CH4 - Broadening Contract Part 1

Question 1

What are the conditions for replacement cost?

Answer 1

• replacement must be made promptly
• replacement must be on same site or an adjacent site
• payment is limited to cost of replacing, repairing, constructing, or reconstructing (whichever is least) on same site with new property of like kind and quality and for like occupancy
• settlement will be made only when work is completed and for no more than actual cost of work
• all other insurance covering same policies and same interest must have same replacement cost provisions

Question 2

“Loss under (any item of) this policy shall not reduce the (applicable) amount of insurance”. What is this and what are the two important features?

Answer 2

This is automatic reinstatement. The two features are: amount of insurance remains unchanged throughout policy period, even if losses were paid; insurer must return premium for unexpired part of policy even if loss was paid.

Question 3

What is the definition of stock?

Answer 3

Stock can be understood as goods and merchandise that the insured manufactures or acquires that are usual to the insured’s business, or that the insured is obligated to keep insured or for which they are legally liable.

Question 4

What is a declaration form?

Answer 4

This form ensures that stock will be full covered, up to the peak values stated in the form, however much the values actually fluctuate. Premium reflects the actual values.

Question 5

What are the features of a declaration form?

Answer 5

• incorporations a schedule with an address and provisional amount/limit of insurance for each location
• insurer charges a deposit premium which is adjusted at the end of initial policy period and each renewal thereafter

Question 6

How is the deposit premium calculated for a declaration form?

Answer 6

1. Insurer sets a rate for each location
2. Rate is then applied to provisional limit for the location to determine premium for that location
3. Total of premiums for all locations is then discounted by a percentage to determine the deposit premium

Question 7

What are the six most common selection of additional perils?

Answer 7

• explosion, beyond the Basic Fire Policy coverage
• impact by aircraft or land vehicles
• riot, vandalism, or malicious acts
• smoke
• leakage from fire protective equipment
• windstorm or hail

Question 8

Concerning the first exclusion, points a-d, loss or damage caused by explosion, rupture or bursting is not covered for what kind of items?

Answer 8

Loss or damage is not covered for steam or vessels or boilers, piping and apparatus or parts thereof normally containing steam, combustion of chambers or fire boxes of steam, smelt dissolving tanks.

Question 9

The insured’s domestic water heater explodes causing considerable damage. Is this covered?

Answer 9

If the psi in the water heater was in excess of 15psi, there would be no coverage. Exclusion may be amended to include coverage for domestic water heaters having a diameter not exceeding 24 inches.

Question 10

What occurrences are not considered to be an explosion within the second set of exclusions?

Answer 10

• electric arcing
• hydrostatic pressure tests
• safety discs, rupture diaphragms, or fusible plugs intended to burst or rupture under given circumstances - no coverage even if it happens accidentally

Question 11

What is the definition or riot?

Answer 11

Riot is an act or threat of violence by one or more persons who are part of an assembly of three or more persons, that might give rise to damage to property or injury to persons.

Question 12

What is the definition of smoke?

Answer 12

Smoke means smoke due to a sudden, unusual, and faulty operation of any stationary furnace.

Question 13

What is leakage from fire protective equipment?

Answer 13

This means leakage or discharge of water or other substances from within the equipment used for fire protection purposes, and loss or damaged caused by the fall or breakage or freezing of such equipment.

Question 14

When will windstorm coverage apply?

Answer 14

For windstorm coverage to apply, the force of the wind must be strong enough to be considered a storm. A wind that might topple over some property stacked in the open would not be considered a windstorm.

Question 15

What are the two exclusions established to show the scope of the windstorm or hail perils?

Answer 15

• damage to the interior building or to contents is not covered, unless damage occurs at the same time as and results from an opening caused by the windstorm or hail
• losses due to other causes that might have had wind or windstorm as a contributing factor are specifically excluded

Question 16

What is the extension included for the windstorm peril?

Answer 16

Removal of windstorm debris is extended to cover what the Debris Removal clause does not, which is removing windstorm debris even if it is uninsured property.

Question 17

What does the falling object peril refer to?

Answer 17

Falling object refers to an object striking the exterior roof or walls of the building.

Question 18

What are the three parts usual to water escape?

Answer 18

1. freezing of a heating, plumbing, or air conditioning system
2. escape of water from a plumbing, heating, or air conditioning system
3. escape of water from a public watermain

Question 19

What are the exclusions for water damage?

Answer 19

• freezing of any part of a system not in a building where heat is maintained during the heating season; resultant water damage is also excluded
• water escaped from a sewer, sump, septic tank, eaves trough, or downspout
• losses that occur while the building is vacant or in course of construction, even if permission was granted for vacancy/construction

Question 20

What is excluded for flood damage?

Answer 20

• water that backs up through sewers, sumps, septic tanks, or drains
• water below ground

Question 21

What are the major causes of collapse?

Answer 21

• weight of ice, snow, or sleet on the roof
• error or deficiency in design
• defective workmanship
• weakening or removal of foundation support
• collapse of floors due to overload of contents
• earth movements such as earthquake, landslide, or mudslide (excluded)