9.2 - Commercial Property Broad Form: Exclusions Flashcards
Commercial Property Broad Form
-the insurance afforded by a commercial property broad-form (CPBF) wording is framed by the exclusions contained in the wording
-some exclusions concern coverage the insurer might agree to restore to the policy by endorsement of that would be better provided under a different policy form
-other exclusions represent exposures that are uninsured or perhaps uninsurable
-many of the exclusions can be found in any broad-form wording
Commercial Property Broad Form:
Exclusions
Exclusions can specify that certain property is not insured or that LoD caused by certain perils is not covered
-exclusions may be grouped into several general categories:
> generally not insurable - typically risks from causes that would be of such a magnitude that individual insurers would not have the ability to cover them and remain in business; for example, war risks or nuclear contamination
losses not accidental or extraneous, such as losses due to the nature of the property itself or “inherent vice”; for example, rusting of metal or deterioration of rubber
losses wholly or partly under the control of the insured; for example, marring and scratching losses often are excluded because they usually result from carelessness
wear and tear losses
losses excluded because of the particular coverage:
-some property or perils, or those that relate to unusual hazards that would affect only a small number of risks, are excluded because it would cost too much to insure them. Rather than build the cost of coverage into the premium structure for every risk, it is excluded. Then if a particular applicant wants the coverage, the exclusion may be deleted for a suitable extra premium
-some exclusions are expressed because there are other specific types of policies designed to cover the excluded items or perils; for example, automobiles, aircraft, valuable papers, and earthquake insurance
-commonly, CPBF wordings separate exclusions into two-section - LoD to specific property and LoD arising out of various perils
“inherent vice”
a quality within an object that makes it tend to destroy itself
Commercial Property Broad Form:
Property Exclusions
-property commonly excluded is money and other valuable property, automobiles, aircraft (including drones and other types of flying devices), watercraft, furs or jewellery, and property that is vacancy for more than a specified number of days (for example, 30 days) - most of these are insurable under other policy wordings
-while computer hardware and software are not explicitly excluded, the effect of the other exclusions is to seriously limit insurance for this type of property, so as a result, purchasing separate, specific insurance tailored to this property is generally advisable
-LoD to any property undergoing some work process is excluded - which is frequently referred to as the “work in progress” exclusion or as property “undergoing process of heat”. No insurance to the item itself, however, any resultant damage to other property is insured
>example - assembly line is being worked on with a torch, sparks ignite the line at the point of repair and spread. No insurance for the equipment damaged by heat from the torch, but policy does respond to damage to the rest of the production line and surrounding area arising from the resultant fire
Commercial Property Broad Form:
Perils Excluded
-broad-form policy wording commonly exclude the perils of flood, EQ, SBU and overland water, bylaws, inventory shortage, pollution, various other environmental hazards, terrorism, and equipment breakdown as well as cyber risks
-for some of these perils, other insurance may be available to mitigate the effect of the exclusion
Commercial Property Broad Form:
Perils Excluded - Flood and Earthquake
-flood and EQ are considered together as these coverages are frequently requested together
-standard policy form excludes, but generally insurers offer this coverage for these perils as an addition either singly or together for an additional premium
-deductibles are higher than for other property insurance
-when provided, the extension specifically defines what constitutes flood and what an earthquake is
-sometimes insurance purchased to fulfill requirements from mortgagees or leaseholders
-sometimes insured may only want to buy this coverage for the particular locations that loss payee or landlord requires, but insurers do not like to be selected against and rather insure all location for the same perils. Some insurers encourage clients to do this by charging a premium as though all locations are insured for these perils
Commercial Property Broad Form:
Perils Excluded - Sewer Backup and Overland Water
-depending on insured’s physical location, separate insurance may be available from some insurers, but in certain areas, insurers will not provide this insurance at all due to the severity of the risk
-where available, sewer backup and overland water are defined specifically and are usually subject to a higher deductible and/or may be subject to separate smaller limits of liability
-for commercial risks, insurers usually will only provide overland water coverage if it is purchased in conjunction with sewer backup coverage
Commercial Property Broad Form:
Perils Excluded - Bylaws
-when work is done on buildings, depending on the amount of work required, the municipality involved can require the building to be improved to meet current codes
-most wordings exclude any increase in claim amount due to the operation of building bylaws
-This includes:
>increased costs due to a requirement to demolish and rebuild an undamaged portion of a building
>additional costs to rebuild with superior construction materials
>costs to remove the extra debris; and
>increased time to build, resulting in an increased business interruption loss
-if significant proportion of building is damaged, municipality may require that the whole building (not just the damaged portion) must be made compliant with the current bylaws, can even possibly be as little as 15% of the building damaged, and the older a building is, the more likely it is to deviate from current building code requirements
-also building bylaws can affect the types of materials used in construction and repair and how the building can be repaired or replaced, which can increase the costs of any such repair or replacement
-insurance is available to cover these costs by endorsement to the basic wording, and are available separately, but should have all 4 to ensure complete coverage
-some current requirements ex. accessibility and for Earthquake abatement
-limits of insurance may be best determined with help from the local municipality’s building department or an engineer to determine the limit required
Commercial Property Broad Form:
Perils Excluded - Inventory Shortage
-coverage is rarely available for this type of loss
-any insured that has stock or is responsible for stock in transit has this exposure, however, inventory shortage is difficult to bring within the definition of an insured peril
-to prove a loss, insured must be able to show that the stock was:
>in its care, custody, and control (documentary evidence is needed as proof), and
>stolen and who stole it. That is, was the loss a crime (goods stolen by outsiders) that is insured on the CPBF wording and thus may be covered? If the loss was a fidelity loss (goods stolen by employees), that requires separate insurance
Commercial Property Broad Form:
Perils Excluded - Pollution
-insurance for a below ground spill or contamination on the insured’s own property is excluded but can generally be added back for a small limit, and in most cases the premium is negotiable. (This is property insurance, not legal liability insurance)
-since very common substances can be considered pollutants, most insureds will have some exposure due to this peril
-for ex. photocopiers and computer printers can be a source of pollution if the ink cartridges are not disposed of properly
-if the insured’s business has a risk of pollution due to the type of business, the insured may need specific property or liability pollution coverage, which can be obtained through a specialty or niche market
Commercial Property Broad Form:
Perils Excluded - Environmental Hazards
-environment hazards are a group of perils that can lead to losses arising from such causes as the presence of mould, fungus, and other biological or environmental hazards
-generally losses arising from these perils are uninsurable
Commercial Property Broad Form:
Perils Excluded - Terrorism
-after Sept 11, 2001, property wordings were rewritten to clarify the exclusions of losses arising from this peril
-terrorism is becoming more prevalent and could affect the insured in a number of different ways, including having property and contents damaged or destroyed
-Jan 29/17 terrorist attack in Quebec City
-Nov 2015 terrorist bomb attacks in Paris
-insurance can be arranged separately for loses arising from this peril in many cases, usually only through specialty markets
-conditions and limits of insurance can be restrictive and the premium charged can be substantial
Commercial Property Broad Form:
Perils Excluded - Equipment Breakdown
-depending on the type of business that the insured is protecting, equipment breakdown exposures could be as simple as a broken A/C unit in an apartment building, or as serious as refrigeration unit breakdown in a medical supply company or a restaurant
-it could be damage to the computer-controlled equipment that runs the manufacturing line or designed the insured’s products
-separate insurance is generally available to provide coverage for losses arising from these perils
Commercial Property Broad Form:
Perils Excluded - Cyber Risks
-malicious persons and organizations can attempt to harm the insured’s operations with viruses, worms, and ransomware that can hold a company hostage for a ransom payment, which can all be catastrophic for a business
-there are costs involved in correcting these computer issues, and there is potential that the data may never be recovered or that the entire system may need to be replaced depending on how destructive the virus is
-while there is no cyber exclusion as such in the CPBF, the data exclusion performs the same purpose. This wording excludes data, which is defined as information or concepts in any form. In addition, LoD caused directly or indirectly by a data problem is excluded unless caused directly by resultant fire, explosion, smoke, or leakage from fire-protective equipment
-a data problem is defined as:
>erasure, destruction, corruption, misappropriation, or misinterpretation of data;
>error in creating, amending, entering, deleting, or using data; or
>inability to receive, transmit, or use data
-these two clauses together effectively remove cyber coverage from the CPBF
