Commercial Property Insurance

Question 1

Several separate forms must be combined to make up a complete commercial property policy. An ISO standard commercial property policy is composed of:

Answer 1

• declarations page(s)
• a common policy conditions form
• a commercial property conditions form
• other interline endorsements (where applicable)
• one or more coverage form(s)
• one or more causes of loss form(s)
• endorsements (where applicable)

Question 2

The commercial policy conditions form addresses various issues that apply to all commercial policy forms (not only commercial property forms) concerning:

Answer 2

• cancellation
• changes
• examination of the insured’s books and records
• inspections and surveys
• premiums
• transfer of rights and duties under the policy

Question 3

is attached to nearly all commercial property policies, contains conditions that apply only to coverage under an ISO commercial property policy

Answer 3

The Commercial Property Conditions (CP 00 90) form

Question 4

The Commercial Property Conditions (CP 00 90) form includes these policy conditions:

Answer 4

• concealment, misrepresentation, and fraud
• control of property
• insurance under two or more coverage parts of the policy
• legal action against the insurer
• liberalization
• no benefit to bailee
• other insurance
• policy period and coverage territory
• transfer of rights of recovery

Question 5

Commercial: Causes of loss forms describe what causes of loss to insured property are covered, along with any limitations or exclusions that apply to coverage for those causes of loss. There are three causes of loss forms:

Answer 5

• Basic Causes of Loss Form
• Broad Causes of Loss Form
• Special Causes of Loss Form

Question 6

The ISO building and personal property coverage form establishes three categories of covered property:

Answer 6

• building property
• business personal property of the insured
• personal property of others

Question 7

includes both indoor and outdoor fixtures. In real estate law, a fixture is generally understood as an item that has been physically attached to land or to a building or structure in such a manner as to indicate an intent that it remain part of the real property. Examples of fixtures would include indoor light sconces, signs attached to buildings, a flagpole set in concrete on the insured premises, and light poles in the parking lot.

Answer 7

Building Property

Question 8

includes property in the open or in a vehicle within 100 feet of the described premises. Coverage applies not only to furniture and fixtures, machinery and equipment, and stock. category includes leased personal property, such as a photocopier, that the insured is contractually obligated to insure.

Answer 8

Business Personal Property

Question 9

category of covered property is personal property of others in the insured’s care, custody, or control. This applies to such property while located on or in the premises or in the open or a vehicle within 100 feet of the described premises.

Answer 9

Personal Property of Others

Question 10

Personal property of others would include:

Answer 10

• property that the insured leases from others
• property lent to the insured
• property of visitors
• property of employees

Question 11

Additional Coverages: debris removal

Answer 11

Cost of removal of debris of covered property damaged by a covered cause of loss, subject to a maximum of 25 percent of the amount of the direct damage loss, plus the amount of the deductible. An additional $10,000 of debris removal coverage applies if the property damage and debris removal loss together exhaust the limit of insurance.

Question 12

Additional Coverages: pollutant cleanup and removal

Answer 12

Expenses to remove pollutants from land or water at the insured premises, subject to a maximum of $10,000, provided that the release of the pollutants is caused by a covered cause of loss.

Question 13

Additional Coverages: fire department service charges

Answer 13

Service charges imposed by a fire department service called to protect property from a covered cause of loss, up to $1,000. The 2007 edition of this form allows for a higher limit if indicated in the declarations.

Question 14

Additional Coverages: preservation of property

Answer 14

Loss to covered property that must be moved to another location to protect it from damage by a covered cause of loss. Coverage applies during the move and for up to 30 days at the new location.

Question 15

Additional Coverages: increased cost of construction

Answer 15

Increased costs incurred to comply with ordinances or laws regulating the construction or repair of buildings or establishing zoning or land use requirements, up to $10,000 for each damaged building insured on a replacement cost basis. This coverage applies only to costs associated with damaged property. If coverage is needed for demolition or increased cost of construction of undamaged portions of the property, it must be added by endorsement.

Question 16

Additional Coverages: electronic data

Answer 16

Cost of replacing or restoring electronic data that has been destroyed or corrupted by a covered cause of loss, including a computer virus, subject to an annual aggregate limit of $2,500.

Question 17

Coverage Extensions: newly acquired property

Answer 17

Temporary coverage for loss to buildings under construction at scheduled locations and newly acquired buildings at other locations, for up to $250,000 per building; and temporary coverage for loss to personal property at newly acquired premises and newly acquired personal property at scheduled locations, for up to $100,000 per building. Coverage expires 30 days after acquisition or start of construction, when values are reported, or when the policy expires—whichever occurs first.

Question 18

Coverage Extensions: personal effects and property of others

Answer 18

Loss to personal effects of the insured and the insured’s employees, and to personal property of others, for up to $2,500 at each location. No coverage applies to loss of personal effects by theft.

Question 19

Coverage Extensions: valuable papers and records

Answer 19

Loss to valuable papers and records, including the cost to research and restore information contained in valuable papers and records damaged by a covered cause of loss, for up to $2,500, unless a higher limit is shown in the declarations.

Question 20

Coverage Extensions: property off-premises

Answer 20

Loss to property at a fair, exposition, or trade show; property in storage at a location leased after the inception of the policy; and property temporarily away from the insured premises at locations not owned, leased, or operated by the insured, for up to $10,000.

Question 21

Coverage Extensions: outdoor property

Answer 21

Loss to outdoor property, consisting of trees, shrubs, plants, detached signs, fences, and antennas, for up to $1,000. A sublimit of $250 each applies to trees, shrubs, and plants. Covered perils for this extension are limited to fire, lightning, explosion, riot and civil commotion, and aircraft.

Question 22

Coverage Extensions: nonowned detached trailers

Answer 22

Loss to nonowned detached trailers used in the insured’s business and in the insured’s care, custody, and control, for up to $5,000, unless a higher limit is shown in the declarations

Question 23

Condominium Association Coverage Form: A unit owner’s insurance clause grants permission for a unit owner to have insurance covering the same property and establishes that the coverage provided under the association form is primary. The form also includes a ___.

Answer 23

waiver of subrogation.

Question 24

Residential condominium units are normally insured under a homeowners policy form ___

Answer 24

HO 6

Question 25

Builders Risk Coverage Form. Coverage ends at the earliest of the following five dates:

Answer 25

• when the policy expires or is canceled;
• when the property is accepted by the purchaser;
• when the insured’s interest in the property ends;
• when the insured abandons construction with no intention to complete it or 90 days after project completion; or
• 60 days after any building is occupied, in whole or in part, or put to its intended use.

Question 26

Business Income and Extra Expense Coverage: Business income coverage is added to a standard commercial property policy by including either of the two business income coverage forms:

Answer 26

• business income and extra expense coverage form

* business income coverage form without extra expense

Question 27

Commercial: This can be obtained by using either the combination business income and extra expense coverage form or a separate extra expense coverage form that covers only extra expenses.

Answer 27

Extra expense coverage

Question 28

Commercial: The insurer will pay the actual amount of loss suffered by the insured, rather than some predetermined sum. The amount of business income loss is determined by considering

Answer 28

• the amount of expense in excess of normal operating expenses that would otherwise have been incurred;
• the salvage value of property purchased for temporary use; and
• expenses that reduce the business income loss.

Question 29

The amount of the loss that is not payable to the insured as a result of failure to comply with the coinsurance provision is commonly referred to as a

Answer 29

coinsurance penalty.

Question 30

The form provides coverage for sums the insured is obligated to pay as a result of accidental damage from a covered cause of loss to property of others described in the declarations that is in the insured’s care, custody, or control.

Answer 30

legal liability coverage form .

Question 31

The forms contain no additional language that describes, explains, or limits the coverage provided for fire and lightning. The courts generally designate fires as either “friendly” or “hostile” and find coverage only for

Answer 31

Hostile Fires

Question 32

This peril includes a type of explosion known as a combustion explosion: the explosion of gases or fuel within the furnace, flues, or passages of a fired vessel (such as a furnace). However, it specifically excludes damage from the operation of ___

Answer 32

Explosion peril.

Operation of safety valve used on pressurized equipment

Question 33

The windstorm and hail cause of loss excludes damage by

Answer 33

frost, cold weather, snow, ice, or sleet, even if wind driven.

Question 34

Windstorm and Hail It also excludes damage to the interior of a building or its contents caused by rain, snow, sand, or dust—unless:

Answer 34

the roof or exterior walls of the building are first damaged by wind or hail.

Question 35

Smoke that accompanies a fire would be covered under the fire cause of loss. The smoke peril provides coverage for smoke that occurs

Answer 35

in the absence of a fire.

Question 36

smoke from agricultural smudging (where smoke is used to prevent frost or insect damage to growing plants) or industrial operations is included or excluded?

Answer 36

excluded.

Question 37

This peril involves damage to insured property caused by direct physical contact between the insured property and an aircraft or vehicle, an object falling from an aircraft, or an object thrown up by a vehicle. However, there is no coverage for damage caused by a vehicle

Answer 37

owned or operated by the insured

Question 38

The riot and civil commotion cause of loss does not define these terms. However, it specifically includes acts of

Answer 38

striking employees and looting in connection with a riot or civil commotion

Question 39

Vandalism is the causing of willful and malicious damage to covered property. Loss due to theft is specifically excluded, except for

Answer 39

building damage caused by the entry or exit of burglars.

Question 40

Sprinkler leakage is an unwanted discharge from an automatic fire extinguishing system. Coverage applies not only to leakage but also to sudden discharge of

Answer 40

water from the system caused by an accident or system malfunction.

Question 41

This peril involves damage to property resulting from sinkhole collapse, defined in the form as “the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite.” The sinking or collapse of land into man-made underground cavities (a mine, for example) is expressly excluded, as is

Answer 41

The cost of filling sinkholes

Question 42

Volcanic action is loss from the eruption of a volcano caused only by lava flow, ash, dust, and airborne volcanic blast or shock waves. The form specifically excludes the cost of

Answer 42

ash, dust, or particles from otherwise undamaged property.

Question 43

Broad form only: The falling objects cause of loss applies to damage to buildings or structures, and to personal property contained within buildings, provided

Answer 43

the roof or walls are first damaged by the falling object

Question 44

Broad form only: damage from the weight of snow, ice, or sleet is covered except for property

Answer 44

in the open. Damage to personal property outside of buildings or structures is specifically excluded.

Question 45

Broad form only: The water damage peril applies only to accidental discharge or leakage of water or steam resulting from the breaking apart or cracking of a plumbing, heating, air-conditioning, or other appliance or system on the premises. When a covered loss occurs, the cost to tear out and replace portions of a structure in order to repair the leaky appliance or system is covered, but the cost of ___ is not.

Answer 45

repairs to the appliance or system.

Question 46

Water Damage (Broad Form Only):Coverage for this peril is limited by several exclusions

Answer 46

• No coverage applies to discharge or leakage from a sump system.
• No coverage applies to discharge of water from roof drains, gutters, or downspouts.
• Loss from continuous or repeated seepage or leakage of water occurring over a period of 14 or more days is excluded.
• Loss from the presence or condensation of humidity, moisture, or vapor occurring over a period of 14 or more days is also excluded.
• Loss caused by freezing is covered only if a reasonable attempt is made to maintain adequate heat in the building, or if the system is drained and the water supply shut off.

Question 47

Additional Coverage: Collapse (Broad Form Only): The collapse additional coverage grants coverage for loss from the (3)___, ___, or ___ provided that the collapse was the result of a specified peril to which coverage applies.

Answer 47

collapse of a building, a part of a building, or personal property in a building,

Question 48

The exclusions in the basic and broad causes of loss forms are separated into two groups

Answer 48

a concurrent causation exclusion and anti-concurrent causation language.

Question 49

The water exclusion is essentially a flood exclusion that includes an elaborate definition of flood. However, any resulting ___, ___, or ____ is covered.

Answer 49

Fire, explosion or sprinkler leakage.

Question 50

Earth Movement:

This exclusion prevents coverage for virtually any type of earth movement. However, ensuing __ __ are covered.

Answer 50

Fire losses

Question 51

Many communities have ordinances that require any building which has been damaged to some specified extent (typically, ___ percent) be demolished and reconstructed in compliance with current building codes.

Answer 51

50%

Question 52

The ordinance or law exclusion prevents coverage for the cost to demolish and rebuild the undamaged portion of a covered building. It also prevents coverage for the increased cost of rebuilding in compliance with current codes, except for

Answer 52

the $10,000 of coverage granted in the increased cost of construction coverage extension

Question 53

No coverage applies when a governmental entity seizes property or orders that it be destroyed. However, destruction ordered to ___ __ ___ __ __ is covered

Answer 53

prevent the spread of a fire

Question 54

The nuclear hazard exclusion eliminates coverage for nuclear reaction or radiation or radioactive contamination. However, ___ is covered.

Answer 54

ensuing fire loss

Question 55

There is no coverage for damage by war or military action, not even for ensuing fire. This exclusion does not eliminate coverage for damage resulting from

Answer 55

terrorist acts
However, commercial property policies can be endorsed to exclude losses due to terrorism or to limit coverage for loss due to terrorism, in accordance with applicable state and federal law.

Question 56

Damage from explosion of boilers and other steam equipment is excluded under all three causes of loss forms, but ensuing fire or combustion explosion damage is covered. This exclusion does not exclude coverage for damage from a boiler explosion if

Answer 56

the insured is a tenant in a building where a boiler explosion occurs

Question 57

•The special causes of loss form covers most types of theft. The only theft coverage provided in the basic and broad causes of loss forms is for

Answer 57

looting in connection with a riot.

Question 58

•It is more difficult OR easy for an insurer to deny coverage under the special causes of loss form

Answer 58

Difficult.

Question 59

Like the basic and broad causes of loss forms, the special causes of loss form starts with a “covered causes of loss” section, establishing what causes of loss are covered. This section of the special form is very short. A single sentence states that the policy covers

Answer 59

a direct physical loss to covered property unless an exclusion or limitation applies.

Question 60

In the event of a covered loss to a building identified as covered in the endorsement schedule, the endorsement provides three separate coverages

Answer 60

• loss to the undamaged portion of the building (Coverage A);
• the cost of demolishing the undamaged portion of the building (Coverage B); and
• the increased cost of reconstruction or repairs to comply with current ordinances or laws (Coverage C).

Question 61

Ordinance or Law Coverage (CP 04 05) This endorsement addresses only the direct damage portion of the ordinance or law loss exposure. Another endorsement is needed to add coverage for

Answer 61

income loss or expense increase resulting from building ordinance compliance.

Question 62

The spoilage coverage endorsement is designed for businesses that process, store, or sell perishable items that must be maintained under controlled conditions to avoid damage. The endorsement provides two coverage options, either or both of which may be purchased

Answer 62

• breakdown or contamination coverage

* power outage coverage