Chapter 7 - Commercial Property Insurance Flashcards
State the basic difference between the Named Perils and Broad Form policies.
- The Named Perils policy identifies the perils that are insured within the policy:
- Broad Form policies insure against all risks of direct physical loss or damage subject to policy conditions and exclusions. In other words, the loss is insured unless a specific exclusion in the policy says it is not.
Identify five insurance coverages provided by the Broad Form policy that are not provide by the Named Perils Form.
- Vehicle impact damage to insured’s buildings, even when caused by insured’s or their employees.
- All sources of smoke damage, excluding agricultural smudging or industrial operations.
- Water damage due to freezing or rupture of water lines.
- Theft
- Collapse
Identify five factors used by insurers in establishing the base rate to be charged for insuring commercial property.
- Construction
- Protection
- Public protection
- Private protection - Occupancy
- Location
- Claims History
Each of “building”, “stock”, and “equipment” include a number of items, the value of which must be included in the total amounts of insurance purchased. Identify at least three other specific types of property which can be insured under the definition of “building”, “stock”, and “equipment.”
Building: Metal perimeter fencing; an attached lean-to or addition to an insured building; wall to wall carpeting.
Stock: Merchandise; packing, wrapping & advertising materials; similar property to others which the insured is under obligation to keep insured.
Equipment: Fixtures, furnishings, fittings, machinery, tools & appliances.
Identify the types of losses to which the Co-Insurance Clause applies.
The provisions of the co-insurance clause apply to partial losses only.
Summarize the solution devised by insurers to discourage people from deliberately under-insuring.
The co-insurance clause was designed to apply a penalty for all partial losses when insureds purchased less insurance than specified by the insurer. The minimum insurance limit(s) of insurance required to be purchased is usually set by the insurer at no less than 80% of the ACV of the property insured.
State the formula for the calculation of the settlement amount on policies containing the co-insurance clause.
Did/Should x Amount of Loss = Settlement
Did = amount of insurance purchased
Should = Percentage of Insurance Required (usually 80% of ACV) x ACV
Explain the coverages provided for “Debris Removal.”
If the limits of insurance have not been fully used to pay for damage insured by the policy, the insurer agrees to allow insureds to use any remaining amounts to pay for debris removal.
Summarize the provisions for the “Reinstatement Clause.”
By the terms of this clause, insureds shall have as much insurance on property after an insured loss as they had immediately prior to it. In other words, the limits of insurance provided by the policy remain unchanged for the entire policy period, regardless of the number and amounts of claims paid.
While the “Subrogation Clause” recognizes the right of the insurer to collect the amount of any loss paid by it from the party responsible for the loss, the insurer agrees not to exercise that right in all cases. Explain.
Exercising this legal right against certain people would be unfair. For example,, there would be little sense in having insurance if a business partner responsible for the loss had to reimburse the insurer for amounts paid. For this reason, the insurer agrees not to exercise the right of subrogation against any party having an insurable interest in the property insured.
Ex. Payees, business partners & subsidiary firms
Identify three obligations placed upon insureds by the “Property Protection Systems” clause.
Insureds must notify the insurer immediately when:
1. They know there is an interruption to, or flaw or defect in such system
2. Any contract providing monitoring or maintenance services to such systems has been cancelled or not renewed
3. They have been provided with notification of suspension of police service in response to any such system.
Summarize the provisions of the “Locked Vehicle Warranty.”
When the insurer agrees to provide transit coverage, the Locked Vehicle Warranty applies.
Warranted by the insured that any vehicle which the property insured is carried is equipped with a fully enclosed body or compartment, and the insurer shall be liable in case of loss by theft from an unattended vehicle only as a direct result of forcible entry (of which there shall be visible evidence) into such body or compartment, the doors of which are securely locked and the windows closed.
Identify the evidence required before the insurer will agree to make payment under Burglary Insurance.
Policies providing burglary insurance will pay only when there is evidence that force was used to take insured property.
Identify the evidence required before the insurer will agree to make payment under
Robbery Insurance.
Policies providing robbery insurance will pay when:
* Actual or threatened force is used to take insured property from a person having control over it.
* Insured property is taken from a custodian who is killed or rendered unconscious.
* The custodian witnessed the taking of insured property by a person not authorized to have it.
Identify the evidence required before the insurer will agree to make payment under
Theft Insurance.
Theft insurance insures property taken without the owner’s consent. Due to the broad definition given to theft, insureds who purchase theft coverage do no need to purchase burglary or robbery coverages for the same property. To qualify for coverage, insureds need only show that the insured property was taken without their consent.
Identify two key coverages provided by a Boiler and Machinery Policy.
Loss or damage to buildings resulting from the explosion of the following objects owned, operated or controlled by the insured:
1. Boilers & Pressure vessels operating in excess of 15 pounds/sq. inch.
2. Electrical or mechanical breakdown.
Identify three different types of property items insured by the Builders Risk - Broad Form (IBC 4042)
- The value of all materials owned by the insured or others which will enter into and form a part of the completed project.
- The value of landscaping, temporary buildings, forms, hoardings and scaffolding can be included if the insured so wishes.
3, Coverage can be added for materials (a) in transit; or (b) at any other location.
The project is not expected to be completed for at least 10 months. The general contractor wants to purchase only $50,000 at the start and to increase that amount as needed. Explain whether the insurer would be prepared to insure the policy on this basis.
Even though it may be some months before the project is completed, insureds are required to purchase an amount of insurance which is equivalent to its completed value. This helps to avoid the endless flow of paper which would occur if insureds were able to request changes in insurance amounts throughout the duration of the project.
Identify four characteristics common to Business Interruption policies.
Business Insurance is designed to restore lost income after a loss to the level it would have been had the loss not occurred.
1. A Contract of Indemnity
2. Insures Same Perils as Property Policy
3. Coverage Not Limited to Policy Period
4. Pay Expenses When They Reduce Amount of Loss.
State the basic difference between the Earnings Form and profits Form.
Earnings Form - Coverage commences at the time of loss and continues until the property is rebuilt, repaired or replaced.
Profits Form - Coverage commences at the time of loss and ceases when the income is restored to the level it would have been had the loss not occurred.
a) State the purpose of Extra Expense insurance.
b) Provide three examples of extra costs insured by this policy.
a) This form insures all necessary extra expenses incurred by insureds in continuing normal business operations after a loss incurred by the insured had the loss not occurred.
b) 1. rental of temporary premises
2. rent temporary equipment
3. install telephones
4. pay overtime salaries
5. pay bonuses for quick service
Mops, laundry detergent when insured is owner of the building and no other coverages have been purchased.
Building
Wrapping paper, tape, and packing material.
Stock
Portable sign on lawn.
Equipment
