Chapter 1

Question 1

Commercial property insurance may be issued in many ways. Explain what it means to issue insurance on a scheduled basis.

Answer 1

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

Question 2

Explain what it means to issue insurance on the basis of property of every description.

Answer 2

Building, stock, and equipment are insured under a single limit of insurance.

Question 3

Explain what it means to issue insurance on an all property (blanket) basis.

Answer 3

All property owned by the insured is insured under a single limit of insurance. All property blanket may insure property at more than one location.

Question 4

In commercial property policies, identify six components used to define a building.

Answer 4

1. Building described on the declarations page
2. Fixed structures pertaining to the building and located on the premises.
3. Additions and extensions communicating and in contact with the building.
4. Permanent fitting and fixtures attached to and forming parts of the building.
5. Materials, equipment, and supplies on the premises for maintenance of, and normal repairs and minor alterations to the building, or for building services.
6. Growing plants, trees, shrubs, or flowers inside the building used for decorative purposes when the insured is the owner of the building.

Question 5

In commercial policies, identify three components used to define stock.

Answer 5

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 6

In commercial policies, identify three components used to define equipment.

Answer 6

1) Generally all contents usual to the insured’s business other than building or stock as herein defined.
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 made at the expense of the insured building.

Question 7

What are three ways property may be valued?

Answer 7

i) Actual Cash Value
ii) Replacement Value
iii) Book

Question 8

Explain “traditional” meaning of ACV.

Answer 8

Repair or replacement of lost or damaged property, less the application of any deprecation.

Question 9

Describe two methods used to determine deprecation using formula/cost approach method.

Answer 9

i) Straight Line Depreciation applies depreciation based on the normal life expectancy of buildings.
ii) Plateau Accelerated Depreciation applies large amounts of depreciation during first few years, then depreciation “plateaus” or levels out.

Question 10

Describe the difference between Replacement Value and ACV.

Answer 10

Replacement Value is different than ACV because there is not deduction for depreciation.

Question 11

Which method used to value property is the least appropriate for insurance?

Answer 11

Book value is the most inappropriate method of valuing property for insurance purposes because book value is based on accounting functions only.

Question 12

Identify the company which assumes the greatest portion of an account.

Answer 12

Lead Company

Question 13

What is “re-insurance”?

Answer 13

Reinsurance is an insurance company “ceding” part of the risk to a reinsure.

Question 14

What are three considerations used when determining amounts of indemnity?

Answer 14

i) Actual Cash Value of the property as it existed immediately prior to the loss
ii) The interest of the insured in the property
iii) The amount of the insurance as shown on the policy

Question 15

Why do co-insurance clauses contain waiver provisions?

Answer 15

To waive application of the co-insurance clause when the loss is less than amounts indicated in the waiver. These waivers are applied because to determine amounts in the co-insurance clause would cause too much work and expense for the insured given the size of the loss.

Question 16

What are the provisions of “waiver of co-insurance” clauses?

Answer 16

Answer: When losses are less than 2% of the amount of insurance and less than $5,000 the provisions of co-insurance clauses will not be applied.

Question 17

Will the “waiver of co-insurance clause” apply to the following loss?
Loss - $1,200
Policy Limit - $150,000
ACV of Property - $250,000

Answer 17

Yes

Question 18

What is the purpose of the “stated amount” co-insurance clauses?

Answer 18

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

Question 19

What requirements must be met by the insured when co-insurance clauses are replaced by “stated amount” co-insurance clauses?

Answer 19

i) Insureds must submit a statement of values indicating 100% of all property insured.
ii) Values indicated on statement of values must be verified by appraisal or other method acceptable to insurer.
iii) These values must be insured for the duration of policy period.

Question 20

All policies contain exclusions. List five types of exclusions and provide 2 examples of each.

Answer 20

i) Example: War
Reason: Commercially uninsurable
ii) Examples: Flood & Earthquake
Reason: May be catastrophic
iii) Examples: Automobile & Valuable Papers
Reason: Other forms of insurance may be available
iv) Examples: Wear & Tear / Mechanical Breakdown
Reason: May be expected by the insured and/or in the control of the insured
v) Examples: Exterior communication towers & buildings under construction
Reason: Not ‘common’ exposures

Question 21

What is a condition?

Answer 21

A condition requires insureds to do or not to do something.

Question 22

Insurers will not exercise their right of subrogation against certain parties. Explain.

Answer 22

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 . . . (e.g. bank or other person who lent money to insured and are shown as loss payable on policy)

Question 23

Identify three stipulations of property protection system clauses placed upon clients.

Answer 23

i) The insured must notify insurer of any interruption, flaw, or defect in any property protection system that comes to their knowledge.
ii) The insured must notify insurer forthwith of any lapse, cancellation, or non-renewal of any maintenance or monitoring contract of any property protection system.
iii) The insured must notify insurer forthwith when notification of suspension of police service is received regarding response to any property protection systems.

Question 24

How are losses paid on:
1. Unsold stock?
2. Sold stock?
3. Customer’s property upon which work is being performed?

Answer 24

1) Unsold Stock: Unsold stock losses are paid on the basis of actual cash value.
2) Sold Stock: Sold stock losses are paid on the basis of selling price less any discounts given to customers.
3) Customer’s property upon which work is being performed: These losses are paid on the basis of value of the parts used in repair and the value of the labour. Customers will be paid ACV of the property when initially dropped off for repair.

Question 25

What are two types of property receiving ‘special basis of settlement’?

Answer 25

i) Tenant’s improvements
ii) Records

Question 26

What is a ‘warranty’?

Answer 26

A warranty is a promise made by insureds that certain facts are as represented and will remain so.

Question 27

Describe the four elements of ‘locked vehicle warranties’.

Answer 27

i) All property must be in vehicle or in a fully enclosed metal compartment.
ii) All doors and windows of the vehicle containing the property insured must be securely closed and locked.
iii) Force was used to gain access to vehicle containing the property insured.
iv) Visible signs of use of force are present on the vehicle containing the property insured.

Question 28

What is ‘material fact’?

Answer 28

A material fact is a fact which, if it were to be known by the insurer, would induce it to charge a higher premium, add conditions to the coverage, or decline the account all together.

Question 29

Material facts include concerning the property being covered and personal information about the client. What are four facts considered ‘material’ relative to the personal information of clients?

Answer 29

i) previous claims
ii) number of loss payables
iii) previous declinations or cancellations from other insurers
iv) fear of persons harboring ill will against the insured

Question 30

What rights do insures have when misrepresentation occurs?

Answer 30

Insurers may void the policy on which the misrepresentation was linked.

Question 31

Provide a summary of: Notice of Authorities; Sue and Labour; Pair and Set; Parts

Answer 31

a) Notice of Authorities: Any loss involving a criminal act must reported to authorities.
b) Sue and Labour: Insureds must take all steps reasonable to recover lost or damaged property after insured losses.
c) Pair and Set: When losses involve property in a pair, the remaining item continues to have value and this amount will be deducted from any loss.
d) Parts: When losses involve property which are part of a set only the lost or damaged part of the set will be insured.