Complete Review - All Chapters Flashcards
Review of entire textbook
What are the possible uses of buildings?
- Residential (people to live in)
- Mercantile (they sell things - grocery store, retail)
- Non-Mercantile (least risky of commercial uses ex. public services, church, doctor office)
- Industrial (warehousing, manufacturing etc.)
3-4 are commercial which are riskier.
What are the 3 types of commercial property?
3 Types of Commercial Property: assets of commercial occupancies
Building
Equipment
Stock
What are the two types of coverage for commercial property?
Scheduled (can be limited by class or item) **only want to insure a specific item or class
All Property (all under one limit) **Blanket
What are commercial risks?
Risks for non-residential purposes.
Which 5 items are defined as a “building”? FPESD
THESE FORM PARTS OF BUILDING COVERAGE
- Fixed structures on premises and pertaining to a business (i.e. fence/signage)
- Permanent fixtures forming part of a building (lighting fixtures/plumbing fixtures)
- Extensions or additions in contact with the building. (canopies/porches/walkways)
- Supplies on premises for maintenance (shingles) and minor changes (new carpet) or building services (cleaning supplies) **cleaning supplies are part of the building
- Decorative indoor plants if the insured is the landlord.
Which 3 things define “Stock”? UPP
- “Usual” merchandise (grocery store = fruits/veggies/canned foods)
- Packing & Advertising Materials (grocery bags/pamphlets)
- Property of others if similar to that insured under the policy, if obligated to insure, and if the insured is legally liable for its loss. (watch repair - a customer’s watch)
Which 3 things define “Equipment”? UPT
- “Usual” contents (insurance office - printer/filing cabinets)
- Property of others if similar, obligated, and liable (same as stock)
- Tenant Improvements if paid for by non-owning insured (the difference between TIs and Building is who pays for it) TIs = Tenant Building = Owner/Insured
Which Coverage Option is preferred by brokers? Reinsurance or subscription?
Reinsurance - with subscription, a broker has to run around finding different insurance companies to participate. With Reinsurance, the broker only needs to find one insurance company to work with.
What are the 3 ways to determine Insurance Values? (ARB)
ACV, Replacement Cost, Book Value
What are the five ways to calculate ACV? FC MV IM TVO BE
- Formula/Cost Method
- Market Value
- Income Method
- True Value to Owner
- Broad Evidence
(ACV) What is the Formula/Cost Method?
Replacement Cost - Depreciation
There are two ways to calculate Depreciation - straight line or plateau.
Straight Line: Assume depreciation is constant - same rate every year
Plateau: Depreciates most in the first few years - the most in the first few years.
(ACV) What is Market Value?
Determined by expert opinion of land and property before and after loss. Expert would look before and after and subtract one from the other.
Disadvantage: hard to get a fair value and may not be equal to the loss of the insured. There’s some subjectivity here.
(ACV) What is the Income Method?
Net Income x Capitalization Rate
This method is used for dilapidated income properties.
(ACV) What is True Value to Owner
Used if other methods don’t capture the owner’s special situation (property is extremely well maintained for its age) owner negotiates with the insurance company.
(ACV) What is Broad Evidence?
Combines all methods of ACV calculation.
What is Replacement Cost?
No depreciation factored in, an appraisal is required.
What is Book Value?
Purchase Price - Depreciation - Write Offs (good for tax, bad for insurance) **results in a very small amount - do not use
What is Minimum Retained Premium?
Cost to underwrite the policy - this is used to ensure that underwriting costs are recouped. **minimum amount the insurance company has to keep even when issuing a refund
What is Reinsurance?
Cedes part of the risk to re-insurers (spread the risk) If the insurance company purchases insurance on the insurance policy they just wrote.
What are 3 characteristics of Reinsurance?
- Share losses/premiums
- Contract between insurer & reinsurer
- Controlled (do the policy work) & claims paid by primary insurer
What is a Subscription Policy?
Group of insurance companies comes together and agrees to insure.
**when you have to and when you want to
When are subscription policies used?
- Line not covered by reinsurance treaty.
- Protect reinsurers from the risk.
- Per-claim limit is too big to absorb in one loss.
- Broker wants to spread a good risk among markets.
What are the characteristics of Subscription policies?
- Share premiums & losses
- Negotiated separately
- Claims paid separately
What is a Lead Insurer?
The first insurer listed on the policy or the one with the biggest stake. Provides services & collects premiums.
What’s the difference between Subscription and Reinsurance policies?
In subscription policies, all insurers are listed on the policy.
What are the 14 Common Policy Clauses? I D CI E BC R S PPS PA VV PG BV SBS P LVW
Indemnity
Deductible
Co-Insurance
Exclusions - Property & Peril
Breach of Conditions
Reinstatement
Subrogation
Property Protection Systems (fire alarms/extinguishing)
Premium Adjustment
Verification of Values
Permissions Granted
Basis of Valuations
Special Basis of Settlement
Property of Others
Locked Vehicle Warranty
What is the Indemnity policy clause? (14 common policy clauses)
Will pay the insured the least of ACV, Interest of Insured, Amount of Insurance on the declaration pages.
What is the Deductible policy clause? (14 common policy clauses)
Amount of insured must pay before any claims are paid out.
- 1 per occurrence
- Larger deductible = lesser premium
- Purpose is to limit petty claims.
What is the Co-Insurance clause? (14 common policy clauses)
Payout = (did/should) x loss amount
There is a requirement for the insured to insure up to:
ACV x co-insurance %
If this is not met, no full payout
The purpose of this clause is to average the loss - this is applied per item and is waived when there is a Total Loss or when loss is below minimum. When loss is below minimum, the cost to prove compliance w/ coins may be greater than the cost of the loss itself.
What is the Stated Amount Co-Insurance clause? (14 common policy clauses)
There is a co-insurance penalty if the Amount of Insurance is less than the Statement of Values.
Requires a statement of values and to maintain those values throughout the policy term.
Purpose - mitigate the effects of inflation on loss amounts.
What is the Co-Insurance Penalty?
Payout = Amount you did buy / amount you should have bought * loss amount
When is Co-Insurance waived?
The purpose of this clause is to average the loss - this is applied per item and is waived when there is a Total Loss or when loss is below minimum. When loss is below minimum, the cost to prove compliance w/ coins may be greater than the cost of the loss itself.
What are the two types of exclusions (14 common policy clauses)?
Property (what we are covering) & Peril (how it is covered)
Why have exclusions?
- Already has a specialized policy
- Commercially uninsurable **not profitable to insure
- Potential for catastrophic loss **war/nuclear energy
- In the control of the insured or expected (wear & tear / application of heat)
- Rare and risky things (Course of Construction, communication towers, property in possession of sales rep, etc.) **not every insured has this type of exposure, outsized level of risk - because of this, it doesn’t make sense to bundle with “general” policies and make everyone pay for it.
- Illegal activity
What is a condition?
A requirement to do or not do something.
What are two types of conditions?
Statutory - By Law
Policy - By Insurer
What is a Breach of Conditions (14 common policy clauses)?
Failure to do or not do something.
When is a Breach of Conditions OK?
If the Insured had no control OR if a loss was unrelated to the breach of conditions.
What is Reinstatement (14 common policy clauses)?
The same insurance after loss as before the loss.
What is Subrogation (14 common policy clauses)?
Insurer has the right to “step into the shoes of the insured” and has the same legal rights (to recover damages)
Who can you not subrogate against?
Entities who are party to the insurance contract (insurable interest & loss payees) - anyone who receives payment or benefit from the insurance policy.
Insurance company will ALWAYS sue for the whole amount - even those not covered by the policy.
What are Property Protection Systems (14 common policy clauses)?
Fire extinguishing, Fire Detection, Intrusion Detection
What is the benefit of Property Protection Systems?
You will receive rate credit
What are the Insured’s obligations if Property Protection Systems are installed?
- Notify the Insurer ASAP of any known flaws or interruptions.
- Notify the Insurer if monitoring/maintenance has ceased.
- Notify if police services have been suspended.
What happens if a Subrogation Lawsuit is won?
If the amount is greater than the Amount of Insurance but less than damages, the difference is shared by the percentage of loss borne.
SIMPLIFIED: If the insurer wins extra money (after deducting costs) and you are not fully indemnified, they will share the extra money with you.
What is a Premium Adjustment (14 common policy clauses)
Applies on Amount of Insurance (Stock)
- Should insure up to the maximum value of stock
**If the Amount of Insurance is too much - premium can be returned
Conditions:
- Within 6 months after policy expiry
- Must complete a Premium Adjustment Form and have it verified by the accountant **it must show the stock present at each premises on the last day of each month.
- Maximum Amount Returned - 50% of premium
What is Verification of Values?
Insurer can inspect during the policy period and up to 1 year after expiry.
What is the purpose of Verification of Values?
- Confirm that the values insured are real and reasonable
- Determine the values present at the time of a previous loss.
- Check the existence of other insurance to share in the loss. **they don’t want you claiming on multiple policies
What are Permissions Grantedto the Insured?
Permissions are granted in three instances:
1. Other concurrent insurance (must be the same in every way)
2. Additions/Alterations/Repairs (but MUST report if the property value goes up)
3. Do work & keep articles usual/needed and in quantities usual/needed
What is the Basis of Valuations? (14 common policy clauses)
- Sold = Selling Price - Discounts
- Unsold Property = ACV up to Replacement Cost
- Property of other in custody for work (if liable) = ACV + Cost of Work
- Tenant Improvements:
- If repaired with due diligence & dispatch = cost to fix up to ACV
- Or else = original cost of loss x % of lease remaining (from improvement date)
- Business Records:
- Records = blanks + cost to recopy (if electronic, cost to
duplicate from back ups)
- Records = blanks + cost to recopy (if electronic, cost to
- All Others = minimum of either ACV or Cost to “Fix”
What is Property of Others? (14 Common Policy Clauses)
Insurer can settle with the owner OR the Insured
Settling w/ Insured = good if there are many claimants - the insured then compensates claimants.
What is the Locked Vehicle Warranty? (14 Common Policy Clauses)
Warranties are a guarantee that certain facts are true and shall remain true.
Excludes goods in custody of common carrier
Requires:
(1) Locked
(2) Enclosed metal compartment/body
(3) Used force to get in
(4) Signs of forced entry
What does a Locked Vehicle Warranty Require? (LEUS)
Requires:
(1) Locked
(2) Enclosed metal compartment/body
(3) Used force to get in
(4) Signs of forced entry
What are Statutory & Commercial Property Conditions?
Statutory conditions are part of every policy. Policy conditions are set by the Insurer
What are Statutory Conditions? FMF
Breach of Good Faith
1. False description of property to the prejudice of the insurer **has to harm the insurance company in some way.
2. Misrepresentation of material facts
- Material Facts = insurer would change decisions if known
- includes: Matters inherent in Property & Personal Info - claim history, vacancy, use of premises, # mortgages, previous cancellations/refusals
- Non-Material Facts = Reasonable for the insurer to know already, can discover if insurer asked after given enough information, waived requirement to know, facts that make the risk better, need not be disclosed because of policy condition.
3. Fraudulent Omission of Material Facts = willful act intended to cheat & cause loss to others or gain to self.
**insurer must prove misrepresentation caused/contributed to the loss - if this is proven, the contract is void - duty to disclose until policy expiry.
**False descriptions of property have to be “to the prejudice of the insurer” for it to be considered a breach. In other words, as long as it doesn’t disadvantage the insurance company in any way, it is OK (review the roof age example in the lecture).
It is also considered OK if the statement in question is not a material fact. Remember: a material fact is something that would change the insurer’s decision if they had known about it (ie. charge a higher premium, increase the deductible, decline to insure, etc)
What are Policy Conditions? NNSPP
Notify authorities ASAP if a crime has occurred
No Benefit to Bailee: Insured cannot release bailee of liability
Sue & Labour: take reasonable steps to recover property
Pair & Set: loss of 1 part does not equal the loss of the whole set
Parts: loss of 1 does not equal loss of all.
What are the 6 types of policy? F FEC NP BF P M
Fire
Fire & Extended Coverages
Named Perils
Broad Form
Package (E&O Package)
Manuscript (Special exposures for which there is no standard package)
Identify 3 out of 5 ways to calculate ACV
There are 5 calculation methods you can pick from.
Formula/Cost Method: Basically replacement cost minus depreciation. With depreciation, there are 2 ways to calculate: straight line (constant depreciation) or plateau (depreciates most in the 1st few years).
Market Value: An expert evaluates the value of the property before loss & after loss to determine loss amount. This might not be equal to the insured’s actual loss sustained.
Income Method: Is calculated by net income multiplied by capitalization rate. This method is only really used for dilapidated income properties.
True Value to Owner: Is used when other methods don’t capture the owner’s special situation (ie. if the property is very well maintained for its age, normal depreciation calculations would not produce an adequate amount).
Broad Evidence: combines all of the above methods to come up with a number.
Briefly explain subscription and when it would likely be used.
When a group of insurers come together to agree to insure a risk, that is called a subscription policy. With subscription policies, all insurers are listed on the policy.
Subscription is used when:
- The line of insurance is not covered by reinsurance treaty. In this case, because an insurer cannot pass on part of the risk via reinsurance, they will not want to insure it alone.
- Insurers want to protect their reinsurers from the risk. Just like your brokerage has a loss ratio to maintain, so do insurers. Insurers will opt for subscription if they cannot insure it on their own but passing on the risk will hurt their reinsurer relationships.
- The per-claim limit is too big to absorb. With reinsurance, the primary insurer has to pay claims up front before collecting from their reinsurers. If the claim is large, they may not have the liquid cashflow to do that and so they will opt for subscription intead.
- Broker wants to spread a good risk among markets. If you have a good, high-quality risk, you might want to share this with the different insurers you do business with to strengthen your loss ratio or business relationship. In this case, you would go through the extra work to use subscription.
What are the 3 types of Commercial Property?
Building, Stock, Equipment
Your client runs a hardware store, what sort of stuff would count as “stock” under commercial property insurance?
A. Dental Drill
B. Cookbooks
C. Soft Drinks
D. Brochures advertising a new line of screwdrivers
D. Stock includes merchandise that is usual to the business along with any packaging or advertising materials.
Which coverage option is usually preferred by brokers?
A. Subscription Policy
B. Reinsurance Policy
B. With subscription, a broker has to run around finding different insurance companies to participate. With reinsurance, the broker only needs to find 1 insurance company to work with.
Which of the following is not an obligation if you have property protection systems installed?
A. Notify insurer ASAP of any flaw or interruption that you are aware of
B. Notify insurer if monitoring/maintenance contracts has ceased
C. Notify the insurer if police services have been suspended
D. Remember to turn on the alarm every time you close the shop and leave for the night
D. Once you claim a property protection system discount, you must ensure that you continue to have those property protection systems in place.
Which is not considered a breach of good faith?
A. All false descriptions of property
B. Misrepresentation of Material Facts
C. Fraudulent omission of Material Facts
A. False descriptions of property have to be “to the prejudice of the insurer” for it to be considered a breach. In other words, as long as it doesn’t disadvantage the insurance company in any way, it is OK (review the roof age example in the lecture).
It is also considered OK if the statement in question is not a material fact. Remember: a material fact is something that would change the insurer’s decision if they had known about it (ie. charge a higher premium, increase the deductible, decline to insure, etc)
What is the role of the broker?
- First Line Underwriter
- First contact with clients
- Submit accurate application
Submission = Application + Verbal & Written Info
Previous policy details, photos, claims history, etc.
Duties of the Broker
Survey, Search, Meet with Client, Bind, Review, Deliver
What does Search mean?
“Shop the Risk” searching for an insurer
What are factors and affect premiums? (4 things)
- Construction Type
- Common Hazards
- Special Hazards
- Supplementary Information
What are the 5 types of construction? F NC HT O F
Listed from Best to Worst:
1. Fire Resistive (withstands 2-3 hours of controlled fire)
2. Non-Combustible: Structural members are non-combustible
3. Heavy Timber: Structural members are made of heavy timber (wood)
4. Ordinary: only load bearing exterior walls are non-combustible
5. Frame: all walls are made of wood.
What 5 things need to be checked if a building is over 25 years old? RWBPH
- Roof
- Wiring
- Breakers
- Plumbing
- Heating
What are 5 common hazards?
- Electrical: metal used & breaker vs. fuses
- Heating: type, fuel, chimney
- Occupancy: what the building is used for
- Protection: private (installed by insured - sprinklers, fire suppression systems, etc.) or public (installed by municipality/outside sources) / protected or unprotected (external protection is an unreasonable distance from the risk)
**protection is used to prevent/reduce loss - Detachment: proximity to nearby risks (commercial buildings)
What are Special Hazards?
Some operations are inherently risky (welding/deep fat frying)
What is the Broker’s Statement/Extra Information
This can be business history, insurance history, finances, supporting business, previous insurance denials - this information shows the history and character of the insured and their business.
Similar to a character reference.
What do different sized Underwriting Departments handle?
Small - local risks
Large - complex/big risks
National - highly complex (u/w are experts)
What are 4 Underwriting Activities?
S C R S
- Selection - pick the most profitable risks to take on
- Classification - grouping based on probability of loss
- Rating - determining premium to charge
- Service - paperwork (billings/endorsements/cancellations/etc.)
What are three factors that impact premium?
- Interest Rates - opportunity costs of other investments
- Inflation
- Social Inflation - something that wasn’t popular before but is now (pollution/cyber security/etc.)
What are the two types of “markets” for insurance?
- Hard Market - less competition, margins are low, strict underwriting, no discounts. No incentive to attract premium dollars to “invest” with
- Soft Market - more competition, ROI is good, insurers give more discounts to attract more premium dollars - less strict underwriting.
What is a Hazard?
A condition that may cause a peril to occur
What are the 3 kinds of Hazards?
- Physical
- Moral
- Morale
What is a Physical Hazard?
Through use of tangible property.
- Building Construction
- Occupancy
- Housekeeping - general state of the building
- External Exposures - location (near forest, restaurants, manufacturing)
- Protection - public/private
- Geography - affects your ability to get help.
What is a Moral Hazard?
Related to the character of the applicant
- Financial Condition of the applicant
- Associates - known association with felons
- Ethical character of the applicant
What is a Morale Hazard?
Attitude of the Applicant
- Indifference to loss
- Poor Management - no loss prevention
What is Individual Classification?
Classifying a risk based on the merits of each individual application rather than the class of business.
Looks at the insured/their business specifically instead of just as a “restaurant business”
What are the 2 main sources of underwriting information?
Internal
- Loss Experience Date - of a specific class of business
- Inspection Reports - character of risk & applicant
External
What are the 2 main sources of underwriting information?
- Internal
- Loss Experience Date - of a specific class of business
- Inspection Reports - character of risk & applicant
*Results in recommendations (mandatory or suggested)
- Field Representative - sent to verify that the information given is correct and to inspect the premises
- Claims Information - frequency, severity, type
- Production Records - look at broker’s loss ratio, mix, volume, years in business **accommodation business (favor to broker) / supporting business (other insurance that the applicant has with the same company (i.e. supporting GL or Property)
- Manuals - Ensure consistent selection & rating
- Colleagues - For info on broker & client - External
- Broker - knows the business and personal reputation of client
- Government - property tax assessment, mortgage, liens, bankruptcy
- Credit Score
- Consumer Investigation Reports: shows the general business reputation
What happens with Improper Classification?
Can result in too much or too little premium being charged
What are the 4 results of an Underwriting Decision
- Accept
- Reject
- Charge More Premium
- Deductible Increase
What is the IAO
Insurance Advisory Organization
What does the IAO do?
Loss control services
Training
Risk Inspection
Actuarial Consulting
Which of the following is NOT a broker’s duty?
A. Survey
B. Search
C. Meet With Client
D. Evaluate the Risk
E. Bind
F. Review/Deliver
D - Evaluate the risk.
Which ONE of the following types of construction is considered the best?
A. Non-Combustible
B. Fire Resistive
C. Heavy Timber
D. Ordinary
E. Frame
B - Fire Resistive
Which of the following is NOT a factor that generally affects premiums?
A. Interest Rates
B. Inflation
C. Seasonality
D. Social Inflation
C - Seasonality
Housekeeping is an example of what type of hazard?
A. Physical
B. Moral
C. Morale
A - Physical
Housekeeping refers to the general state of the building which is physical hazard (related to the use of tangible property).
Pick 3 Underwriting Activities and briefly explain each of them.
There are 4 underwriting activities you could have chosen:
- Selection: the underwriter is responsible for picking the most profitable risk to take on (ie. the one who would pay premiums on time and would rarely ever claim anything).
- Classification: the underwriter categorizes the business (or “risks”) you bring them based on probability of loss (this helps them set price).
- Rating: determine what to charge for the risk
- Service: this means paperwork (billing, endorsements, cancellations, renewals, etc)
Coinsurance Explainer - Review Card
Coinsurance is basically a requirement that the insured purchase a limit of insurance of at least some % of insured values. Ex: $1,000,000 property w/ 70% coinsurance = a minimum limit of $700,000 required. It’s not something you pay for, it’s the insurance company forcing you to buy a certain amount of insurance.
If he doesn’t, his payout would be penalized according to the coinsurance formula: (amount he did buy / amount he should have bought) x loss amount.
But coinsurance does not always apply. The waiver of coinsurance basically says that the coinsurance clause/penalty will only be applied to partial losses that are greater than 2% of his amount of insurance or $5000.
For example, if he bought a $350,000 limit and had a loss of $400,000, it’s a total loss (loss greater than the limit) and so coinsurance would not apply - he’d get $350,000.
If he had a loss of just $2000, its too small and therefore coinsurance would not apply - he’d get $2000. In plain language, coinsurance does not apply to losses that are too big (total) or too small (under 2% or $5000).
If he had a $100,000 loss, it’s not too small and not to big so coinsurance applies. Since he should have bought $700,000, his payout will be penalized. He would get (350k/700k) * 100k = $50k. He bought half of the insurance he was supposed to buy so he only gets half the money he should have gotten.
What is included on a Declaration Page?
- Names of Interested Parties
- Policy Period 12:01 AM based on the insured’s location
- Payees - who will receive compensation if there’s a loss
- Coverage / Amount of Insurance
- Premium/Rates
- Subject/Location of Insured Property
What is Loading?
Rate charged to add coverage above the basic fire rate/coverage.
Example -
Fire Rate = 7/100 - 0.07
Flood = 3/100 0.03
Earthquake = 2/100 0.02
Total Rate = 0.12
What is Fire Coverage?
Essential and the most common type of coverage - all policies must be built from Fire Coverage because all policies must include at minimum fire coverage.
What are two types of exclusions from Fire Coverage?
Property & Peril
What are the 3 Major Causes of Fire?
MAM
- Malfunction - of mechanical or electrical equipment
- Arson - Attempted or actual setting of fires
- Misuse - Of ignition sources - kids playing with matches
In addition to Fire what else does Fire Coverage cover?
Lightning and explosion of natural gas, coal, or manmade gas
What are Extensions of Coverage for a Fire Policy?
Removal of Property (if property is necessarily removed to protect it, up to 7 days, you will have coverage) - unnamed location - this is shared between insured location/unnamed location
Debris Removal (pay to remove debris after an insured loss - no testing/cleaning of polutants)
Which Perils are excluded from a Fire Policy? AWNND
- Application of Heat
- War/Insurrection
- Nuclear Incident
- Nuclear Contamination
- Damage to Electrical Devices by artificial currents
**first 4 are excluded across the board by all policies
What Property is excluded from a Fire Policy? V VU M B
- Vehicles (specialized coverage is available)
* exception is those used exclusively on premises for business. - Vacant & Unoccupied (for 30 consecutive days)
- Money (including stamps and coins)
- Bylaw Coverage (increased cost to rebuild given new bylaws) **needs to be purchased separately
What does it mean when a property is vacant?
No normal occupants with no intention to return
What does unoccupied mean?
Lack of habitual human presence
What are typical bylaw changes?
Improved materials, fire extinguishing systems, ramps, sprinklers, alarms, accessibility, etc.
What is the Named Perils Coverage Form? FSWILLER
FIRE
SMOKE
WINDSTORM/HAIL
IMPACT BY CRAFT
LIGHTNING
LEAKAGE
EXPLOSION
RIOT
- Fire/Lightning
*lightning causing damage to electrical devices or causing fire - Smoke
*Includes: smoke from sudden and unusual faulty operation of a stationary furnace.
*Excludes: cumulative damage, smoke from portable furnace, industrial sources/fireplace - Windstorm or Hail
*excludes: interior & contents unless hole is opened by w & h, movement of land or water - Impact by Craft (air, land, space, water)
*includes: craft impact and damage by objects dropped from crafts
*excludes: damage caused by craft in control of insured or his employee, damage to impacting craft, while taxing in and out of hangar, cumulative damage. - Lightning
- Leakage: from Fire Protective Equipment
*Includes: Leakage/Collapse/Rupture due to freezing
*Excludes: Domestic-type equipment / Production Equipment (some machines have fire suppression built in) - Explosion: Similar to what’s covered under the Fire Policy
*Includes: Explosions caused by gas escaping to open air, excluded objects not in the control of the insured, or portable gas canisters (propane/acetylene/argon)
*Excludes: Portion under steam pressure / Pipes/fixtures under steam pressure, tank under > 15 PSI of pressure, objects undergoing pressure testing / gas turbines / fire box / smelt tanks
** All objects excluded above are covered if not in the control of the insured (i.e. your neighbour’s boiler blows up) - Riot/Vandalism/Malicious Acts
*Excludes: Business Interruption/Damage Caused by changes in temperature / Flood due to uninsured explosion / theft
*Riot definition must: include violence, have more than 3 people, clear & present danger
*definition includes open assembly of strikers
What does Broad Form mean?
Everything is included EXCEPT exclusions.
What are the Broad Form Peril Exclusions? Know 10
- War
- Terrorism
- Nuclear Incident (including contamination)
- Criminal Act or Employee Theft **can be endorsed
- Bylaw Enforcement **can be endorsed
- Earthquake
- Flood ***Unless caused by water main leakage or while in transit & resultant damage is covered (smoke, fire, explosion, leakage i.e. named perils)
- Influx of Water through Openings from Nature/Sewer Backup/Openings caused by Peril **unless occurring at the same time and resulting from an insured period *Influx of water includes seepage/leakage/etc.
- Centrifugal Force & Equipment Breakdowns
*Mechanical breakdown: failure of working mechanism
*Electrical Breakdown: failure of electrical mechanism
*Centrifugal Force: inertia of a body moving away from its centre of rotation - Earth Movement *snow or land slide
**Coverage is included if in transit, resultant damage (fire, explosion, smoke, leakage) - Dampness/Dryness/Change In Temperature / Utilities Interruption
*Covered if caused by: rupturing of water pipes, freezing of insured pipes, Named Perils, Theft, Transit Accident - Trade Losses & Other Losses (covered if caused by rupturing/freezing of insured pipes, named perils, theft, transit accidents)
- Smoke from Industrial Sources
- Loss from Vermin
- Other Explosion:
Policy excludes losses caused by: (similar to Named Perils) *Boiler & pipes (the actual objects) *Apparatus under water/steam pressure (ie. borrowed heat devices) *Vessels under pressure > 15 psi (except domestic ones < 24 inches in diameter & portable gas tanks) *Moving parts/machinery * Parts under pressure testing (dmg to other property = OK) *Gas turbine
**Resultant Fire is covered - Settling/Shifting: excluded because some movement is normal - covered if directly caused by an insured peril.
- Illegal Drug Operations
- Pollution Exclusion
- Data
20: Fungi & Spores - Rust/Corrosion
- Wear & Tear
- Gradual Deterioration / Latent Defect
- Mysterious disappearance
- Cost of Making Good - improper material/design/workmanship
What are the Broad Form Property Exclusions? Know 10
- Property at Vacant/Unoccupied locations for 30 consecutive days
- Illegal Property
- Stuff being worked on in the care custody and control of the insured (resultant fire/explosion is covered as usual)
- Money/Securities (including bullion, evidence of debt, title, stamps, tickets, etc.) **need protection before insuring
- Vehicles (except watercraft held for sale or unlicensed vehicles on premises for business purposes i.e. golf card or go-kart)
- Furs/Jewels/Watches (unless caused directly by a named peril or first $1000 of an insured loss)
- Damage caused by artificial electricity (resultant fire/explosion damage is covered)
- Pressure Vessel > 15 PSI & Commercial boiler > 24 Inches
**Covered: domestic boilers < 24 inches (regardless of PSI)
**Covers: (same as in named perils - portable gas cylinders, explosions of gas, explosion within furnace or in passage to air) - Property leaving custody of the insured if:
* Leasing to others, conditional sale, custody of carrier for delivery at their own risk. - Property off-premises in custody of a sales rep (can be endorsed)
- Outside plants
- Animals (unless caused by a named peril or theft)
- Property while Waterborne or Covered by Marine Policy **Unless waterborne in connection with land transport (BC Ferries)
- Paved Surface *unless first $10,000 of insured loss
- Exterior Glass **Unless by Named Perils
- Watermains beyond bearing walls/foundation (no insurable interest, its owned by the city) & attached equipment (antennae, signage, etc. - too risky and too expensive **unless caused by a named peril.
What are the advantages of Broad Form? 7 Reasons
- Water Damage by Freezing
- Crash by insured(s) including employee
- Smoke (excluding agricultural smuding)
- Domestic Boiler under 24 inches
- Theft
- Collapse (various types)
- All other losses.
What are universally excluded broad form exclusions?
- Theft by employee
- Shortage upon inventory
- Mysterious Disappearance
- Wear & Tear
Remember the endorsements and extensions of coverages because they represent deficiencies in the main property coverages - by remembering these, you can remember exclusions in the policy.
**they require special endorsements
What are extensions of coverage?
They do not increase limits but broaden the coverage in the policy. They are subject to the same conditions as the policy itself.
What do common extensions cover?
NR DR PP BD
- Necessary Removal (prevents further loss)
- Debris Removal (=<25% loss amount + deductible and excludes cleaning and testing of pollutants)
- Personal Property of Officers & Employees (Max $250 per person) **items that you insure and are liable for **loss must occur on premises
- Building Damage by Theft & Related Vandalism **covered if:
- Insured is not the owner of the building (tenant)
- Insured is liable for (in the lease agreement)
- Not otherwise insured
- $2,500 per occurrence
- Fire is excluded - Outside Plants if by Named Peril (excluding wind) OR Theft
* Limited to: $500 per plant and $5000 per occurrence
**Deductible is still applied per occurrence to extensions
What are Rate Credits given for? NISSACD
New Construction
Increase in Deductible
Sprinklers
Sole Occupant
Alarms
Claims Free History
Detachment - minimum distance from other risks.
What is a Commercial Insurance Package Policy?
A bunch of coverages lumped together as a “standard” package offered for custom businesses.
What is a typical package policy?
Property Insurance
Business Interruption
Liability Insurance
Crime Insurance
What are the advantages of a package policy?
- Simple Application
- Price Determined on the spot - easy to obtain a quote
- Adequate protection for most businesses/cases
- Broad enough to cover most things.
What do you do if you need coverages that are excluded?
Implement Riders, Endorsements, or Separate Policies