9.1 - Named Perils and Broad-Form Perils

Question 1

Commercial Property Forms

Answer 1

Commercial Property insurance wordings include - fire, named perils, multi-peril, all risks, inland marine, and floaters
-historically commercial property insured for peril of fire, then broadened the scope of coverage, initially to include the additional perils and then to broaden coverage to the multi-peril and all-risks forms
-“inland marine” is used to define a major line of coverage as well as to apply to specific wordings. Inland marine evolved out of ocean marine coverages to continue the insurance of transportation risks once the cargo was on dry land. Inland Marine wordings include floater forms, still mainly apply to risks with some degree of transit exposure
-perils insured range from very limited named perils to broad form (or all risks) subject to exclusions
-usually policy form chosen by the client’s preference, or on the use or current condition of the property
-in some cases the insured will choose whether to purchase named-perils or broad-form coverage, in others, the insurer will insist on the perils to be insured. For instance and insured may wish to insure an older building on broad-form basis, but, because of its deteriorated condition, insurers only willing to grant named-perils coverage
-most comprehensive commercial policy wording, often used as the foundation of a commercial insurance program, is the commercial policy property form covering property under the categories of building, equipment, stock, contents, or all property. Insureds chose limits of insurance for each category selected
-the equipment and stock items are included in the definition of contents; these categories are not used if the content option is chosen
-likewise, the all property category includes everything that the insured can insure under this wording in a blanket limit, so, when selected, this category is the only item chosen
-the form is available in named-perils and all-risks versions

Question 2

Commercial Property Forms -
Named-Perils Form

Answer 2

-generally provide insurance for fire, and additional perils named on the policy form.
-the defining essence of a named-perils form is that the perils insured are expressly noted in the wording
-these perils can be as limited or expansive as the insurer chooses
-some insure only the peril of fire (fire as defined by statute, includes fire, lightning, and limited explosion); others extend to include most of the major perils
-the extent of coverage is further clarified by the exclusions
-property insured can be buildings only, contents only, or both building and contents together
-contents generally include but not limited to - stock including packaging and labeling, equipment, leasehold or tenants’ improvements, property of others, and generally all content usual to the business of the named insured
-in some cases, the risk lends itself to being insured under a named-perils form - for ex, a vacant building may be difficult or very costly to insure under a broad-form policy, but the insurer may agree to write the risk on a named-perils form on the building until it is no longer vacant

Question 3

Commercial Property Forms -
Broad Form (All Risks)

Answer 3

broad-form wordings provide insurance on an all-risks basis, subject to policy conditions, limitations and exclusions
-as with named-perils wordings, the property insured on broad-form wordings can be building, contents or both combined
-insureds can be confused by the term “all-risks”, believing it to be all inclusive; however, all-risks insurance is subject to these qualifiers: “all risks of direct physical loss or damage” and “… except as excluded”
-therefore, “all-risks” is NOT the same as “all losses”
-the losses covered are direct physical losses only, and the perils are only insured so long as they are not excluded
-it is for this reason that there are more exclusions in an all-risks policy than in a named-perils policy