expense Coverage applies at either:
- The damaged property
Example: the factory is partially damaged and needs extra machinery to keep it running

  • A new property until damaged property is repaired
    Example: the factory is nearly destroyed, so a new building will be leased for operations
43
Q

Period of Restoration

A

Extra Expense - Period of Restoration:

  • Begins immediately after damage occurs (no 72 hour waiting period before coverage begins)
  • Ends when damaged property is repaired or replaced

The Period of Restoration: never subject to the policy period

44
Q

Business Income Coverage & Extra Expense Coverage

A
  1. Provides coverage for:
    - Loss of business income
    - Costs associated with getting the business running again
  2. Business Income Coverage without Extra Expenses - provides coverage for:
    - Loss of business income
    - “Expenses to reduce loss” - but only to the extent that the extra expenses reduce the original loss
45
Q

Extra Expense Coverage Only

A

Extra Expense Coverage without Business Income:
for companies that must continue business regardless of loss of income, such as:
- banks
- hospitals
- newspapers
- utilities

The Period of Restoration: no 72 hour waiting period, coverage begins immediately after damage, and continues until business is back up and running

“Limit of Loss Payment”: limits the total amount of recovery available to the insured based on 30-day increments

46
Q

Limits of Loss Payment

A
  • Expressed in percentages
  • Stated on the dec page
  • Based on the length of the Period of Restoration (in 30-day increments)
47
Q

Order of Civil Authority

A
  • Provides coverage when a civil authority restricts a business from being occupied due to a pending covered loss
  • Coverage lasts for up to 4 consecutive weeks
  • 72-hour window before benefits apply
48
Q

Extended Business Income & Newly Acquired Properties

A

Extended Business Income - Extends coverage for up to 60 days if the business is still losing income after the Period of Restoration expires.

49
Q

Coinsurance Method

A

Businesses have the option of establishing a level of coinsurance at 50%, 60%, 70%, 80%, 90%, 100%, or even 125%.

50
Q

Maximum Period of Indemnity

A

Takes away coinsurance requirement and the Period of Restoration last up to 120 days after the 72-hr window. If the policy maxes out, coverage will end before 120 days.

51
Q

Monthly Limit of Indemnity

A

Removes coinsurance requirement, but the policyholder parcels his stated limit of into a fractional maximum available each month (i.e. 1/3, 1/4, or 1/6)

52
Q

Agreed Value

A

Waives the coinsurance requirement, Company submits two reports:

  1. One report provides financial data from the previous year.
  2. Another report provides financial data for the upcoming year.

All losses are fully indemnified (minus deductible).

53
Q

Contingent Business Interruption Form

A

Covers a business for loss of income caused by damages to a key supplier or key customer.

  • Indemnifies the dependent company, not the key supplier
  • Has nothing to do with the supplier’s insurance policy
54
Q

Builders Risk Coverage Form

A

Provides protection for buildings, materials, and equipment under construction or renovation.
- 100% Coinsurance is required on the building

Not every form will list the same criteria for policy termination, but here are some you will typically see:

  • The policy expires
  • The building is accepted by the purchaser
  • The policyholder no longer has an insurable interest in the property
  • 90 days after construction is completed
  • 60 days after the building becomes occupied
  • The property is abandoned with no intention to complete
  • The building is put into its intended use
55
Q

Building Risk Extensions

A

Can include:

  • Debris removal
  • Fire department service charges
  • Pollutant cleanup and removal
  • Preservation of property
  • Scaffolding, construction forms, and temporary structures (only while property is on the insured premises)
  • Property at other locations ($10,000 limit)
  • Property in transit ($25,000 limit)
  • Sewage Backup ($5,000)
56
Q

Condominium Coverage Form

A

Provides insurance coverage for:

  • Condo buildings and complexes
  • The common area of the condo building
  • Infrastructure essential to function of the condo as a whole (piping, ductwork, electrical and wiring units, etc)
  • Business personal property used by the condo as a whole

It will NOT cover:

  • Upgrades within individual condo units
  • Business or personal property of individual commercial unit owners
57
Q

Leasehold Interest Coverage Form

A

“Favorable Lease”: one that is acquired below market value

Leasehold Interest Coverage Form: pays for the difference in cost between the old rental and the new

Takes into account:

  • The policyholder’s rent before the damage
  • The amount of time that was left on the policyholder’s lease when the damage occurred
  • The cost to rent a new place that is the same size and quality as the old
58
Q

Legal Liability Coverage Form

A

Provides coverage for:

  • Property damage to the personal property of others caused by negligence
  • Expenses for legal defense when claims are brought against the business
  • Theft of another’s personal property

Bailee: businesses that hold the property of others for the purpose of storage, repair, or servicing, such as:

  • Dry cleaners
  • Computer repair shops
  • Businesses that refurbish furniture

No deductible
No coinsurance

59
Q

Differences in Conditions Form

A

(“all-risks”): designed to bridge coverage gaps left by typical policies

  • Only covers perils that could lead to catastrophic losses
  • Excludes risks that are already covered under a different policy
  • Does not require Coinsurance
  • Usually requires a very large Deductible
  • Can be purchased as a separate policy or added as an endorsement to an existing policy
60
Q

Earthquake and Volcanic Eruption Coverage Form

A

Protection against damages caused by earth movements and volcanic eruption.

  • Percentage deductible at limit of liability
  • “Single occurrence” = damages that occur within a single 168-hr period (1 week)
  • Excludes: tidal waves and tsunamis
  • May be used to purchase insurance for Earthquake-Sprinkler Leakage Only
61
Q

Ordinance or Law Endorsement

A

Indemnifies a business for the additional costs associated with repairing or rebuilding a facility in order to comply with current building codes.

62
Q

Peak Season Endorsement

A

Temporarily increases coverage limits at specified intervals over the course of the year in order to account for increased inventories

63
Q

Protective Safeguard

A

Offers lower premiums if the policyholder uses certain safety precautions, such as:

  • Automatic sprinkler systems
  • Fire alarms
  • Security services or watch guards
  • Burglar alarms
  • Video surveillance
  • Protective storage of valuable papers and records

Coverage suspended if the insured does not notify the insurer of known impairments or problems with the safety systems.

64
Q

Spoilage Endorsement

A

Adds perishable stock to covered property, so if it spoils, the insurer will purchase the stock based on the following formula:

Indemnification = Market selling price - Any discounts the insured would expect

Note: this is not Income Loss coverage; only include the amount spent on the merchandise, not the amount the insured expected to make by selling it

65
Q

Scheduled and Unscheduled Building Property Tenant’s Policy

A

Scheduled Building Property Tenant’s Policy: lets a tenant add coverage for specifically scheduled items of landlord-owned building property

Unscheduled Building Property Tenant’s Policy: lets a tenant add blanket coverage for certain landlord-owned building property (not including building glass)

66
Q

Ordinance or Law Coverage for Tenant’s Interest in Improvements and Betterments

A

Provides Ordinance and Law coverage for any additions a tenant has made to a leased commercial building

  • Coverage A: covers loss to undamaged portions of the tenant’s additions
  • Coverage B: covers demolition costs, and
  • Coverage C: covers the increased cost of construction
67
Q

Causes of Loss Forms

A
  • Required as an attachment to the Coverage Form
  • States exactly what perils are insured under the coverage, and which are excluded

Three Categories of Causes of Loss Forms:

  1. Basic Form
  2. Broad Form
  3. Special Form
68
Q

Commercial Property Universal Exclusions

A
  • Loss resulting from enforcement of building ordinances, which regulate construction, use, or repair of property
  • Earthquakes or land movement
  • Seizure or destruction by government 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)
69
Q

Basic Form

A

Named peril policy that covers:

  • fire
  • lightning
  • explosions, not including ruptures caused by high pressure devices or boilers
  • windstorm and hail damage
  • smoke damage
  • aircraft or vehicles not owned by the insured
  • riot and civil commotion, including damage caused by striking employees
  • vandalism and malicious mischief (excluding theft and glass breakage)
  • sprinkler leakage
  • volcanic events and shock waves
  • sinkhole collapse
70
Q

Broad Form

A

Named peril policy covering all the perils listed under the Basic Form with the addition of the following:

  • Breakage of glass
  • Falling objects
  • Weight of ice, snow and sleet
  • Water damage from sources other than sprinkler leakage, such as damage resulting from a water or steam system or appliance
  • Additional coverage for collapse, if caused by:
  • any covered perils listed in the policy
  • hidden decay, hidden insect or vermin damage
  • weight of people, personal property, or rain collecting on a rooftop
  • use of defective materials or construction methods, but only if occurring during a period of construction or remodeling
71
Q

Special Form

A

Open peril policy that covers all known perils except for those listed in the exclusions sections.
Common exclusions to the Special Form:
- Wear and tear, rust and decay
- Smog damage or damage caused by the release of pollutants
- Damage, other than collapse, caused by vermin infestation
- Settling or cracking buildings
- Explosion of steam boilers
- Damages that result from off-premises utility outage
- Dishonesty on the part of the insured or employees
- Losses to property left in the open rain, snow or ice conditions
- Governmental intervention
- Errors or faults in planning, zoning, design, workmanship or materials
- Voluntary surrender of property
- Missing property

Insurance Adjusting (46 decks)

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