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CII IF3 > Chapter 6: Insurance Products - Commercial Insurances > Flashcards

Chapter 6: Insurance Products - Commercial Insurances Flashcards

1
Q

What are the main types of commercial property insurance?

A 
Fire and special perils
"All Risks"
Theft
Glass
Money
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2
Q

What are the 3 main parts of a standard commercial property fire insurance?

A

Fire
Lightning
Explosion (boilers and gas for domestic purposes only)

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3
Q

What special perils can be included in a commercial fire and special perils policy?

A 
Explosion from other sources (except steam)
Aircraft (except sonic boom)
Riot and civil commotion
Malicious damage/vandalism
Earthquake
Spontaneous combustion
Underground fire
Storm + flood
Impact
Escape of water, including sprinkler leakage
Subsidence, ground heave and landslip
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4
Q

What are the standard exclusions under a commercial property fire and special perils policy?

A

Common market exclusions - war, nuclear, pollution, sonic booms

Terrorism (can be purchased extra, usually PoolRe)

Marine policies

More specific insurance

Cyber risks

Consequential loss (eg loss of profits/income)

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5
Q

What is commercial property all risks insurance?

A

Essentially fire and all special risks with an “all risk” element added including accidental damage.

Does not cover everything as the name implies, it actually covers everything not specifically excluded - exclusions may still apply

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6
Q

What are the four groups of exclusions under a standard commercial property all risks insurance? What are some examples of each?

A

Absolute: War, pollution, contamination, consequential loss

Gradually operating: corrosion, rust, wind, rain

Aspects of cover which can be written into the policy: glass, money, subsidence

Property or risks more appropriate to another class of business: motor vehicles

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7
Q

How is theft defined in law and what statute does it come from? How does the definition differ for insurance purposes?

A

Theft Act 1968: Dishonestly appropriating property belonging to another with the purpose of permanently depriving the other of it

Insurance extends this to say it must include force or violence in breaking in or out

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8
Q

What are some common optional extensions to commercial property theft insurance?

A

Temporary removal (covers the property when temporarily stored at another location)

Glass breakage

Replacement of locks + keys

Extended or full theft (the violent entry/exit requirement is removed)

Index linking (links the sum insured to the retail price index to accurately value the property. Requires a premium adjustment at the end of the policy period)

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9
Q

What are standard exclusions under a commercial property theft insurance?

A

Fire and explosion
Collusion (can be included)
Livestock
Cash (should be under a money policy)

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10
Q

What does the term EML mean in respect of commercial property theft insurance? Why is it used?

A

Estimated maximum loss. The amount, often expressed as a %age of sum insured, that the insurer considers the maximum that could be lost in one foreseeable event. This is usually less than the total sum insured and is used to price the policy.

This is used because it is unlikely that everything would be stolen at the same time

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11
Q

What is the purpose of commercial property glass insurance? Why might a commercial property want glass insurance even if they have a fire or theft policy in place?

A

To provide “all-risks” cover to glass breakages and usually the cost of boarding up the window until glass can be replaced.

Useful as even though glass would be covered under a fire/theft policy if one was in place there may be some exceptions that could cause glass breakage (eg accidental damage)

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12
Q

What is commonly excluded from a commercial property glass insurance?

A

Scratching/chipping

Fire/lightning/explosion (because these are covered under a standard fire policy)

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13
Q

What is a common extension to a commercial property glass insurance?

A

Damage to contents near the window

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14
Q

In a commercial property money insurance policy, what is meant by the “negotiability” of money? What are examples of non-negotiable and negotiable items?

A

How easy it is to convert into it’s cash value

Non-negotiable eg crossed checks/postal orders, premium bonds, credit sales vouchers

Negotiable eg cash, bank/currency notes, uncrossed checks or postal orders, postage stamps, gift tokens/vouchers

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15
Q

On what sort of basis is commercial property money insurance usually offered?

A

All risks of damage or destruction of money, plus damage to safes or strong rooms

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16
Q 
For commercial property money insurance what sort of limits will apply to:
A) Non negotiable money?
B) Money stored in safes?
C) In the premises out of hours?
D) In the house of an employee/director
E) Under an escort warranty?
A 
A) often £250,00 or £500,000
B) Usually between £1,000 - £10,000 (depends on the safe)
C) £250 usually
D) up to £250 usually
E) Usually between £1,000 - £10,000
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17
Q

For commercial property money insurance what sort of limits will negotiable items have?

A

Modest limits depending on location or time. EG:

"In transit"
"In/out of safe"
"Out of business hours"
"In house of director/employee"
"Any other money" - this is the limit of the money on premises during working hours and in transit
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18
Q

What does the term escort warranty mean when talking about commercial property money insurance?

A

When the amount of money in transit is over a certain amount the insurer may require it to be accompanied by a certain number of people

eg less than £1000 only one person is needed
£1,000 - £10,000 two people
£10,000+ three people

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19
Q

What common extensions are usually available for a commercial property money insurance policy?

A

Personal accident
Assault
Credit card theft

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20
Q

What are the usual standard exclusions to a commercial property money insurance policy?

A

Error/omissions in accounting
Dishonesty of employees not discovered within 7 days
Damage outside the UK
Theft due to a key left on the premises out of hours

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21
Q

What sort of losses does pecuniary insurance relate to?

A

Losses involving direct financial loss. Pecuniary insurance indemnity will always involve the payment of money (ie it is something that cannot be repaired/replaced)

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22
Q

What are the two main types of pecuniary insurance?

A

Business interruption

Legal expenses

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23
Q

What is covered by business interruption insurance?

A

Material loss of earnings or additional expenses incurred as a result of a material loss covered under property insurance

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24
Q

Why would a business want business interruption insurance?

A

Income may reduce or even cease as a result of property damage or there may an increase in costs to keep operating

But overheads still need to be paid eg wages

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25
Q

When talking about business interruption insurance, what is the indemnity period?

A

The longest period for which business interruption insurance will support the business. Chosen by the insured prior to inception, usually 12/24/36 months, essentially an estimate of the longest possible time the income of the business could be effected. This may exceed the policy period

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26
Q

What is the sum insured for business interruption policies based on?

A

Gross profit over the indemnity period

Gross profit = (Turnover + closing stock) - (Uninsured working expenses + closing stock)

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27
Q

For business interruption policies what are uninsured working expenses?

A

Costs which vary in direct proportion to the turnover, eg raw materials, utility costs, carriage and packaging

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28
Q

What does the term “increased costs of working” mean in relation to business interruption policies?

A

Costs incurred so that the business can go on operating in order to reduce the loss of gross profit. The cost must be economic (less than the loss of profit they prevent)

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29
Q

In business interruption policies what is the material damage proviso?

A

A policy condition requiring a property policy to be in force for an incident before the business interruption policy will operate. This is why the policies are normally linked and businesses will take out a combined PD/BI policy covering both physical damage and business interruption

30
Q

Why do insurers normally include a material damage proviso in a business interruption policy?

A

If there is an insurance policy covering the damage to the property then it will likely be repaired quicker than if there was no policy in place, which limits the period of business interruption

31
Q

What are some common extensions to a business interruption policy?

A

Specified suppliers (failure to deliver goods)

Unspecified suppliers (as above but to a pre-set limit)

Specified customers (unable to purchase goods)

Goods in transit

Prevention of access

Disease/murder/suicide

Failure of public utilities

Contract site where the insured is working

32
Q

What is provided by legal expenses insurance?

A

Covers a company’s costs from the need to take action in court or to defend themselves against action brought against them.

Also covers the cost of their time spent in court

33
Q

What does a standard legal expenses policy cover?

A

A selection of:

Employment disputes (unfair dismissal)
Property disputes
Motor cover (uninsured loss recovery)
Copyright/trademark/patent disputes
Tax proceedings
Criminal defence (usually health and safety related, things such as fines are not covered as this would be against public policy)
34
Q

What are the main types of liability insurance?

A 
Employer's liability
Public liability
Product liability
Pollution liability
Professional indemnity
Medical malpractice
Directors' and officers' insurance (D&O)
Errors and omissions insurance (E&O)
35
Q

In general, what is the purpose of liability insurances?

A

To cover costs or expenses arising out of negligence/lack of care in our duty to act in a reasonable way towards others and to not injure them or damage their property

36
Q

How can negligence be defined?

A

Doing something which a reasonable or prudent person would not do, or omitting to do something which a reasonable or prudent person would do

37
Q

What does the Employers’ Liability (Compulsory Insurance) Act 1969 state?

A

Employers must be insured against liability for bodily injury or disease sustained by their employees in the course of their employment

A certificate of insurance must be displayed in each place of work (this has since been modified to allow for electronic copies)

38
Q

What is the minimum limit of indemnity for employers liability as set out by the Employers’ Liability (Compulsory Insurance) Act 1998? What limits does the market usually offer?

A

The minimum limit of indemnity is £5 million, including costs

In practice the market standard is £10 million, with sublimits of £5 million for terrorism and workers temporarily working abroad

39
Q

What is cover provided for in an employers’ liability insurance policy?

A

The insured’s (employer’s) legal liability only for bodily injury or disease sustained during the course of employment as a result of the employer’s negligence.

Pure accidents which do not result from the employer’s negligence are not covered

40
Q

What is the measure of indemnity for employers’ liability insurance?

A

The claimant’s (employee’s) costs and expenses as well as any damages awarded by the court

41
Q

In an employers’ liability policy how is an employee defined?

A

Any person who is under a contract of service or apprenticeship with the insured. Usually extended to include self-employed people wholly or mostly engaged by the insured and people doing work experience

42
Q

In an employers’ liability policy how is “during the course of employment” usually defined?

A

Usually the moment the employee arrives at work (“passes through the boundary gates”). Can also apply when the employee is not at the usual premises if they are engaged in work elsewhere

43
Q

What are some common extensions to an employers’ liability policy?

A

Defence costs and expenses of the insured

Adding additional insured (eg directors or partners)

Compensation for attending court

Unsatisfied court judgements by a third party for an employee if in connection to a work activity

44
Q

In employers’ liability insurance the business activities of the insured may be defined in the policy, or exclusions may be made for certain types of machinery. What happens in the event of a claim outside of these activities or for something excluded?

A

As it is a compulsory insurance the insurer cannot refuse to deal with the claim but instead has a right of recovery against their insured (the employer)

45
Q

What is covered under commercial public liability insurance?

A

All liability that is not excluded to a third party for damages + costs in respect of bodily injury, disease, illness, or death, and for any loss of or damage to property. Consequential loss is included

There must be legal liability/negligence on behalf of the insured

46
Q

Other than the standard common market exclusions, what else is commonly excluded in a commercial public liability policy?

A

Contractual liability (for it to be covered the insured must be legally liable)

Deliberate acts (the insured must be negligent)

Costs of rectifying defective work

Losses which would be more fittingly covered under a different type of insurance (eg first party property, employee injury, products, professional negligence, motor, boilers etc)

47
Q

What is covered under standard product liability insurance?

A

Legal liability for third party bodily injury or property damage from goods or products manufactured, constructed, altered, repaired, serviced, sold, supplied, treated, or distributed by the insured

48
Q

How is product liability insurance usually purchased?

A

Usually packaged with public liability in a combined PPL policy

49
Q

What are the common exclusions in a standard product liability policy?

A

Deliberate losses
Contractual liability
Damage to the products
Faults with the products

The last two are because the policy is not concerned with the insured’s products - only the insured’s liability arising from them

50
Q

What is usually covered under a standard pollution liability insurance policy?

A

Indemnity to the insured in relation to a sudden, identifiable, unintended and unexpected. It must take place at a specific moment in time and place in it’s entirety during any one period of insurance

51
Q

A covered event under a standard pollution liability insurance policy occurs. The pollution effects several parties. How many claims are made?

A

One - all pollution arising out of an insured event is treated as one claim

52
Q

What is covered in a professional indemnity insurance policy?

A

A professional’s liability for injury, property damage, or financial loss sustained by a client as a result of a failure in their professional duty or negligent acts, errors or omissions in their duty

53
Q

On what basis of cover are professional indemnity policies usually issued?

A

Claims made rather than losses occurring. This means the claim attaches itself to the year the claim was made rather than when the loss occurred. For example if the advice was given in 2019 but the third party made a claim in 2020 about it, the claim would fall under the 2020 policy period, not under the 2019 period as it would under an occurrence policy

Effectively this mean new claims would always be reported to the current insurer

54
Q

Why do professional indemnity insurances contain a retroactive date?

A

A retroactive date is normally applied from the first date the insured has held uninterrupted insurance and is used by the insurer to exclude claims relating to work/advice before the insured had coverage in place

Note that it does not have to have been with the same insurer as you should not be penalised for changing insurer - just that uninterrupted coverage has been in place

55
Q

What cover is provided by Directors’ and Officers’ insurance?

A

Indemnifies directors in respect of their personal liability for financial loss suffered by third parties

Also indemnifies the company in circumstances where they can indemnify the D&O’s, eg repayment of legal costs

56
Q

What is Errors and Omissions insurance?

A

A type of professional indemnity insurance specifically protecting against claims of inadequate work or negligent actions in their duty

57
Q

Who in insurance is required to hold errors and omissions insurance?

A

Insurance intermediaries (eg brokers)

58
Q

Why might a claim be made against a insurance intermediary’s E&O insurance?

A

The policy does not do what the client expected or what the broker said it would do

59
Q

What does medical malpractice insurance cover?

A

Protection against damages and legal costs for claims of bodily/personal injury or damage against people in the medical profession. Patients may claim the insured did not take reasonable care, or they did not recover as quickly or as well as expected

60
Q

How does the ABI define cyber insurance?

A

Insurance covering losses relating to damage to, or loss of information from, IT systems and networks

61
Q

What is commonly covered by cyber insurance?

A

Loss of data/software
Damages to third parties following loss of data or breach of privacy
Reputational risk for losing customer data
Loss of business from interruption to systems
Theft of money through electronic means
Extortion by threatening to release data
Defence costs from legal action as a result of loss of data

62
Q

Does cyber insurance cover first or third party? What is the difference?

A

Both under different circumstances

First party relates to the insured
Third party relates to anyone else other than the insured and the insurer

63
Q

The Public Order Act 1986 defines how many people must be gathered for something to constitute as a riot. How many people does it say?

A

12

64
Q

What did the Enterprise and Regulatory Reforms Act 2013 do and what is the likely impact of this?

A

Removed the strict negligence attached to employers - claimants must now prove negligence. This is likely to increase the number of claims involving contributory negligence

(This has yet to really be tested in court)

65
Q

Under the Riot Compensation Act 2016 what is the limit to the amount that can be claimed from the police?

A

£1 million

Does not apply to consequential loss

66
Q

Under the Riot Compensation Act 2016 how long is given to claim compensation from the police?

A

42 days with a further 90 to submit full details

67
Q

How long must employers keep their employers’ liability certificate of insurance?

A

40 years

68
Q

What did the Riot Compensation Act 2016 exclude cover for?

A

Consequential losses

69
Q

How is the policy limit applied in a pollution liability policy?

A

In the aggregate during any one period of insurance

70
Q

How long does an insured normally have to notify their insurer of damage arising from riot or civil commotion? Why is this limited?

A

7 days

This is because the insurer can only subrogate from the police if they submit the claim to them within 42 days so the insurer needs to be promptly notified of the claim

CII IF3 (11 decks)

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