Chapter 1 Flashcards
Commercial property insurance may be issued in many ways. Explain what it means to issue insurance on a scheduled basis.
Only the property listed or scheduled on the policy is insured
Explain what it means to issue insurance on the basis of property of every description.
Building, Stock, and equipment are insured under a single limit of insurance
Explain what it means to issue insurance on an all property (blanket) basis.
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.
In commercial property policies identify six components used to define a building.
- Building described on the declarations page
- Fixed structures pertaining to the building and located on the premises
- Additions and extensions communicating and in contact with the building
- Permanent fitting and fixtures attached to and forming part of the building
- Growing plants, tress, shrubs, or flowers, inside the building used for decorative purposes when the insured is the owner of the building
In commercial policies identify three components used to define stock.
- Merchandise of every description usual to the insured’s business
- Packing, wrapping, and advertising materials
- Similar property belonging to others which the insured is under obligation to keep insured or for which he is legally liable
In commercial policies identify three components used to define equipment.
- Generally all contents usual to the insured’s business other than building or stock as herein defined
- Similar property belonging to others which the insured is under obligation to keep insured or for which they are legally liable
- Tenant’s improvements which are defined as building improvements, alterations and betterments made at the expense of the insured to a building
What are three ways property may be valued?
- Actual Cash Value
- Replacement Value
- Book Value
Explain “traditional” meaning of ACV.
Repair or replacement of lost or damaged property, less the application of any depreciation
Describe two methods used to determine deprecation using formula/cost approach method.
- Straight line depreciation - applies depreciation based on the normal life expectancy of buildings
- Plateau Accelerated depreciation - applies large amounts of depreciation during first few years, then depreciation “plateaus” or levels out
Describe the difference between Replacement Value and ACV.
Replacement Value is difference than ACV because there is not deduction for depreciation
Which method used to value property is the least appropriate for insurance?
Book value is the most inappropriate method of valuing property for insurance purposes because book value is based on accounting functions only
Identify the company which assumes the greatest portion of an account.
Lead Company
What is “re-insurance”?
Re-Insurance = an insurance company “ceding” part of the risk to a reinsurer.
What are three considerations used when determining amounts of indemnity?
- Actual Cash Value (ACV) of the property as it existed immediately prior to the loss
- The interest of the insured in the property
- The amount of the insured as shown on the policy
- Which of the above amounts will be paid in the event of insured losses?
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 insurance as shown on the policy
Insureds will receive which is the least of the three.
Why do co-insurance clauses contain waiver provisions?
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.
What are the provisions of “waiver of co-insurance” clauses?
When losses are less than 2% of the amount of insurance and less than $5000, the provisions of co-insurance clauses will not be applied.
Will the “waiver of co-insurance clause” apply to the following loss?
Loss - $1200
Policy Limit - $150,000
ACV of Property - $250,000
Yes - because the loss is less than 2% of the amount of insurance and less than $5000.
What is the purpose of the “stated amount” co-insurance clauses?
To replace the provisions of the standard co-insurance clause with the requirements of the stated amount co-insurance clause.
What requirements must be met by the insured when co-insurance clauses are replaced by “stated amount” co-insurance clauses?
- Insured must submit a statement of values indicating 100% of all property insured.
- Values indicated on statement of values must be verified by appraisal or other method acceptable to insurer.
- These values must be insured for the duration of the policy period.
All policies contain exclusions. List five types of exclusions and provide 2 examples of each.
- Commercially Uninsurable - i.e., War
- May be Catastrophic - i.e., Flood & Earthquake
- Other forms of insurance may be available - i.e., Automobile & Valuable Papers
- May be expected by the insured and/or in the control of insured - i.e., Wear and Tear & Mechanical Breakdown
- Not ‘common’ exposures - i.e., Exterior communication towers & building under construction
What is a condition?
A condition requires insureds to do or not to do something
Insurers will not exercise their right of subrogation against certain parties. Explain.
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 (i.e., bank/person who lent money to insured and are shown as loss payable on policy)
Identify three stipulations of property protection system clauses placed upon clients.
- The insured must notify insurer of any interruption, flaw or defect in any property protection system that comes to their knowledge
- The insured must notify insurer forthwith of any lapse, cancellation or non-renewal of any maintenance or monitoring contract of any property protection system
- The insured must notify insurer forthwith when notification of suspension of police service is received regarding response to any property protection systems
How are losses paid on:
1. Unsold Stock?
2. Sold stock?
3. Customer’s property upon which work is being performed?
- Unsold Stock - losses are paid on the basis of actual cash value
- Sold Stock - losses are paid on the basis of selling price less any discounts given to customer
- Customer’s property upon which work is being performed - 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.
What are two types of property receiving ‘special basis of settlement?
- Tenant’s Improvements
- Records
What is a warranty?
Warranty = a promise made by insureds that certain facts are as represented and will remain so
Describe the four elements of ‘locked vehicle warranties’.
- All property must remain in vehicle or in a fully enclosed metal compartment
- All doors and windows of the vehicle containing the property insured must be securely closed and locked
- Force was used to gain access to vehicle containing the property insured
- Visible signs of use of force are present on the vehicle containing the property insured
What is ‘material fact’?
Material Fact = 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
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?
- Previous claims
- Number of loss payables
- Previous declinations or cancellations from other insurers
- Fear of persons harbouring ill will against the insured
What rights do insures have when misrepresentation occurs?
Insurers may void the policy on which the misrepresentation was linked
Provide a summary of: Notice of Authorities; Sue and Labour; Pair and Set; Parts
- Notice of Authorities - Any loss involving a criminal act must be reported to authorities
- Sue and Labour - Insureds must take all steps reasonable to recover lost of damaged property after insured losses
- 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
- Parts - When losses involve property which are part of a set only the lost or damaged part of the set will be insured
