Ch 9 Flashcards
How does a BPP handle personal property coverage?
extends coverage to “furniture and fixture; machinery and equipment; stock .. and supplies used in packing or shipping.
Direct physical loss is covered unless excluded or on a specified-perils basis.
Stock is generally valued at ACV but can be endorsed for rc. Usually has coinsurance clause. Covers personal property of others but with strict limitations.
What is the difference in insurable interest requirements between a BPP and BOP?
BPP: “your business personal property” For non-owned property it covers personal property of others in the insured’s care, custody, or control and located in or on the described building. Property is covered regardless of liability.
BOP: business personal property owned by the insured. For non-owned property, it covers property held by the insured and belonging to others, but not exceeding the amount for which the insured is legally liabile, including the labor value, materials, and charges furnished, performed, or incurred by the insured.
How is ACV determined for merchandise?
Difficult because no policy defines ACV. It can equal rc when no depreciation.
How is replacement cost determined for merchandise?
Cost to buy stock from its suppliers, less any trade discounts on allowances, plus incoming freight. It can also include the cost of receiving , opening, tagging, marking, and arranging the goods in the insured’s people are muses by the supplier. It is easy to determine replacement cost if the adjuster has access to the insured’s books and records, such as invoices. It
What information does a business’s books, records, and financial statements contain?
Income statement: gross revenue, net profit before taxes, over time.
Balance sheet: values on a stated date of all assets, liabilities, and paid-in capital. Has a physical inventory figure.
A retailer started the year with an inventory of $52,500. Purchases to inventory were $110,000. The ending inventory was worth $50,000.Calculate the cost of good sold.
$52,500 + $110,000 = $162,500 available for sale - $50,000 ending inventory = $112,500 cost of goods sold.
Calculate the book value of remaining inventory on a date of loss using books and records.
Last inventory 12/31/2014 (income statement): $46,000
Net purchases $140,000
Cost of Good Sold (net sales, same period): $215,000
36.75% cost-to-sales ratio
Available for sale: $46,000 (carry over) + $140,000 added = $186,000
Cost of goods sold (from income statement): Net sales $215,000 * .3675 (gross profit) = $79,012
Net sales $215k- profit $79012 = $135,987 cost of goods sold for the year
Amount that could have been sold $186,000 - amount actually sold $135,987 = $50,013
What does a salvor do?
Assist the adjuster in surveying the loss scene. Give immediate advice on protecting remaining merchandise, minimizing further damage, and determining the feasibility of a physical inventory y. Separates damaged and u damaged goods, conducts inventory, and checks invoice. Can also give confidential and professional advise on merchandise’s degree of damage.
Explain the operation of salvage contracts.
Salvage contracts give the salvor permission to remove merchandise from the premises.
What is the purpose of a reporting form policy?
Provides maximum dollar coverage when it is needed. Good for businesses with fluctuating inventories.
How does a reporting form policy work?
- provisional amount of insurance is designated when written. That is the max limit.
- insured must report total values on hand at each of the designated reporting times during the policy term. Must be reported within 30 days of the end of any designated reporting period.
What procedures should an adjuster follow and what information needs to be gathered in the adjustment of a loss to a small quantity of merchandise?
Try to establish the accurate measure of the insured’s actual loss (without salvors or accountants) and apply policy conditions to conclude.
Why are percentage damage settlements of merchandise losses advantageous to both the insured and insurer?
Merchandise damaged but salable is worth more to the insured than anyone else. They only have to move it within the store and reprice to have a fire sale.
What is the meaning of “stock” in BPP form and how is stock valued?
Stock means merchandise held in storage or for sale. It is typically valued at ACV but can be valued at RC if the policy is modified. Stock that is sold but not delivered is valued at selling price less discounts and expenses.
How does insurable interest affect the adjustment of a merchandise claim?
Both policies (BPP and BOP) pay only for the insured’s financial interest in the covered property. The adjuster would have to separate any merchandise not owned by the insured merchandise in a leased camera department. The adjuster also has to look at the contract between the insured and the manufacturer/distributor to determine who has responsibility for the loss.
How does freight affect replacement cost for a merchant?
If freight charges are paid by the merchant, they are included in the replacement cost. Otherwise, they are not.
How do trade discounts and allowances affect replacement cost for a merchant?
They reduce the cost of the goods to the merchant and will reduce the replacement cost.
How do handling costs affect replacement cost for a merchant?
If identifiable from the merchant’s records, handling costs increase the replacement cost of the goods.
What might cause depreciation to stock in a merchant’s hands?
Physical damage (handling, moisture, poor storage conditions) or obsolescence (fashion or technology changes)
According to the retail method of accounting, how do markdowns affect the value of merchandise?
The cost value of merchandise is adjusted in proportion to its retail selling price. Any markdown in the retail selling price would reduce the cost value in the same percentage.
