5 - Pecuniary insurance Flashcards
What is pecuniary insurance concerned with
Intangibles such as income, revenue or value
What is the basic purpose of legal expenses insurance
The basic purpose of legal expenses insurance is to provide indemnity for costs arising out of the need to seek legal advice or to pursue or defend a civil action.
What are the two standard policy covers
- Group legal benefit policies
2. Commercial legal protection policies
Under group legal benefit policies what is employment cover
- Defence of any claim brought against a member in the course of their employment
- Defence and compensation awards resulting from specified legislation, such as Equality Act 2010
- Costs of claiming for compensation arising out of member’s employment eg wrongful dismissal, racial or sexual discrimination arising out of employment
Under group legal benefit policies what are the 4 sections of cover
- Employment cover
- Personal cover
- Motor cover
- Conveyancing cover
What are commercial legal protection policies
Designed to cover firms or companies in their capacity as employers, manufacturers, property owners etc, where their business activities may expose them to litigation.
What are the 5 main sections of commercial legal protection policies
- Employment cover- defending an action by an employee against the firm
- Criminal prosecution defence cover- defending an action brought against the company usually under Health and Safety at Work legislation
- Property disputes cover
- Motor cover
- Patents, registered designs, copyright and trademarks cover
What are the 4 optional extensions for commercial legal protection policies
- Defending libel and slander charges
- Involvement in public enquiries
- Investigations by professional bodies
- Taxation proceedings
What are the limitations for legal expenses cover
No cover where legal action is pursued against advice
Slapdash Sportswear employs 50 people at their factory in London. A member of staff is seriously injured when using a faulty cutting machine and Slapdash is found liable under the Health and Safety at Work Act.
For what can Slapdash claim under their Reliable Accident commercial legal protection policy?
A)The cost of defending the action only
B) The cost of the fine only
C) Both the cost of defending the action and the cost of the fine
A) The cost of defending the action only
They can recover the costs of defending the action. However, insurance cannot compensate someone for the consequences of an illegal act. To do so would be against the public interest.
What are the basic features of BI
- the monetary amount that needs to be insured and
- the time the interruption will affect the business
What is the turnover in relation to BI
Turnover is the total income arising from the activities of the business
How is the turnover broken down in regards to BI
Costs are divided between those that
- vary in direct proportion of the turnover (eg raw materials) and
- those that not vary in this way (eg rent)
Slapdash Sportswear is confident that it can fully recover from an interruption of business within 12 months and chooses a maximum indemnity period of this duration.
Would you suggest that its BI policy sum insured should be based on?
A) Last year’s reported gross profit
B) This year’s anticipated gross profit
C) Next year’s predicted gross profit
C) Next year’s predicted gross profit
This may well be the profit that is affected by an interruption, so if the business is growing it is the safest option.
If a fire or other peril badly damages the business on the last day of the current year, it is the next year’s profits that will be affected. An allowance therefore needs to be made for future business growth when fixing the BI sum insured.
What two items may result in a loss to the insured under BI
Net profit and fixed charges
What terms do insureds use for the addition of net profit and standing charges
‘Gross profit’
What is the ‘difference basis of cover’ under BI
Works by deducting the uninsured working expenses (the variable charges) from the turnover.
What are the two basis of fixing sums insured under business interruption
1- taking the projected turnover for the forthcoming years and assuming a worst case scenario
2- declaration linked- declare figures for the forthcoming year then a one third uplift is automatically taken into account
What is increase cost of working cover
Where certain expenses will increase following loss or damage (eg, rent for new premises, more staff employed, advertising, etc)
What is a material damage warranty
A policy covering the physical damage must be in place for BI to be covered
Why does material damage warranties not always apply to engineering business interruption
Insurer knows that there are fund for completing the rebuild
Insurer will obtain the benefit of the warranties that may apply to the material damage cover
What are the three most common business interruption policies
Fire and special perils
All risks
Engineering
What are the standard perils for a business interruption policy
Same as covered under a material damage policy - extended to include:
The explosion of ANY boilers on the premises
What are the special perils for a business interruption policy
Relating to engineering cover:
Explosion and collapse of steam pipes
Explosion of vessels
Collapse of boilers
Overheating of tubes
Overheating of boilers
What are the extensions to an all risks business interruption policy
- Specified suppliers
- Unspecified suppliers
- Specified customers
- Transit
- Prevention of access
- Public utilities
- Notifiable disease, vermin, defective sanitary arrangements
What are the two perils covered under an engineering BI Policy
Failure of the public supply of gas, electricity etc
Sudden and unforeseen damage from an accidental cause
What 4 things are excluded on an engineering BI policy
Perils covered by the standard fire and special perils policy
General market exclusions (war etc)
A scheme which rations supplies
Deliberate act of a supply authority
What, in one sentence, is the basic purpose of legal expenses insurance?
Legal expenses insurance provides indemnity for costs arising out of the need to seek legal advice or to pursue or defend a civil action
What is the purpose of business interruption insurance?
Business interruption insurance covers the actual or potential loss of earnings (‘gross profit’) and additional expenses incurred as a result of material loss
In what way do the standard perils covered by the business interruption policy differ from the standard perils in the material damage policy?
The business interruption policy cover explosion of both domestic and non-domestic boilers, whereas the material damage policy covers explosion of domestic boilers only
Under a typical legal expenses policy, what limit of cover, if any, usually applies within the period of cover?
A) cover is usually unlimited
B) overall cover is usually limited but there is not further limit per claim
C) overall cover is usually unlimited but that is a limit per claim
D) overall cover is usually limited and there is also a limit per claim
C
Overall cover is usually unlined, but there is a limit per claim
What is the effect of the material damage warranty in relation to the inclusion of non-domestic boilers or economisers as a policy extension to the standard business interruption policy?
Since the material damage warranty applies, it is essential, if the insured has non-domestic boilers or economisers, that they have material damage cover against explosion in respect of these items. Otherwise they will lose the benefit of the additional cover. This applies if cover is required for explosion damaged from neighbouring premises
Slapdash Sportswear suffers a fire which causes extensive damage to their factory. Which of the following costs will they still have to pay whilst the factory is being repaired?
Select all that apply.
A) The mortgage on the factory building
B) Packing and carriage
C) Staff costs
D) Raw material costs
A) The mortgage on the factory building and
C) Staff costs
Insurers also recognise the fact that certain expenses may increase following loss or damage and provide ‘Increase in Cost of Working’ (ICOW) cover to allow for this on the proviso that there is an equivalent saving in the claim that would otherwise be paid. This would cover, for example, the cost of paying staff overtime to maintain production.
Why do you suppose the material damage warranty is necessary in a BI policy?
To avoid the possibility of an otherwise extended indemnity period
The main reasons for inclusion of the warranty are: the insurer knows there are funds available for rebuilding which will limit the time of the interruption; and the BI insurer will obtain the benefit of any warranties that apply in the material damage policy (there are no equivalent warranties in a BI policy).
A fire at their main supplier’s premises means that Slapdash Sportswear have no stock and cannot open their retail shop.
They make a claim for the subsequent loss of profits under their fire and special perils BI policy.
Would you expect this claim to be covered under the BI policy?
It depends on the extent of their cover
The basic policy only covers an interruption due to damage at the insured’s own premises, but cover can be extended to include other premises such as those of suppliers on whom the insured is dependent for the operation of their business, or customers.
A case of salmonella poisoning at her restaurant means that Lisa is required to close her business for a while and she makes a claim for loss of profits during this period under her Reliable Accident BI policy.
How would you expect the claim to be handled?
It will be covered if Lisa has extended her BI policy to include this contingency
With some perils such as this, the material damage warranty is not applicable. If Lisa’s BI policy has been extended to include this risk, she will be covered, even though there is no material damage cover in force.
