all studies

Question 1

Scheduled coverage.

Answer 1

Only the property specifically listed or scheduled on the policy is insured

Question 2

Property of Every Description (POED) coverage

Answer 2

Building, Stock and Equipment are insured under a single limit of insurance.

Question 3

All Property (Blanket) coverage

Answer 3

All property owned by the insured is covered or “blanketed” by a single limit of insurance. (May insure property at more than one location.)

Question 4

The three classes of property insured by commercial property insurance policies

Answer 4

1) Building
2) Equipment
3) Stock.

Question 5

Regarding stock coverage, why it’s important to provide a proper description of the business to the insurer

Answer 5

It sets the stock coverage to items that are USUAL to the insured’s business

Question 6

“Similar property belonging to others” is automatically covered under the amounts of insurance for stock and equipment if…

Answer 6

The lost or damaged property is similar to that insured by the policy;

• The insured was under an obligation to insure that property;
• The insured was legally liable for it.

Question 7

The five components found in the definition of “building” in commercial property policies.

Answer 7

1) Fixed structures located on the premises;
2) Additions and extensions communicating and in contact with the building;
3) Permanent fitting and fixtures attached to and forming part of the building;
4) Materials, equipment and supplies on the premises for maintenance of, and normal repairs and minor alterations to the building, or for building services;
5) Growing plants, trees, shrubs or flowers inside the building used for decorative purposes, when the insured owns the building.

Question 8

“Premises

Answer 8

The entire area within the property lines and areas and areas under adjoining sidewalks and driveways at the location described on the Declarations Page, and in or on vehicles within 100 meters (328 feet) of such locations.

Question 9

The three components found in the definition of “stock” in commercial policies.

Answer 9

1) Merchandise of every description usual to the insured’s business;
2) Packing, wrapping and advertising materials;
3) Similar property belonging to others which the insured is under obligation to keep insured or for which he is legally liable.

Question 10

The three components of “equipment” found in commercial policies

Answer 10

1) All contents usual to the insured’s business (including furniture, fittings, fixtures, machinery, tools, etc.) other than “building” or “stock”;
2) Similar property belonging to others which the insured is under obligation to keep insured or for which he is legally liable;
3) Tenant’s improvements, which are defined as building improvements, alterations, and betterments made at the expense of the insured to a “building” occupied but not owned by the insured, and which are not otherwise insured.

Question 11

The three ways property may be valued

Answer 11

1) Actual Cash Value
2) Replacement Value
3) Book Value.

Question 12

The traditional meaning of Actual Cash Value (ACV).

Answer 12

The cost to repair or replace lost or damaged property, less the application of any depreciation

Question 13

The two methods under the Formula/Cost Approach Method to determine the Actual Cash Value of a building.

Answer 13

1) Straight Line Depreciation: applies depreciation based on the normal life expectancy of the building;
2) Plateau Accelerated Depreciation: applies a large amount of depreciation during the building’s early years when its most useful, then depreciation plateaus (levels out).

Question 14

The Market Value / Direct Sales Approach to determine the Actual Cash Value of a building.

Answer 14

A real estate appraiser provides an expert opinion about the fair market value of:
- the property before the loss
- the property after the loss
- the land.
The opinion is influenced by the condition and location of the building compared to similar properties recently sold in the area.

Question 15

The Income Approach to determine the Actual Cash Value of a building

Answer 15

With the help of a qualified accountant, and especially useful when income is produced from a dilapidated or run-down building, a capitalization factor is applied to the net annual rental income.

Question 16

The True Value to the Owner approach to determine the Actual Cash Value of a building.

Answer 16

When the insured says the other methods for determining ACV have failed, because the building’s value is actually higher to the insured, this method applies less depreciation.

Question 17

The Broad Evidence Rule to determine the Actual Cash Value of a building.

Answer 17

Only used when the courts are asked to rule on ACV; it takes many factors into account, including:

• Replacement value less depreciation;
• Market value;
• Rental value;
• Building use;
• Location;
• Obsolescence;
• Assessed value;
• Resale success

Question 18

“Replacement Value

Answer 18

The costs to repair, replace or rebuild the lost or damaged property without deduction for depreciation.

Question 19

The difference between “Replacement Cost” and “Actual Cash Value” (ACV)

Answer 19

ACV takes depreciation into consideration, whereas Replacement Cost does not.

Question 20

The method used to value property that’s the least appropriate for insurance.

Answer 20

Book Value, because it’s based on accounting functions only.

Question 21

“Reinsurance

Answer 21

Insurance of an insurer; where an insurer cedes part of the risk it has assumed to one or more other insurers

Question 22

The three rules that apply to reinsurance

Answer 22

1) All insurers share in both the premiums collected and the losses incurred;
2) The contract is between the primary insurer and the reinsurer.
3) The policy is controlled by the primary insurer, and all claims are paid by the primary insurer.

Question 23

The two common characteristics of subscription policies

Answer 23

1) Participating insurers share the premiums and the losses;

2) Each agreement is negotiated separately.

Question 24

“Lead company.”

Answer 24

The company that assumes the greatest portion of a subscription policy called.

Question 25

“Minimum retained premium

Answer 25

The premium amount kept by the insurer when the policy is terminated prior to its expiry date.

Question 26

The three considerations used to determine an amount of indemnity and which will be paid in the event of a loss

Answer 26

1) Actual Cash Value of the property as it existed immediately prior to the loss;
2) The interest of the insured in the property;
3) The amount of insurance as shown on the policy.
- the least will be paid in the event of a loss

Question 27

“Deductible.”

Answer 27

The portion of an insured loss that’s borne by the insured before s/he’s entitled to recovery from the insurer.

Question 28

Why Co-insurance Clauses contain waiver provisions.

Answer 28

Because the cost for an insured to do a full inventory of values for small losses to prove co-insurance compliance would exceed the value of the loss.

Question 29

The provisions of Waiver of Co-insurance Clauses.

Answer 29

When losses are less than either 2% of the amount of insurance or $5,000, the provisions of the co-insurance clause are not applied.

Question 30

The co-insurance clause calculation

Answer 30

(Did÷Should) x Loss = Settlement

Question 31

The purpose of a Stated Amount Co-Insurance Clause

Answer 31

To replace the provisions of the standard co-insurance clause with the requirements of the stated amount co-insurance clause

Question 32

The requirements that must be met by the insured when a Co-Insurance Clause is replaced with a Stated Amount Co-insurance Clause.

Answer 32

1) The insured must submit a statement of values to the insurer that represents 100% of the value of all property insured, verified by appraisal or other method acceptable to the insurer;
2) These values must be insured for the duration of policy period.

Question 33

The six reasons for exclusions, with two examples for each.

Answer 33

To exclude losses that…

1) are commercially uninsurable. Examples: war and nuclear energy hazard.
2) may be catastrophic. Examples: earthquake and snowslide.
3) have other policy forms available for them. Examples: automobiles and business records.
4) are wholly or partially in the control of insured, or that can be expected. Examples: scratching or crushing, and normal wear and tear.
5) are not common to most insureds, but represent an increased potential for loss that needs additional premium. Examples: Outside communication towers, and buildings in the course of construction
6) arise from illegal activity. Examples: loss of illegal substances, loss caused by illegal activity.

Question 34

“Condition.”

Answer 34

Something imposed by the insurer that requires the insured to do or not do something.

Question 35

The two circumstances in which an insurer will not refuse payment for a breach of condition.

Answer 35

When the insured is able to establish that:

1) The loss was not caused or contributed to by the breach; or
2) The breach occurred in a part of the premises over which the insured has no control.

Question 36

“Subrogation.”

Answer 36

The insurer’s right to sue any party the compensated party could have sued

Question 37

Why insurers don’t subrogate “against any corporation, firm, individual or other interest with respect to which insurance is provided by this policy.”

Answer 37

Because insurers would be under negative public pressure if they paid a claim to one party and subrogated against the other.

Question 38

The three requirements placed upon clients by Property Protection Systems clauses.

Answer 38

The insured must notify the insurer forthwith…

1) About any interruption, flaw or defect in any property protection system that comes to their knowledge;
2) About any cancellation or non-renewal of any monitoring or maintenance to such systems;
3) When notification of suspension of police service is received regarding response to any such system.

Question 39

The ways that the value of insured property is determined under a Basis of Valuation clause

Answer 39

1) On unsold stock: on the basis of ACV at the time and place of loss or damage, not to exceed the cost to repair or replace with material of like kind and quality;
2) On sold stock: on the basis of selling price, less any discounts;
3) On property of others upon which work is being performed: Customers Property upon which work is being performed losses are paid on the basis of value of parts used in repair and the value of labour. Customers will be paid ACV of the property when initially dropped off for repair.

Question 40

The two types of property that receive Special Basis of Settlement.

Answer 40

1) Tenant’s improvements;

2) Records.

Question 41

“Warranty.”

Answer 41

A promise that certain facts are truly as they’re represented to be and that they’ll remain so.

Question 42

The four terms of the Locked Vehicle Warranty

Answer 42

1) The vehicle containing the property must be equipped with a fully enclosed body or compartment;
2) All doors are securely locked and the windows closed;
3) Access or entry to the vehicle is gained through the use of force;.
4) There must be visible signs of force used to gain entry into the body or compartment of the vehicle.

Question 43

“Material fact.”

Answer 43

A fact which, if communicated to the insurer, would cause it either to decline the insurance altogether or not accept it unless a higher premium is paid.

Question 44

The seven facts material to an application for insurance. Failure to disclose these facts may constitute misrepresentation.

Answer 44

1) Previous claims;
2) Use of business premises by insured and others;
3) Number of mortgages and other encumbrances on the property;
4) Existence of other insurance;
5) Previous cancellations or refusal of insurance;
6) Fear of damage to property from persons harbouring ill-will against the insured;
7) Vacancy.

Question 45

“Fraudulent.”

Answer 45

To act willfully and with the specific intent to deceive or cheat,

Question 46

The right an insurer has when it proves that misrepresentation has occurred.

Answer 46

It is entitled to void the policy

Question 47

“Void contract.”

Answer 47

A contract that has no legal or binding force, and as such is incapable of being enforced at law.

Question 48

The Notice of Authorities condition.

Answer 48

Any loss involving a criminal act must be reported to the police or other authorities.

Question 49

The Sue and Labor condition.

Answer 49

The insured must take all steps reasonable to recover lost or damaged property after an insured loss.

Question 50

The Pair and Set condition

Answer 50

When losses involve property in a pair, the remaining item continues to have value and this amount will be deducted from any loss. Partial loss of a set will not mean total loss of set.

Question 51

The Parts condition

Answer 51

When loss or damage is to any part of insured property consisting of several parts, the insurer is not liable for more than the insured value of the part lost or damaged, including the cost of installation

Question 52

Insures will not exercise its right of subrogation against certain parties. Explain

Answer 52

When persons responsible for a loss have an interest in the proceeds of the policy, the insurer will not exercise their right of subrogation against these parties ….(eg. bank or other person who lent money to insured and are shown as loss payable on policy)

Question 53

Subscription Policy

Answer 53

An insurance policy under which a group of insurers has agreed to participate together to provide coverage

Question 54

The four reasons a subscription policy may be the only insurance alternative

Answer 54

The line of business is so specialized that it isn’t covered by reinsurance
The type of risk is one that the insurer doesn’t want to expose to its reinsurance
Limits don’t exceed the insurers risk retention limits, but are above what its prepared to pay for a single claim
The broker wants to spread a good, large line of business among his markets.