7.1 - Endorsements Flashcards
“Endorsement”
-an amendment added to a written document, particularly an agreement between parties, altering its provisions
Endorsements override specific terms in the policy by:
-removing coverage for certain property or perils;
-adding warranties or additional conditions;
-altering or removing policy conditions or limitations; or
-offering permission for activities, occupancy, or parties that may not otherwise be covered
The Nature and Role of Endorsements
-endorsements may be standardized and will apply to any policy they are attached to
-alternatively, an endorsement may be specifically written to address particular circumstances or a risk - this is called a “free-form endorsement”
-a “free-form” endorsement is analogous to the perhaps more familiar term manuscript wording, which typically applies to a policy wording uniquely composed for a particular risk
-the legal doctrine of contra proferentem is also true for endorsements
-although reasonable for insurers to underwrite risks and impose conditions or limitations where risk is not tolerable, an endorsement that unreasonably restricts coverage, especially when removing coverage for fire, may prove unenforceable
-again, the language and intent of an endorsement must be clear for the insurer to rely on it
-additional premium may be charged when permission for use or occupancy is granted by endorsement, or where coverage is expanded in favour of the insured, but conversely, premium is rarely reduced when coverage is restricted or eliminated, because restricting or eliminating coverage usually reflects an increase in risk
“manuscript wording”
-policy wording that does not conform to the standard wording in general use within the insurance industry and that is unique to the policy involved
Common Types of Endorsement
-sewer backup
-water
-Earthquake
-vacancy
-bylaws
-working from home
>Telecommuting
>Home-Based Business
>Home-Based Business Endorsement
-identity theft
Common Types of Endorsement:
-Sewer Backup Endorsement
-sewer backup and water escape losses have become much more frequent than fire losses
-many homes now have finished basements, appliances with features that require water source (fridge ice makers), being installed on upper levels of homes, some municipal bylaws require wet fire-suppression systems, plastic pipes are common, and municipal infrastructure is aging - all factors that contribute to increase in water losses
-escapes or backups from any of these systems will also cause bacterial contamination of affected property that must be cleaned up for health reasons
-sewer systems usually publicly owned and are used by multiple properties, and property owners have no control over these, but are required to maintain the portions of the pipe on their property
-sewer lateral may become clogged with tree roots or other things, or broken due to the settling of the foundation
-septic systems are normally privately owned, may be installed solely on an insured’s property, or may interconnect with systems belonging to a very small group of other private owners
-solid and liquid waste is separated through a series of perforated pipes and a large tank, which must be emptied periodically to avoid blockage, and frequent monitoring of system capacity and effectiveness is key to loss prevention
-damage caused by the escape of water from a sewer, sump, or septic system is not covered, so to address that, a sewer backup endorsement must be added to the policy
-generally insurers will limit the amount of coverage to $25K or higher, but in flood-prone areas or areas that have previously flooded, these are often limited to $10,000
Common Types of Endorsement:
-Water Endorsement
-the term “flood” is used loosely (and incorrectly), so especially in a catastrophe, it can be difficult to distinguish floor waters from sewer backup
-as well, because the sewer backup endorsement foes not cover damage from flooding, many insurers have developed distinct endorsement for residential risks or have combined various water exposures into one endorsement form
-IBC offers its water endorsement in a limited form (IBC 1147) and an extended form (IBC 1148)
-the IBC water endorsements have their own deductibles, and they exclude LoD caused by:
>tides, tidal waved, storm surges, tsunamis, or seiches
>regardless of any other cause or event that contributes concurrently or in any sequence to the loss or damage
Common Types of Endorsement:
-Earthquake Endorsement
-rates for EQ coverage are based on the exposures to damage a building faces from shock waves, among the most important are these:
>Geographic location
>Building Design, construction and age
>Occupancy
>Soil conditions
-EQ endorsements include coverage for mudslide, landslide, volcanic eruption, or other earth movement that occurs at the same time as an EQ and cover aftershocks for the period specified in the policy, generally (subject to insurer’s policy and agreements with its reinsurers) that period may be 96-168 hours following the first EQ event
-the IBC endorsement defines a “single EQ” to mean all EQ shocks within 168 consecutive hours during the policy period, and an event that occurs after the specified period is deemed a new occurrence and subject to a separate deductible if the building sustains additional damage
-in the event of a severe EQ, natural gas or other fuel sources may rupture and ignite, so fire as a result of any other event may not be excluded
-thus fire damage resulting from an EQ is covered (although damage directly caused by the EQ is excluded). The deductible applicable to the peril of fire may be applied to the loss if it is shown that the fire was the proximate cause of the loss
-a 2013 study by AIR Worldwide for IBC, did find that market penetration rates tend to be higher in areas of high EQ risk, such as BC, which also identified a high risk area in the region from the St. Lawrence River Valley to the Ottawa Valley - an area including Quebec City, Montreal, and Ottawa
-coverage may be available in these vulnerable areas, deductibles are generally high, at 5-15% of total insured values
-where structures are built on sand and silt-based soils, vibration caused by earth movement causes a phenomenon called liquefaction, in which the strength and stiffness are reduced in soil composed of unconsolidated sediments and also saturated with water
-following a major EQ, the insured’s ability to rebuild in a timely way may be substantially impeded, so some insurers have eliminated the usual requirement in personal property policies to rebuild a structure on the same site. But other policy requirements remain unchanged
Common Types of Endorsement:
-Vacancy Permit
-vacancy is excluded in several named perils, including vandalism or malicious acts, water damage, and glass breakage, more generally, the HOs forms exclude LoD if it occurs after the dwelling has, to the insured’s knowledge, been vacant for more tha30 consecutive days
-exclusion is triggered after 30 days of vacancy and applies for as long as the vacancy persists after that
-the policy is not terminated, however, and coverage is automatically reinstated as soon as the vacancy ends
-vacancy is material to the insurer’s acceptance of the risk, the terms of coverage, and perhaps also the policy premium
-if insurer agrees to maintain coverage on a vacant building, it must grant permission for the vacancy by way of a vacancy permit, for which additional premium is usually charged
-insureds may not know if a risk is vacant or not - especially if home is a rental, they may not know if tenants have moved out, so Brokers should use each policy renewal or other contact with their insureds to convey that vacancy is material to the UW of the risk an they should perform regular inspections to mitigate the risk of potential loss
-even if the insured fails to inform the insurer that the insured building is vacant, a mortgagee who was also unaware of the vacancy may still be entitled to coverage in the event of a loss
-when vacancy permit is placed on the policy, it is essential that the mortgagee receive a copy of it and be made aware of the change of occupancy and the restrictions in coverage that apply, because the insurer’s failure to advise the mortgagee may cause a loss to be covered for the interest of the mortgagee when that loss would otherwise have been excluded because of the vacancy
Common Types of Endorsement:
-Bylaws Endorsement
-following LoD, building repairs or replacement must be performed according to the applicable building codes
-insurer will not pay increased costs due to bylaws - that is, due to any law regulating the zoning, demolition, repair, or construction of buildings and their related services
-bylaw endorsement addresses this limitation
-building codes outline minimum specs for essential building components such as insulation, plumbing, heating, and electrical services, fire egress and suppression systems, and structural load-bearing properties
-could require something more minor such as insulation type or depth, or more major such as moving the whole building farther away from the property line
-inspectors may require upgrades to property such as waste water systems, even if they were not directly damaged, and municipalities may require installation of new features such as underground electrical connections to city services
-any indemnity afforded by the bylaws endorsement must be triggered by an insured peril, the endorsement does not increase the limits of the policy, and it covers only those costs actually incurred by the policyholder to comply with the minimum code requirements
-The IBC bylaws endorsement allows the insured to extend the policy’s coverage in one or both of two ways, provided the choice is stipulated on the dec page:
> Under Section 1, the bylaws endorsement will pay:
-the costs of demolition and removal of undamaged areas of the building and detached structures; and
-the increased costs of repairs to comply with the minimum code requirements as of the date of loss
> Under Section 2, the bylaws endorsement will pay:
-the increased costs of installation or repair to comply with minimum requirements for the installation of a sprinkler system
Common Types of Endorsement:
-Working from Home
-the HOs forms provide some coverage for business property under the special limits of insurance, but habitational policies are not meant to cover business activities that form the primary source of income for the insured
-there are 2 primary arrangements for working from home: remote work arrangements, also known as telecommuting, and the home-based business
Common Types of Endorsement:
-Working from Home: Telecommuting
-in most WFH arrangements, the insured may receive deliveries by courier or business mail, but clients rarely, if ever, come to the home
-some employers may provide financial assistance to their employees to purchase equipment such as office furniture, computers, or phones, but the mere existence of such equipment in the home does not prove that the employer owns it; in the event of a loss, the true ownership of the property must be established
-if the property does belong to the employers, then there must be an employment agreement that holds the employee responsible for the equipment; only then would the employee’s habitational policy respond as primary coverage
Common Types of Endorsement:
-Working from Home: Home-Based Business
-a home-based business is an enterprise that is operated from the residence
-if the business is a sole proprietorship, determining coverage is much simpler, with a partnership, only the percentage of the business owned by the policyholder is considered, and if the business is a limited or incorporated company, there may be no coverage for the business property at all, because the definition of “insured” under the policy does not include limited companies - even those owned exclusively by policyholders
-all business exposures must be understood and appropriately underwritten
-the failure of an insured to disclose the existence of a home-based business may breach the statutory conditions, and this breach may render the policy void or cause a claim to be denied
-Home-based business may be part time, or may be the insured’s primary source of income. It may be sales, or serviced based, and some businesses may have customers and delivery personnel coming to the home
-depending on the nature and scale of the business, the exposure may be modest or substantial for both property and liability exposures
-personal lines policies offer no coverage at all for loss of income due to business interruption, even if there is coverage for contents
-when an item (for ex. laptop) may be used for both personal and business use, it can be difficult to separate those uses in adjusting a claim, so if an item has been purchased in the name of the business, and its value is used for business tax considerations, ownership by the business is clear, and insurers do no generally consider partial payment of the claim to reflect the portion of personal use, even is such use can be proven
Common Types of Endorsement:
-Working from Home: Home-Based Business Endorsement
-for both telecommuting or HBB, a HBB endorsement may be added to the policy to enhance property limits or perils and ensure proper coverage for property, liability and consequential losses
-for a risk where the only business exposure is a computer used for both business and personal reasons, an insurer may add a computer floater to the Homeowners policy to provide coverage for the business activity
-alternatively, an entirely separate commercial policy for small business could be recommended. Such a policy would become primary insurance for the business, and any special limits of insurance under the personal policy would become excess coverage
Common Types of Endorsement:
-Identity Theft Endorsements
-an individual’s personal and financial information is stored in the databases of banks, credit-card companies, and online retailers, among others
-a criminal can use stolen information to gain access to personal financial information, take out loans in a victim’s name, use a victim’s credit card, and perform other activities that can jeopardize someone’s financial future
-no specific endorsement wording used by all insurers, many of the available endorsements provide similar coverage for the costs associated with restoring an insured’s identity:
>legal costs to notify the appropriate authorities
>liaison between the insured and credit bureaus, credit-card companies, and other financial institutions
>lost wages as a result of time off work to mitigate the loss; coverage is limited to a dollar amount, usually $500 per week
>loan application fees
>legal fees to defend against lawsuits as a result of identity theft
>long-distance phone charges
>in some cases, a credit-monitoring service for a specified period after the identity theft
-the coverage is limited to a specific dollar amount per occurrence, depending on the insurer, the limit may be anywhere from $10,000 to $30,000
-some insurers invoke an aggregate limit in cases where there is more than one instance of identity theft in a policy period
