Complete Review - All Chapters Flashcards
Review of entire textbook
1
Q
What are the possible uses of buildings?
A
- 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.
2
Q
What are the 3 types of commercial property?
A
3 Types of Commercial Property: assets of commercial occupancies
Building
Equipment
Stock
3
Q
What are the two types of coverage for commercial property?
A
Scheduled (can be limited by class or item) **only want to insure a specific item or class
All Property (all under one limit) **Blanket
4
Q
What are commercial risks?
A
Risks for non-residential purposes.
5
Q
Which 5 items are defined as a “building”? FPESD
A
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.
6
Q
Which 3 things define “Stock”? UPP
A
- “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)
7
Q
Which 3 things define “Equipment”? UPT
A
- “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
8
Q
Which Coverage Option is preferred by brokers? Reinsurance or subscription?
A
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.
9
Q
What are the 3 ways to determine Insurance Values? (ARB)
A
ACV, Replacement Cost, Book Value
10
Q
What are the five ways to calculate ACV? FC MV IM TVO BE
A
- Formula/Cost Method
- Market Value
- Income Method
- True Value to Owner
- Broad Evidence
11
Q
(ACV) What is the Formula/Cost Method?
A
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.
12
Q
(ACV) What is Market Value?
A
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.
13
Q
(ACV) What is the Income Method?
A
Net Income x Capitalization Rate
This method is used for dilapidated income properties.
14
Q
(ACV) What is True Value to Owner
A
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.
15
Q
(ACV) What is Broad Evidence?
A
Combines all methods of ACV calculation.
16
Q
What is Replacement Cost?
A
No depreciation factored in, an appraisal is required.
17
Q
What is Book Value?
A
Purchase Price - Depreciation - Write Offs (good for tax, bad for insurance) **results in a very small amount - do not use
18
Q
What is Minimum Retained Premium?
A
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
19
Q
What is Reinsurance?
A
Cedes part of the risk to re-insurers (spread the risk) If the insurance company purchases insurance on the insurance policy they just wrote.
20
Q
What are 3 characteristics of Reinsurance?
A
- Share losses/premiums
- Contract between insurer & reinsurer
- Controlled (do the policy work) & claims paid by primary insurer
21
Q
What is a Subscription Policy?
A
Group of insurance companies comes together and agrees to insure.
**when you have to and when you want to
22
Q
When are subscription policies used?
A
- 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.
23
Q
What are the characteristics of Subscription policies?
A
- Share premiums & losses
- Negotiated separately
- Claims paid separately
24
Q
What is a Lead Insurer?
A
The first insurer listed on the policy or the one with the biggest stake. Provides services & collects premiums.
25
What's the difference between Subscription and Reinsurance policies?
In subscription policies, all insurers are listed on the policy.
26
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
27
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.
28
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.
29
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.
30
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.
31
What is the Co-Insurance Penalty?
Payout = Amount you did buy / amount you should have bought * loss amount
32
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.
33
What are the two types of exclusions (14 common policy clauses)?
Property (what we are covering) & Peril (how it is covered)
34
Why have exclusions?
1. Already has a specialized policy
2. Commercially uninsurable **not profitable to insure
3. Potential for catastrophic loss **war/nuclear energy
4. In the control of the insured or expected (wear & tear / application of heat)
5. 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.
6. Illegal activity
35
What is a condition?
A requirement to do or not do something.
36
What are two types of conditions?
Statutory - By Law
Policy - By Insurer
37
What is a Breach of Conditions (14 common policy clauses)?
Failure to do or not do something.
38
When is a Breach of Conditions OK?
If the Insured had no control OR if a loss was unrelated to the breach of conditions.
39
What is Reinstatement (14 common policy clauses)?
The same insurance after loss as before the loss.
40
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)
41
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.
42
What are Property Protection Systems (14 common policy clauses)?
Fire extinguishing, Fire Detection, Intrusion Detection
43
What is the benefit of Property Protection Systems?
You will receive rate credit
44
What are the Insured's obligations if Property Protection Systems are installed?
1. Notify the Insurer ASAP of any known flaws or interruptions.
2. Notify the Insurer if monitoring/maintenance has ceased.
3. Notify if police services have been suspended.
45
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.
46
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
47
What is Verification of Values?
Insurer can inspect during the policy period and up to 1 year after expiry.
48
What is the purpose of Verification of Values?
1. Confirm that the values insured are real and reasonable
2. Determine the values present at the time of a previous loss.
3. Check the existence of other insurance to share in the loss. **they don't want you claiming on multiple policies
49
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
50
What is the Basis of Valuations? (14 common policy clauses)
1. Sold = Selling Price - Discounts
2. Unsold Property = ACV up to Replacement Cost
3. Property of other in custody for work (if liable) = ACV + Cost of Work
4. 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)
5. Business Records:
- Records = blanks + cost to recopy (if electronic, cost to
duplicate from back ups)
6. All Others = minimum of either ACV or Cost to "Fix"
51
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.
52
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
53
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
54
What are Statutory & Commercial Property Conditions?
Statutory conditions are part of every policy. Policy conditions are set by the Insurer
55
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)
56
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.
57
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)
58
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.
59
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.
60
What are the 3 types of Commercial Property?
Building, Stock, Equipment
61
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.
62
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.
63
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.
64
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)
65
What is the role of the broker?
1. First Line Underwriter
2. First contact with clients
3. Submit accurate application
Submission = Application + Verbal & Written Info
Previous policy details, photos, claims history, etc.
66
Duties of the Broker
Survey, Search, Meet with Client, Bind, Review, Deliver
67
What does Search mean?
"Shop the Risk" searching for an insurer
68
What are factors and affect premiums? (4 things)
1. Construction Type
2. Common Hazards
3. Special Hazards
4. Supplementary Information
69
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.
70
What 5 things need to be checked if a building is over 25 years old? RWBPH
1. Roof
2. Wiring
3. Breakers
4. Plumbing
5. Heating
71
What are 5 common hazards?
1. Electrical: metal used & breaker vs. fuses
2. Heating: type, fuel, chimney
3. Occupancy: what the building is used for
4. 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
5. Detachment: proximity to nearby risks (commercial buildings)
72
What are Special Hazards?
Some operations are inherently risky (welding/deep fat frying)
73
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.
74
What do different sized Underwriting Departments handle?
Small - local risks
Large - complex/big risks
National - highly complex (u/w are experts)
75
What are 4 Underwriting Activities?
S C R S
1. Selection - pick the most profitable risks to take on
2. Classification - grouping based on probability of loss
3. Rating - determining premium to charge
4. Service - paperwork (billings/endorsements/cancellations/etc.)
76
What are three factors that impact premium?
1. Interest Rates - opportunity costs of other investments
2. Inflation
3. Social Inflation - something that wasn't popular before but is now (pollution/cyber security/etc.)
77
What are the two types of "markets" for insurance?
1. Hard Market - less competition, margins are low, strict underwriting, no discounts. No incentive to attract premium dollars to "invest" with
2. Soft Market - more competition, ROI is good, insurers give more discounts to attract more premium dollars - less strict underwriting.
78
What is a Hazard?
A condition that may cause a peril to occur
79
What are the 3 kinds of Hazards?
1. Physical
2. Moral
3. Morale
80
What is a Physical Hazard?
Through use of tangible property.
1. Building Construction
2. Occupancy
3. Housekeeping - general state of the building
4. External Exposures - location (near forest, restaurants, manufacturing)
5. Protection - public/private
6. Geography - affects your ability to get help.
81
What is a Moral Hazard?
Related to the character of the applicant
1. Financial Condition of the applicant
2. Associates - known association with felons
3. Ethical character of the applicant
82
What is a Morale Hazard?
Attitude of the Applicant
1. Indifference to loss
2. Poor Management - no loss prevention
83
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"
84
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
85
What are the 2 main sources of underwriting information?
1. 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
2. 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
86
What happens with Improper Classification?
Can result in too much or too little premium being charged
87
What are the 4 results of an Underwriting Decision
1. Accept
2. Reject
3. Charge More Premium
4. Deductible Increase
88
What is the IAO
Insurance Advisory Organization
89
What does the IAO do?
Loss control services
Training
Risk Inspection
Actuarial Consulting
90
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.
91
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
92
Which of the following is NOT a factor that generally affects premiums?
A. Interest Rates
B. Inflation
C. Seasonality
D. Social Inflation
C - Seasonality
93
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).
94
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)
95
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.
96
What is included on a Declaration Page?
1. Names of Interested Parties
2. Policy Period 12:01 AM based on the insured's location
3. Payees - who will receive compensation if there's a loss
4. Coverage / Amount of Insurance
5. Premium/Rates
6. Subject/Location of Insured Property
97
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
98
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.
99
What are two types of exclusions from Fire Coverage?
Property & Peril
100
What are the 3 Major Causes of Fire?
MAM
1. Malfunction - of mechanical or electrical equipment
2. Arson - Attempted or actual setting of fires
3. Misuse - Of ignition sources - kids playing with matches
101
In addition to Fire what else does Fire Coverage cover?
Lightning and explosion of natural gas, coal, or manmade gas
102
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)
103
Which Perils are excluded from a Fire Policy? AWNND
1. Application of Heat
2. War/Insurrection
3. Nuclear Incident
4. Nuclear Contamination
5. Damage to Electrical Devices by artificial currents
**first 4 are excluded across the board by all policies
104
What Property is excluded from a Fire Policy? V VU M B
1. Vehicles (specialized coverage is available)
* exception is those used exclusively on premises for business.
2. Vacant & Unoccupied (for 30 consecutive days)
3. Money (including stamps and coins)
4. Bylaw Coverage (increased cost to rebuild given new bylaws) **needs to be purchased separately
105
What does it mean when a property is vacant?
No normal occupants with no intention to return
106
What does unoccupied mean?
Lack of habitual human presence
107
What are typical bylaw changes?
Improved materials, fire extinguishing systems, ramps, sprinklers, alarms, accessibility, etc.
108
What is the Named Perils Coverage Form? FSWILLER
FIRE
SMOKE
WINDSTORM/HAIL
IMPACT BY CRAFT
LIGHTNING
LEAKAGE
EXPLOSION
RIOT
1. Fire/Lightning
*lightning causing damage to electrical devices or causing fire
2. Smoke
*Includes: smoke from sudden and unusual faulty operation of a stationary furnace.
*Excludes: cumulative damage, smoke from portable furnace, industrial sources/fireplace
3. Windstorm or Hail
*excludes: interior & contents unless hole is opened by w & h, movement of land or water
4. 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.
5. Lightning
6. 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)
7. 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)
8. 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
109
What does Broad Form mean?
Everything is included EXCEPT exclusions.
110
What are the Broad Form Peril Exclusions? **Know 10**
1. War
2. Terrorism
3. Nuclear Incident (including contamination)
4. Criminal Act or Employee Theft **can be endorsed
5. Bylaw Enforcement **can be endorsed
6. Earthquake
7. Flood ***Unless caused by water main leakage or while in transit & resultant damage is covered (smoke, fire, explosion, leakage i.e. named perils)
8. 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.
9. 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
10. Earth Movement *snow or land slide
**Coverage is included if in transit, resultant damage (fire, explosion, smoke, leakage)
11. Dampness/Dryness/Change In Temperature / Utilities Interruption
*Covered if caused by: rupturing of water pipes, freezing of insured pipes, Named Perils, Theft, Transit Accident
12. Trade Losses & Other Losses (covered if caused by rupturing/freezing of insured pipes, named perils, theft, transit accidents)
13. Smoke from Industrial Sources
14. Loss from Vermin
15. 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
16. Settling/Shifting: excluded because some movement is normal - covered if directly caused by an insured peril.
17. Illegal Drug Operations
18. Pollution Exclusion
19. Data
20: Fungi & Spores
21. Rust/Corrosion
22. Wear & Tear
23. Gradual Deterioration / Latent Defect
24. Mysterious disappearance
25. Cost of Making Good - improper material/design/workmanship
111
What are the Broad Form Property Exclusions? **Know 10**
1. Property at Vacant/Unoccupied locations for 30 consecutive days
2. Illegal Property
3. Stuff being worked on in the care custody and control of the insured (resultant fire/explosion is covered as usual)
4. Money/Securities (including bullion, evidence of debt, title, stamps, tickets, etc.) **need protection before insuring
5. Vehicles (except watercraft held for sale or unlicensed vehicles on premises for business purposes i.e. golf card or go-kart)
6. Furs/Jewels/Watches (unless caused directly by a named peril or first $1000 of an insured loss)
7. Damage caused by artificial electricity (resultant fire/explosion damage is covered)
8. 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)
9. Property leaving custody of the insured if:
* Leasing to others, conditional sale, custody of carrier for delivery at their own risk.
10. Property off-premises in custody of a sales rep (can be endorsed)
11. Outside plants
12. Animals (unless caused by a named peril or theft)
13. Property while Waterborne or Covered by Marine Policy **Unless waterborne in connection with land transport (BC Ferries)
14. Paved Surface *unless first $10,000 of insured loss
15. Exterior Glass **Unless by Named Perils
16. 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.
112
What are the advantages of Broad Form? 7 Reasons
1. Water Damage by Freezing
2. Crash by insured(s) including employee
3. Smoke (excluding agricultural smuding)
4. Domestic Boiler under 24 inches
5. Theft
6. Collapse (various types)
7. All other losses.
113
What are universally excluded broad form exclusions?
1. Theft by employee
2. Shortage upon inventory
3. Mysterious Disappearance
4. 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
114
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.
115
What do common extensions cover?
NR DR PP BD
1. Necessary Removal (prevents further loss)
2. Debris Removal (=<25% loss amount + deductible and excludes cleaning and testing of pollutants)
3. Personal Property of Officers & Employees (Max $250 per person) **items that you insure and are liable for **loss must occur on premises
4. 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
5. 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
116
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.
117
What is a Commercial Insurance Package Policy?
A bunch of coverages lumped together as a "standard" package offered for custom businesses.
118
What is a typical package policy?
Property Insurance
Business Interruption
Liability Insurance
Crime Insurance
119
What are the advantages of a package policy?
1. Simple Application
2. Price Determined on the spot - easy to obtain a quote
3. Adequate protection for most businesses/cases
4. Broad enough to cover most things.
120
What do you do if you need coverages that are excluded?
Implement Riders, Endorsements, or Separate Policies
121
What is an Endorsement?
Changes the terms of the policy
122
What is a Rider?
Adds additional coverage
123
What are examples of separate policies?
Equipment Breakdown, Computer, or Crime Policies
124
Do Endorsements, Riders or Separate Policies insure excluded property or perils?
Both
125
What is the Glass Rider?
Covers accidental damage by anyone (coverage without this is for named perils only)
126
Does a Glass Rider cover "Art" and "Lettering" on glass?
Yes
127
What are the two kinds of Glass Riders?
Blanket and Scheduled
**scheduled is better for risks like a church
128
Is Installation covered on a Glass Rider?
Yes
129
What needs to happen for scheduled coverage?
1. Type, number, size of glass
2. Location (inside or outside)
3. Description (no identification = no coverage)
130
What is the basis of settlement for the Glass Rider?
1. Temporary Repairs
2. Removing Obstructions
3. Fixing Frames (for example - in a showcase)
131
What is excluded from the Glass Rider?
VP W BL F D
1. Vacant Property
2. War
3. By-Laws
4. Fire
5. Damage during non-routine maintenance (construction or alteration)
132
What is the Accounts Receivable Form?
Covers records of debts owed.
133
Are Accounts Receivable covered by Commercial Property?
Commercial Property only covers blanks and the cost to recopy.
134
What does the Accounts Receivable Form Cover?
1. Loss due to inability to collect (either couldn't collect at all or couldn't collect the full amount.)
2. Interest incurred due to delay (i.e. if you have to borrow money to finance operations)
3. Extra collection costs incurred
4. Other expenses needed to remake the records (hiring accountants etc.)
135
Does this Accounts Receivable coverage need to be attached to a location?
Yes - coverage is only when on specified premises and if it's stored in a described receptacle when not in use - i.e. a locked filing cabinet.
136
What is excluded from the Accounts Receivable Form?
Electronic/Magnetic Injury - except by lightning
137
What is the Reporting Form Option relating to Accounts Receivable Form?
Similar to provisional premium stock insurance
Requirements: Must insure to the maximum amount exposed
Must report outstanding amounts monthly
**this allows you to insure fluctuations in AR without buying a higher limit.
138
How do you limit exposure to the risk of losing Accounts Receivable?
Storing/maintaining offsite backups.
139
What is Valuable Papers coverage?
Coverage for books, deeds, drawings, etc.
140
What happens if you do not have Valuable Papers coverage?
Your policy will only cover the blank value of items i.e. the paper and cost to print.
141
What is Valuable Papers Coverage?
It covers all risks while on premises and can be scheduled or blanket
142
What is a condition of Valuable Papers Coverage?
It must be stored in a described, secure receptacle when not in use.
143
Which locations does Valuable Papers extend to cover?
1. On Premises
2. In Transit
3. At Temporary Locations (accountants office or builder's office)
144
What is the payout if Valuable Papers are off-premises?
The lower of 10% of the limit or $5,000
145
Who needs Valuable Papers coverage?
Most people - engineers w/ blueprints, artists, writers, etc.
146
Which peril is excluded in Valuable Papers coverage?
Electric/Magnetic injury except by lightning strike.
147
What is the Sign Form?
Covers any losses to exterior signs
148
What is excluded on the Sign Form?
1. Wear & Tear
2. Property while being worked on (resultant fire and explosion is covered)
3. Artificial electricity damage (resultant fire and explosion is covered)
4. Dampness or extremes in temperature causing damage
5. Strikers & riots
149
What is Equipment Breakdown coverage (Boiler & Machinery)
Covers boilers/pressure vessels that are normally excluded & the mechanical breakdown of machinery.
150
What are common losses of EBI coverage?
Bursting, Cracking, Arcing, Mechanical Failure
151
What are the policy sections in EBI coverage?
IDE
Insuring Agreement
Definitions
Exclusions
152
What is the Insuring Agreement of EBI coverage?
C P P POL R D
1. Covers losses by accidents
2. Property of others in control of the insured (leased)
3. Property in-use/ready for use on premises (not in storage)
4. Has a per occurrence limit
5. Repairs or replaces with like kind and quality (Replacement Cost)
6. Deductible applies
153
What are Sub-Limits (Equipment Breakdown)?
Forms part of the limit NOT in addition to.
I.E. a separate limit that applies to "special circumstances" for example - water damage, or expediting expenses.
154
What are common EBI sub-limits?
1. Expediting Expenses (to get equipment fixed ASAP)
2. Water Damage (as a direct result of an accident)
3. Ammonia contamination (as a direct result of accident)
4. Hazardous Substances (covers clean up cost i.e. disposal/containment) **anything determined by government to be dangerous to humans or their environment
5. Professional Fees (boiler inspection - i.e. for making certifying particulars)
155
What is an Accident (EBI Definitions)?
1. Sudden & Accidental
2. Breakdown
3. Physical Damage
4. Needs Repair/Replacement
5. Something not of a maintenance nature
156
What is an Object (EBI Definitions)?
Property controlled by the insured at a specific location stated on the policy.
157
What are two objects (EBI Definitions)
Pressure Object = normally subject to pressure
Machinery Object = anything dealing with mechanical or electric energy (including fibre optics)
158
What are the EBI Exclusions?
1. Nuclear
2. War
3. Earth Movement
4. Spoilage (due to lack of power
5. Hazardous Substances
6. Flood (unless by result of an accident)
7. Business Interruption
8. Fire/Smoke
159
What are Optional Coverages for EBI?
1. Production Machinery
2. Indirect Coverage = Business Interruption (contingent costs, payroll, lost profits)
3. Consequential damage (Spoilage)
160
What are features unique to EBI?
1. Inspection Services - to certify boilers and pressure vessels
2. Claims Investigation
3. Suspension Clause (if in the inspection there is a dangerous condition, policy is suspended until fixed)
161
What is EDP Coverage?
All risks insurance for "Automated Computer Systems"
162
What are the 3 policy sections of EDP policies?
S M EE
1. Systems (hardware)
- Broad water loss & mechanical/electrical breakdown = covered
**may require a maintenance contract - broad water loss includes: flood/leakage/seepage etc.
- Basis of settlement = ACV or RC - deductible
- Blanket or Scheduled
- If loss occurs off premises only a % of the limit is payable
2. Media (software/CDs/data processing programs/etc.)
- Same as above - all risks & same exclusions
- Basis of settlement = cost to reproduce
3. Extra Expenses
- Pays out if you can't continue business due to the loss (2 weeks maximum) due to the following:
** Premises can't be accessed (building damage)
** A/C or electrical systems damaged and can't run the equipment
*** if AC > 24000 BTUs and used for cooling the equipment
**Actions of a civil authority (govt orders evacuation)
163
What are Exclusions in an EDP policy?
1. Loss caused by a data problem
2. Programming error
3. By-Law enforcement
4. Cost of reproducing data/media
164
What is the best risk mitigation for EDP?
Have backups
165
What is the Earthquake endorsement?
Provides coverage for earthquakes.
166
Why are insurers reluctant to provide EQ coverage?
1. Difficult to spread the risk
2. Catastrophic loss potential
167
When is coverage in effect on EQ endorsements?
If policy is bound after the earthquake but before the aftershock - no coverage. If aftershocks occur after expiry, no coverage.
168
What is the deductible for EQ endorsements?
% of insured values with a minimum amount.
169
What perils are excluded in EQ endorsements?
1. Flood
2. Fire
3. Theft
4. Explosion
170
What is the Flood endorsement?
Covers flood and waves including the breaking of boundaries by water
**some insurers restrict this definition
171
What is the Water Escape / Sewer Backup Endorsement?
Covers loss by sudden escape of water from sewer (sewer, sump, septic)
172
What is the basis of settlement for WD/SBU?
ACV only
173
Where is coverage specified for WD/SBU?
On-premises only
174
What are Indirect Damage Forms?
Consequential loss & by-law coverage
175
Why would you purchase Consequential Loss coverage?
If you have stock/inventory.
176
What does Consequential Loss coverage include?
Covers damage by:
- Changes in temperature
- Freezing
- Heating
177
When does Consequential Loss coverage apply?
ONLY if the consequential loss is caused by direct damage to a refrigeration system:
- Cooling apparatus
- Supply pipes to cooling apparatus
- on-premises power (damage to utilities box)
178
Can you get off-premises Consequential Loss coverage?
Yes, on a Named Perils basis only.
179
What is By-Laws Coverage?
When it is impossible to reinstate the property to the way it was prior to the loss due to new by-laws, this endorsement covers the extra costs associated with bringing things up to current code.
180
What does By-Laws coverage apply to?
New construction
When the loss is > x% of building value
181
What is the brokers responsibility regarding by-laws?
They must know about them or ask the client about them.
182
What coverage options are available for By-Laws?
Increased cost of construction
Loss of value to undamaged portion
Costs of demolition & debris removal to undamaged portion.
183
What is the Blanket By-Law Endorsement?
Covers Increased cost of construction, loss of value to undamaged portion, and demo/debris removal costs
**limits should be increased with blanket by-laws.
184
What is the Replacement Cost Endorsement?
Gives Replacement Cost instead of ACV
185
How does the insured qualify for the Replacement Cost Endorsement
1. Replacing with due diligence and dispatch (do their best)
2. Replace on the same or adjacent site
3. Pays out only after replacement is made and only pays you what was actually spent.
186
What is the Vacancy Permit endorsement?
Allows a property to be vacant **cheaper if you remove vandalism coverage)
187
What are the two types of Vacancy Permit?
1. For a specified time period (higher risk = shorter allowed period)
2. Makes the insured a co-insurer to fire losses (limit = 3/5 of the loss)
**reduces moral hazard/insurance fraud
188
What is the Instalment Sales Contract Floater?
Coverage for layaway plans or other installment payment plans.
189
What coverage do you get with Instalment Sales Contract Floater?
Single (seller only) or Dual interest (seller & buyer are covered)
190
What are the important points about Instalment Sales Contract Floater?
1. Named Peril Basis
2. Direct Damage Only
3. Excludes loss by infidelity of vendee (if you sell something and they make on payment and never come back again - no coverage)
4. Separate amounts of insurance for *Conditional Sales Agreement *Limited Time Demos
5. Starts as soon as it leaves the vendor's premises
6. Covers for 10 days if back on vendor's premises for repairs
191
What is Peak Season Endorsement?
Automatically increases stock limit during peak season.
192
What is Inflation Protection?
Increases building values automatically during the policy period - if a claim happens midterm the prorated increased value will be used.
193
What are Fire Department Charges?
Costs covered to call the fire department from a neighbouring town.
194
What are five common off-premises coverages?
Temporary Locations
*Not specified on the policy (when something is out for repair or waiting for pick up)
*Not in Transit
*Not "controlled (owned, rented, etc" by the insured (insured's home is under their control)
Building at Newly Acquired Locations
*Covered up to 30 days or until expiry
Contents at Newly Acquired Locations
* Covered up to 30 days or until expiry
Property in Transit
*Within Canada & US only
*Until delivered
*Amount of Insurance = max value of any 1 shipment or package
*Almost everyone needs this
*Usually other off premise coverages only cover $250 - $500 for property transit for free.
195
What are Temporary Locations?
*Not specified on the policy
*Not in Transit
*Not "controlled" by the insured (insured's home is under their control)
**when something is out for repair or waiting for pick up
196
Tell me about Property In Transit Coverage
*Within Canada & US only
*Until delivered **locked vehicle warranty may apply
*Amount of Insurance = max value of any 1 shipment or package
*Almost everyone needs this
*Usually other off premise coverages only cover $250 - $500 for property transit for free.
197
How many days are the Building & Contents covered at Newly Acquired Locations?
30 days or expiry - whichever is sooner
198
What are the benefits of choosing a separate policy vs. Canada Post?
Separate Policy
*Blanket Coverage
*Faster Claims Service (deductible is big)
*Covers exposure by all kinds except Ocean Marine Cargo (large container ships)
**Incoming or outgoing goods/shipments
**By Air
**Insured's own vehicles
**Courier
199
What are the two types of coverage limits for Property in the Custody of a Sales Rep?
1. Total for all sales reps employed
2. Maximum for 1 sales rep to have
200
What is a Bailee for Hire?
Person who has custody for purpose other than sales.
201
What is a Bailee's duty?
Ordinary care - act as a prudent and diligent owner
**Differing bailees offer different standards of ordinary care - for example a jewelry bailee
202
Are bailees liable if there is a breach by negligence to maintain ordinary care?
Yes
203
What's an example of a jewelry bailee having no liability because they did what they were supposed to?
Jeweler locked up client property per the industry standards and the property is stolen.
204
Can Bailees voluntarilly assume liability?
Yes, under a contract.
205
How can you expand Bailee's liability?
1. Add a stock limit (similar property of others if you're obligated to insure and you're liable for it)
2. Buy a Bailee Liability Policy - where no liability means no payment
3. **best option** Specialized bailee policy: best because there is no liability requirement - even if the bailee is not liable, the policy will still pay
206
What are three examples of Specialized Bailee Policies?
1. Bailees Customer Form (retail/service businesses)
2. Furriers
3. Launderers Policy
207
What does Inland Transport cover?
Covers in transit (except marine i.e. container ships/barges) & delays incidental to transit.
208
Who purchases Inland Transport coverage?
Shippers/Senders
209
Who has insurable interests in Inland Transport?
Both owners & Carriers (delivery services)
210
Inland Transport Liability depends on the carrier - what are the three types of carriers and what are they used for?
1. Common Carrier = for public use (i.e. Canada Post)
2. Contract Carrier = for certain people (i.e. Courier - bike messengers etc.)
3. Private Carrier = carry your own goods only
211
What is the Common Carrier's Liability?
Liable for safe delivery
212
What are the exclusions for Common Carrier's Liability? (PAGIN)
PAGIN
Public Enemies
Acts of God
Government or civil authority
Inherent Vice (illegal products being transported)
Neglect of Shipper
213
Do carriers choose to self insure, if so what is an example?
Yes - Air Canada
**big enough where they don't need to pay for insurance and pay out of pocket for losses.
214
What are the three bills of lading that establish the amount of liability for common carriers?
1. Standard Bill: liability is equal to the tariff of that class of goods (this is arbitrarily decided by the government.
2. Valued Bill: standard bill is too little - you will pay extra for a higher bill.
3. Release Bill: releases carrier of liability (either not worth insuring or the shipment is too expensive so you will need to find insurance elsewhere.
**some carriers sell insurance as well.
215
What is Contract Carrier Liability?
Level of liability is determined by a contract.
216
What is Private Carrier Liability?
The private carrier (yourself) is fully liable for loss.
217
What happens if standard policies aren't enough to cover your shipment?
Purchase separate policies.
218
What are the 4 insurance options available for owners of property in transit?
1. Trip Transit Coverage - single trip
2. Transportation Floater - broad form
3. Transportation Floater - limited form
4. Motor Cargo Rider - carrying my own stuff
219
What is Trip Transit coverage?
Single shipment, all risk or named perils options available. Same terms as the Transportation floaters but for one trip only.
220
When would you use Trip Transit coverage?
Moving
Picking-up expensive equipment
221
What is the Insured Property of the Transportation Floater - Broad Form?
Property:
1. Owned by the insured
2. For which the insured is responsible (i.e. picking up property from a customer)
3. Property that is sold but not delivered.
**each can have a different limit
222
When does coverage start for the Transportation Floater?
When living premises A to destination B - this includes incidental stops.
**covered why in transit and incidental custody of a common carrier (if you have to pass to Canada Post for part of the journey you still have coverage)
223
What is the value of Property Covered - Transportation Floater
Invoice + Unearned freight (if prepaid) +other costs (storage after loss to a vehicle etc.)
224
Which forms of transit are covered?
Rail, plane, truck, own vehicles, everything except marine crafts.
225
What are the Transportation Floater Broad Form excluded perils?
1. Unless caused by a named peril - theft or crash, trade losses, are excluded
* Dampness/Dryness or change in temperature
* Leakage/evaporation
* Corrosion/rust
* change in flavour, colour, texture, finish
2. Improper preparation (neglect of shipper)
3. Gradual deterioration / inherent vice
4. Delay or vermin (loss of market due to delay)
** Loss of Market is like a delay causing your shipment of Canadian flags to miss Canada Day.
226
What property is excluded from the Transporation Floater Broad Form? (JFPML)
Jewellery
Fur
Paintings
Manuscripts
Livestock
227
What is Provisional Premium for Transportation Floater Broad Form?
Insurance purchased is based on an estimate of shipments - actual premium can come in above or below. **similar to stock**
228
What is the Transportation Floater Rider - Limited Form?
Named Perils transportation coverage.
229
What are the exclusions for the Limited Form Transportation Floater?
Coupling & Loading Losses - these are covered by the Broad Form
230
What is the Motor Cargo Rider Broad Form? And what does it cover?
Using the insured's own vehicles only.
**Scheduled vehicles only
**only covers if in custody and in transit
231
What is the Owner's Form - Motor Cardo Rider?
Named Perils Only
232
What is the Insurance Available for Carriers?
Truckman's Liability Cargo Rider - this insures the carrier's liability for damage to goods
233
What types of coverage are available and what is the coverage period for Truckman's Liability Cargo Rider?
All Risks & Named Perils
**All risks depends on the goods carried
Coverage Period - when it is loaded to when it arrives at the destination
234
What is the co-insurance type for Truckman's Liability Cargo?
100% because it uses provisional premium
235
What are three unique features of Truckman's Liability Cargo?
1. Different amount of insurance available for different trucks
2. Coverage is restricted to losses while in vehicle only (can endorse for temporary stop at insured's terminal or loading station.
3. Has Catastrophe limit (a sum of all amounts of insurance)
236
What is a Catastrophe Limit? (Truckman's Liability Cargo)
the maximum insurers will pay on any 1 occurence - regardless of the number of vehicles involved.
237
What are the Advantages of Private Insurance (instead of through carriers' insurance)?
1. Broader
2. Cheaper
3. Faster Claims Service
4. Pays in Excess of carriers liability insurance
5. Blanket (no need to insure separate shipments)
238
What are the Disadvantages of relying on Carrier's Insurance?
1. Inadequate Amount of Insurance
2. Not Broad Enough
3. May be invalidated without the owner knowing (locked vehicle warranty violated etc.)
4. Lapsed/Cancelled without owner knowing.
239
What impacts premium - Transporation Insurance?
Who - experience of the contractor
What - nature of the goods
Where - distanced travelled
How - means of conveyance (train/rail/road/etc)
240
What 4 policies are part of Contractor's Insurance?
1. Tool Floater
2. Contractor's Equipment Insurance
3. Installation Floater
4. Builder's Risk Insurance
241
What does the Tool Floater cover and what does it exclude?
Tools
Exclusions
- Loss by artificial electricity (resultant fire/explosions are covered)
- Mysterious disappearance (no justified reason)
242
What are the two underwriting approaches to Tool Floaters?
Scheduled (expensive)
Blanket (general)
243
What is the co-insurance and basis of settlement for Tool Floater?
100% Co
ACV
244
What is the Contractor's Equipment Floater? and what are the three coverage types?
Coverage for moveable equipment. (with catastrophe limit)
1. Limited
2. All Risk & Blanket
3. Scheduled
245
What is the CEF Co-Insurance
90%
246
Is newly acquired equipment covered by CEF?
Yes IF:
1. Similar to scheduled
2. Up to 30 days
3. Limited amount of insurance
247
What are the 8 Exclusions for CEF?
1. Wear & tear / Oerload
2. Rust/Corrosion
3. Mechanical or Electrical Breakdown
4. Blasting under control of the insured
5. Change in temperature
6. Licensed Vehicle / Blue Prints
7. Underground work / Work on muskeg
8. Crane while operating (because it's in the control of the insured)
**excluded unless caused by specified perils
248
What does the Installation Floater cover?
Liable materials used in installation (including property of other sand stuff incidental to installation)
* Covers property in:
** Land Transport (in transit)
** Awaiting install at site
** Until insured interest ceases (during installation until the job is done)
* Insured can specify AoI at any 1 location and at any 1 conveyance
249
What is the premium basis for Installation Floater?
Annual Receipts at provisional premium
250
What is the basis of coverage for Installation floater?
Annual or single project
251
What are the Installation Floater exclusions?
Property at owned premises
Tools & Equipment
Faulty materials/workmanship/design (resulting fire and explosion is covered)
252
Explain Builder's Risk Insurance (form types, who can buy, policy term)
Named Perils or Broad Form
General contractor or Owner can buy - depending on contract term
Blanket Policy or single-project
253
If doing Blanket COC what do you need to provide?
1. Maximum value of any 1 project
2. Class of construction
3. Location
**provisional premium with reporting requirements
254
In Broad Form COC what is covered and what is excluded?
Covered:
1. Property in COC (owned and of others if included in the AoI)
2. Growing Plants
3. Temporary Buildings (only necessary to complete the job)
Exclusions:
1. Tools & Equipment
2. Cost of making good - improper material/workmanship/design
3. Flood & Earthquake
255
When does coverage cease on COC?
1. When building is being used/occupied UNLESS:
1. Used for testing
2. Used for office/habitation
3. Ceases if no construction for 30 days.
256
What are the extensions of coverage for COC? (i.e. for building materials)
1. In Transit
2. Any other Location (NP doesn't cover this)
257
What is the Amount of Insurance for COC?
Value of completed project (RC)
258
is there Co-insurance on COC?
No - provisional premium
Reporting requirements
- Contract price + Property Value insured but not in contract OR
- Completed value
259
What happens if a loss occurs on COC?
Penalty on the provisional premium refund
260
What are the reporting requirements for Provisional Premium on COC?
Must report risk values within 30 days of expiry
261
Which extensions are not included on COC Named Perils?
Property in transit
Property at other locations
262
What is a Specialized Dealer's Policy
For things not normally covered.
263
What is a Jewellers Block policy? What is covered?
All risks
Covers all usual goods (even bailee's)
Needs a detailed application that counts as a warranty
264
What are the sources of business interruptions?
1. Physical damage to insured property (if it's a covered property loss)
2. Damage to Neighbouring premises (anchor policy if covered under the insured's policy)
3. Loss to a major supplier or manufacturer
4. Failure of pulic utilities
5. Actions of a civil authority/government (denied access due to riot)
6. Transportation accident (oil train spills leading to an evacuation)
7. Ancillary causes - strikes or lockouts
265
What is Back to Business Funding? What are the sources?
Money used to get the business back up and running
1. Own Money
2. Raise Prices
3. Bank Loan
4. Buy Insurance
266
What are a broker's reasons for selling business interruption?
1. Protect assets
2. Discuss continuity planning (you are a risk manager)
3. Reassure confidentiality
267
What are the obstacles to selling BI coverage? TEK
Technical - Too technical (for broker and client)
Earnings - Reluctance to reveal earnings
Knowledge - Lack of it they don't know how serious interruptions can be
268
What are the three myths of BI?
1. Broker must be an accountant
2. Only for-profit businesses need to buy business interruption
3. If it's caused by others, I don't need the coverage, I can sue
269
What is the insurance definition of Income?
Money earned for providing goods and services
270
What are the three types of expenses for BI - FSV?
Fixed - continuing (mortgate, taxes, interest on loans)
Semi-Variable - maybe continuing (advertising, electricity if building burns down, etc)
Variable - depends on sales *not continuing
271
What is the calculation for Gross Profit relating to BI?
GP = net sales - cost of goods sold
272
What is the calculation for Net Profit relating to BI?
NP = gross profit - operating costs
273
What is the benefit of insuring for gross profits?
It pays fixed operating costs and profits
274
What are net sales?
Value after taxes, discounts, commissions, etc. are taken off
275
What is the disadvantage of Net Profit coverage for BI?
Since it is only gross profit - operating costs it insures the profits only. There is no coverage for standing, continuing charges
276
What do you need to be aware of with Profit calculations?
if you only look at the statements for profit calculations, an abnormal expense can cause distortion in the figures.
277
What are the three problems with suing for damages - Business Interruption
1. cost
2. delay
3. risk
278
What are the two coverage forms and what do they each do - Business Interruption
1. Gross Earnings = covers from date of loss to reinstatement of property
2. Profits form - covers from loss to income restored (12-36 months indemnity)
279
What are the 5 common characteristics of business interruption?
1. Insures same perils as the primary policy
2. Indemnity continues beyond expiry of the policy
3. There are contracts of indemnity and uses measures of recovery to determine payment
4. Pays expenses necessary to reduce further loss
5. Pays if access is prohibited by government or civil authority**if you can show that the cost of these results in an overall cheaper claim for the insurer
280
What is Measure of Recovery for business interruption
Forecasts income using trends and economic conditions
281
Which form is better for short-term business interruption and long term business interruption?
Short term - gross earnings form is enough
Long term - can potentially lose customers/reputation so gross profits is better
282
How are Gross Earnings defined?
Gross Earnings = reduction in gross earnings - non-continuing expenses
283
How are Gross Profits defined?
Gross Profits = net profits + insured standing charges
**standing charges are expenses the insured believes continue during an interruption
284
How is AoI determined in BI?
Worksheet & Future Trends
285
How are gross earnings calculated?
Gross Earnings = Net Sales + Other Earnings - COGS - supplies consumed in sales - outside services purchased for resale (outsourcing)
**other earnings: income from renting part of the office
***standing charges have not been subtracted here only variable expenses
286
How is the coverage provided for the Gross Earnings form?
Actual Loss Sustained basis = loss of income + continuing expenses
**loss of income that would have been earned when factoring in statements and trends (such as seasonality and competition)
**continuing expenses - necessary to resume operations at the same quality of service
287
What are expenses to reduce loss?
Pays for "expediting expenses" necessary to pay to reduce the amount of loss for the insurer.
288
In gross earnings, what happens with payroll?
Insured needs to insure ALL payroll
Insurer only pays for necessary payroll (key personnel)
289
What is the Wages in Lieu of Notice endorsement?
1. Pays as requried by law
2. Pays 2 weeks wages
3. Use when no payroll coverage existings
Premium = 5x the building rate
**80% co-insurance (anything that modifies ordinary payroll converts the policy to 80% co)
290
How do you calculate limits required for BI - Ordinary Payroll?
First Calculation :
Regular Business Interruption Limit = (Gross Earnings - Ordinary Payroll) * 80% Coinsurance
**if 90 days = OP * 25% (because 90 days is 25% of the year)
**If 180 days limit = OP * 50%
Second Calculation:
Total Coverage Limit = BI Limit (above) + Ordinary Payroll Limit
291
What atre the exclusions on the Gross Earnings Form?
1. Bylaw - delays in reconstruction due to bylaws
2. Strikes - delays in re-construction due to labour disturbances
3. Fines/penalties - for failure to meet contractual obligations due to loss
4. Lost contract - due to lost order or loss of lease/liquor license
292
Who needs to operate with due diligence and dispatch with the gross earnings form? (Business Interruption)
Everyone - permitting, contractors, insured, etc.
293
With the profits form in BI, what is the co-insurance amount?
100%
294
In the Profits Form what is the indemnity period?
from time of loss until gross profits come back for a maximum of 12 to 36 months.
295
What are the provisions in the gross profits form?
1. Blaws are covered
2. Only insured needs to operate with due diligence and dispatch
3. Automatically insures all standing charges
296
What is the extra expense endorsement?
Insures cost of getting back into business at the same quality of service
**overtime, equipment rentals, location rentals, moving expenses
***no need to prove that this reduces the overall claim amount
****Claims are paid as a percentage based on the period of restoration
297
What are the periods of restoration for Extra Expenses?
40% if less than 1 month
70% between 1 & 2 months
90% if between 2 & 3 months
100% if between 3 & 4 + months
298
What are 3 contingent business interruption coverages you can buy?
1. contributing properties (major suppliers)
2. recipient property (major buyer of your goods - if specialized)
3. magnet properties (anchor properties who bring people in)
299
What exclusions does the Extended Business Income Form remove?
Exclusions for:
Bylaws
Strikes
Loss of Lease or License
300
What are auditors fees?
cost of certifying particulars (proving loss amounts, etc)
301
What are professional fees?
cost of preparing claims information
