Study 10: Residential Property Claims

Question 1

What coverages are available for Residential property policies? (4)

Answer 1

• Coverage A: Dwelling building - includes main building, any attached structures, permanently installed outdoor equipment, outdoor swimming pool and attached equipment
• Coverage B: Detached private structures - structures separated from main building by a clear space. (garden shed, greenhouse, barn, boathouse, gazebo)
• Coverage C: Personal property - contents usual to a home.
• Coverage D: Additional living expenses - Extra costs incurred when an insured incurs additional costs because their insured property is to unfit to occupy. (hotel stays, grocery bills, etc.)
• homeowners policy provides coverages A,B,C,D. Tenants and condominium unit owners policies only offer coverage C and D.

Question 2

What are some items that have typical policy limitations? (10)

Answer 2

Some policies may limit the amount of insurance for higher risk items. These include:

• Securities ($2000-$3000)
• Money ($200-$1000)
• Bicycles, their equipment and accessories ($500-1000)
• Jewellery, furs, collectable cards, comics, coin and stamp collections ($1000-$6000)
• Spare Auto parts (up to $1000)
• Garden type tractors and their accessories (up to $5000)
• Watercraft, their furnishing, equipment, and accessories ($1000-$2000)
• Computer software ($1000-$2000)
• Personal property of student away from home (up to $2500)
• Books, tools, and instruments pertaining to a business,but only while in a locked building on insureds premises. ($2000-$5000)

Question 3

Differentiating between Residential building and contents. (3)

Answer 3

• The loss adjuster determines whether the loss qualifies under the building coverage or personal property.
• Any property permanently attached to structure is covered under the building portion of the policy, which also covers any building materials or supplies that are used to repair the building.
• Adjuster must be ready to listen carefully to insured’s explanation and inspect property to resolve any ambiguity that would qualify property as either building or contents under the policy.

Question 4

How does the tenants policy differ from the homeowners policy? (2)

Answer 4

• Has essentially the same basic coverage as a homeowners policy, but it is limited to personal property and additional living expenses. (Coverage C and D)
• Tenants policies also cover dwelling improvements and betterment’s made at the insured’s expense.

Question 5

Condominium owners claims - What coverages/extensions are available under a condominium unit owners policy? (4) and who is responsible for the insurance coverage in different areas of the condominium complex? (1)

Answer 5

-Coverage C and D is available
The extensions of coverage available for a condo unit owners policy include:
- (1) Unit improvements and betterments
- (2) loss assessment
- (3) unit additional protection

-The condominium corporation is responsible for insurance coverage on the common elements and the standard units, and unit improvements and betterment’s are covered under the condo unit owners policy.

Question 6

Condominium owners claims - Describe special assessments and how deductibles are applied under the condominium corporations policy. (4)

Answer 6

• When an insured loss occurs that affects more than one unit owner, the corporation may apply special assessments.
• The condominium acts give direction as to who will be responsible for the condo corps deductible.
• In cases where the damage is significant and includes damages to common elements, the condominium corporation will issue a “special assessment” to recover the expense of the deductible under their policy.
• Certain policies provide coverage for such a charge against the insured.

Question 7

If there is a conflict between the condominium act and the insurance act, who prevails? (1)

Answer 7

The condominium act

Question 8

Residential property perils - Describe the FIRE peril. (3)

Answer 8

• The national fire protection association produces the NFPA 921 guide for fire and explosion investigations. It is the definitive standard for fire investigations.
• NFPA defines fire as a rapid type of combustion giving off light, head, and flame.
• A fire must be a hostile fire in order for it to fall within the coverage of an insurance policy.

Question 9

What is the difference between a hostile fire and friendly fire? (3)

Answer 9

Hostile fire - A fire that occurs in or escapes to a place not anticipated. (a cigarette that burns the kitchen counter or an escaped ember from fireplace that burns rug)

Friendly fire - A fire that has been intentionally ignited and remains controlled and confined to its intended size and space. (Ex: Fireplace)

Adjuster must distinguish between both to see if the fire loss qualifies for coverage.

Question 10

What questions can adjusters ask to determine if heat was the culprit that caused the damage rather than fire? (2)

Answer 10

• Has heat been applied?

- What resulting products of fire are in evidence?

Question 11

Application of heat - is a heat loss covered under the fire peril? (2)

Answer 11

• No, its not covered unless a fire ensues. When an item simply melts without ignition occurring, the event does not qualify as a fire and therefore no claim is payable.
• When heat is applied to an item, the policy excludes damage to the property caused by such application, however, any ensuing fire damage to other insured property would be covered. ( A shirt catches fire while being ironed, shirt is not covered but other property damaged will be)

Question 12

Fire loss obligations - What can be done to minimize fire damage? (5)

Answer 12

• Board up exposed areas
• Air and deodorize the premises
• Washing the walls should be attempted ASAP to determine what painting would be required.
• Protective barriers or fencing to limit trespassing or further damage.
• In cases of complex or large losses still under investigation, the property may require on site security to protect the area.

Question 13

What are some exclusions under the fire peril? (10)

Answer 13

• War
• Invasion
• Riot
• Civil commotion
• Civil war
• Rebellion
• Revolution
• Act of foreign enemy
• Hostilities
• Military power

Question 14

Describe the LIGHTNING peril and how to distinguish between lighting damage and electrical appliances that may have already been damaged before the lighting strike (4)

Answer 14

• If a bolt of lightning strikes an insured house, the resulting damage is covered.
• Virtually any of the electrical appliances plugged into the wall at the time of the lighting strike can be affected.
• The adjuster may appoint a qualified expert to differentiate between lightning damage and other causes of electrical failure in appliances.
• An item reported damaged after an electrical storm may have already needed repairs. Adjuster should confirm that the item was actually plugged into a circuit to determine if it was indeed damaged by lighting

Question 15

Describe the EXPLOSION peril and its exclusions. (2)

Answer 15

-Peril of explosion in residential homes is commonly associated with natural gas leaks and subsequent explosions.

Exclusions include:
-Water hammer - a pressure shock wave induced in plumbing systems when a sudden change occurs in the stability of the water, causing a banging noise in the pipes.
(exclusion not found in all risk policy forms)

Question 16

Describe the SMOKE peril and its exclusions. (3)

Answer 16

• Smoke losses under this peril must result from something other than fire, because smoke from fire loss is already covered under fire peril.
• Covers damage caused by the sudden, unusual, and faulty operation of any heating or cooking unit.

Exclusions include:
-Agricultural smudging and industrial operations

Question 17

Describe the following perils and their exclusions:

• Falling object (1)
• Impact by aircraft or land vehicle (1)
• Riot (1)

Answer 17

Falling object - this peril covers falling objects that strike exterior of building. There is no coverage for objects that fall within the house.

Impact by aircraft or land vehicle - covers damage done to the dwelling. Does not cover for losses when the insured owns or operates the vehicle that causes the damage and also does not cover injury to animals.

Riot - When at least 3 or more people are involved in damaging property, it could qualify as riot under riot peril. It excludes losses caused by war, invasion, civil war, rebellion, revolution, act of foreign enemy, etc.

Question 18

Describe the VANDALISM and MALICIOUS ACTS peril. (2)

Answer 18

• Wilful destruction of another’s property.
• Recently has been the centre of legal debate regarding grow ops. Some courts ruled that because of absence of a grow up exclusion, these losses are covered under this peril, but now many policies are written with grow ups exclusions because of this issue.

Question 19

Describe the WATER ESCAPE peril and what occurrences would be covered under this peril? (5)

Answer 19

-Covers the escape of water from a water supply system.

The following 4 occurrences would be covered:

• Sudden and accidental escape of water from watermain.
• Sudden and accidental escape of water from plumbing, heating system.
• Sudden and accidental escape of water from domestic water container located outside dwelling
• Water that enters the dwelling through opening created suddenly and accidentally by an insured peril.

Question 20

What are the restrictions on the policy for water escaping from frozen pipes that have ruptured? (3) and what are the exclusions for the water escape peril? (5)

Answer 20

• If frozen pipes rupture, causing damage, and the insured has been away from the premises for more than 4 consecutive days, there is no coverage unless one of following precautions has been taken:
• –insured arranged for someone to enter house each day to ensure heating was being maintained.
• –insured shut off water supply and drained all the pipes.

Exclusions include:

• continues or repeated seepage
• sewer back up (unless endorsement purchased)
• ground water or rising water table
• surface water
• shoreline ice buildup

Question 21

Describe the WINDSTORM peril and its exclusions. (3)

Answer 21

• Any wind strong enough to cause damage to insured property would qualify under the windstorm peril.
• Roof damage is most typical claim.

Exclusions include windstorm damage to outdoor antenna’s or satellite receivers.

Question 22

How do adjusters determine if damage is caused by windstorm or from other causes? (4)

Answer 22

• Should look at weather reports from the time of damage to establish that there was a storm to cause the damage.
• If insured reports water damage inside the house due to windstorm, the adjuster must establish that the storm created an opening in the building first.
• Up to insured to prove his or her case, but usually, insurers send a roofing expert or a loss adjuster to inspect the damage and report on the findings.
• Another problematic case that often occurs is wind damage to a fence post that is rotting and in precarious state. Adjuster must determine if wind damage was what caused loss, or if loss was a result of rotting,

Question 23

Describe the HAIL Peril (1) and give examples of some common roofing problems that have nothing to do with hail damage. (3)

Answer 23

-Hail may cause roofing shingles to split or put dents in them. If a large percentage of the roof shingle tabs have been broken, the whole roof may need to be replaced.

Examples of common roofing problems include:

• Moisture trapped in the roofing material may cause bubbling.
• Sheathing that expands and contracts may cause wrinkling.
• Oils evaporating from the roofing materials may cause an alligator type pattern on the roofing surface.

Question 24

Describe the following perils:

• Glass breakage (1)
• Transportation (1)
• Electricity (1)

Answer 24

Glass breakage - glass that forms a part of the building or private structures, including glass in storm windows and doors, is insured against accidental glass breakage.

Transportation - covers property while its being transported against the following perils: Collision, derailment, upset, stranding, overturn, and sinking.

Electricity - provides coverage for electrical damage for voltage surges caused by artificially generated electricity.

Question 25

Describe the THEFT peril (2) and its exclusions. (4)

Answer 25

• Covers insured property anywhere in the world subject to certain limits.
• Theft that happens at another dwelling owned, rented, or occupied by the insured is covered only when insured is temporarily living there.

Exclusions include:

• theft caused by a tenant in a part of the insureds home that is rented to a tenant. (Example on page 10-17)
• theft from a dwelling under construction
• theft of animals, birds, or fish
• when by fraud or trickery, a change of ownership in property takes place with the insureds agreement.

Question 26

Additional coverage considerations - Property away from the premises. (3)

Answer 26

• property in the insured’s possession is covered if it is not otherwise insured and can include uninsured property of others anywhere in the world
• personal property is insured while it is temporarily away from the insureds premises, anywhere in the world, unless the personal property is normally kept at another location
• personal property of students temporarily living away from home is covered
• Look at example of page 10-19

Question 27

Claims under all risk coverage - what must an adjuster do when examining a claim that has an all risk policy in effect? (3)

Answer 27

• Adjuster must first examine the exclusions to determine whether loss falls within it.
• Must also examine other limiting features such as special limits.
• A common loss on personal property under an all risk policy is mysterious disappearance.

Question 28

What are the extensions of coverage available under a residential policy? (11)

Answer 28

• Debris Removal - covers the costs to remove debris from insured property following a loss.
• Removing Insured Property - covers costs of removing insured property from premises to protect it from loss for up to 30 days or until policy ends, whichever comes first.
• In transit – covers property in transit while moving to a new residence.
• Fire department charges – usually limited dollar amount ($1000)
• Change of temperature – personal property damaged by a change of temperature is covered. (food, plants)
• Freezer food endorsement - covers loss of food in freezer caused by mechanical breakdown or interruption of electrical power (up to $2000)
• Lock replacement – if keys lost / stolen and up to stated dollar amount
• Tear out – tearing out of walls. ceilings, or other parts of the insured building damaged in the course of repairs
• Arson Conviction -awarded to people who help provide info of guilty parties who commit arson acts
• Credit card, debit card, forgery and counterfeit money - up to $1000
• Inflation protection – protects against possible inflation. Limits are increased by inflation amount

Question 29

What must loss adjusters be aware of when property is vacant or unoccupied? (4)

Answer 29

• Must be aware of the limitations of coverage associated with property being vacant or unoccupied when a loss occurs.
• Should know difference between vacant (no contents, no occupants) and unoccupied. (some contents, no people)
• Theft or vandalism losses that occur while building is vacant or under construction are not covered, even when permission has been granted for vacancy or construction.
• Vacancy is permitted up to 30 days for other losses before coverage lapses.

Question 30

Additional living expense claims - Describe additional living expense and what coverages are provided by it. (4)

Answer 30

• Additional living expenses (ALE) are covered when, due to an insured loss, the insured has to live somewhere else while repairs are under way.
• Coverage is also provided for fair rental value when the insured is losing rental income because a tenant cannot live in the premises
• Coverage is also provided if civil authority prohibits access to the insured dwelling as a direct result of damage to neighbouring premises or because of mass evacuation. (up to 2 weeks coverage)
• As the title of this coverage suggests, only additional costs are covered. For example, if the insured pays an average of $200 a week for food, but now costs have jumped to $350 as a result of not living in their home, the claim payment made will be the difference, so $150.
• Refer to example on page 10-22, 10-23

Question 31

Claims under a personal articles floater - how might items scheduled under a PAF be insured? (2)

Answer 31

Valued Basis – Insured & Insurer agree on value of item and if it is destroyed, the amount insured is paid out

Limit of Insurance – Insurer agrees to pay up to the amount stated in the policy. The loss adjuster must determine the value of the item, and should it be worth less than the insurance limit, than the insurer is only required to pay that value.

*Refer to example on pg 10-23

Question 32

Property claims investigation - What must an adjuster do to properly investigate a property claim? (7)

Answer 32

• For any significant property losses, an organized list is essential.
• A systematic room by room approach makes it easier to recognize missed items.
• Adjusters need to obtain as many facts as possible in order to make a decision. They can take photographs, gather serial numbers which makes it easier to identify items, etc.
• Adjusters work with insureds to try and establish ownership of items and assess issues of credibility. A receipt may produce some traceable proof of purchase.
• Model numbers and serial numbers are always handy in property claims, as they provide proof of existence and can help determine value.
• Adjusters may maintain a library of up to date catalogues and business cards for services likely to be involved in the types of property claims they handle. Some insurers create lists of recommended and preferred suppliers.
• Internet is valuable resource for establishing value.

Question 33

What facts will a loss adjuster want to establish about a claim? (11)

Answer 33

• When the loss occurred
• Specific location of loss
• Who discovered loss and what time of day it was
• How the loss was discovered
• Whether police were notified
• Name of landlord if applicable
• Brief description of residence, including age and type of construction
• Names of household occupants
• Nature of any repairs already completed
• Insureds story of what they believe happened
• Whether a financing contract exists on damaged items (amount owed and to whom)
• Description of damaged items which include location of item, make and model of item, ownership of item to evaluate insurable interest, identifying marks on item, and purchase date and receipts.

Question 34

What facts will a loss adjuster want to establish about a claim related to theft and burglary? (5)

Answer 34

• How entry was gained to the premises
• Whether visible signs of the entry exist
• Confirmation whether doors and windows are kept locked
• Whether an alarm system is in place
• Whether an alarm system is kept active.

Question 35

What background information can loss adjusters confirm from looking at an insurance application? (5)

Answer 35

• Name of prior carrier and policy number
• Whether the insured had any prior losses
• Details of any prior claims
• Whether the insured ever had insurance cancelled by insurance company
• Details related to why a policy cancellation occurred

Question 36

Damage claim process - Describe the damage claim process. (5)

Answer 36

• During course of handling a damage claim, the adjuster maintains control on the file by following up to ensure that repair work is progressing as it should.
• When work is done, contractor may ask insured to sign a certificate of completion.
• Adjuster also contacts insured to ensure repairs have been completed and that they are satisfied.
• If insured prefers cash settlement, they are entitled to only the actual cash value (ACV) of the damages.
• When there is a dispute as to the amount of damages recoverable, the insurer or insured may invoke the statutory condition of appraisal.

Question 37

Describe the process of estimating building damage claims. (4)

Answer 37

• The adjuster who attends the loss should review the loss site with the insured, determine the size and quality of the damaged items (scope of work), photograph and quantify the loss (this may take more than one visit and on complex losses may include the assistance of an engineer, contractor etc)
• Adjuster reviews the detailed scope of repair with the insured and the chosen contractor and reaches an agreement about the work to be done.
• The contractor chosen to do the repairs will arrange for the insured to pay the deductible and they generally require the insured to sign a work authorization form before work can being.
• The scope of damage will be the basis on which estimates of repair costs will be created.

Question 38

Describe the process of estimating building damage claims continued…. (4)

Answer 38

• Once scope of repair is defined, it can be circulated to prospective contractors for quotes. The scope ensures that each contractor is bidding on the same work and using the same quality materials.
• An estimate (cost that a contractor anticipates for project) or appraisal sets the value to the scope, unit by unit, room by room, or even trade by trade.
• Some insurers will have a few ‘preferred contractors’ who guarantee their repairs including the quality of workmanship and materials.
• Insured must authorize repairs – adjuster can confirm amounts covered but never authorize repairs.

Question 39

What must an adjuster do to get the information needed to estimate the damage of a building? (9)

Answer 39

• Notes cause and severity of damage
• Measures dimensions of floors,walls, and ceilings
• Documents number of doors, windows, and other openings
• Details each restoration activity with a description of the material
• Details damage and what must be done to restore property
• Identifies all damaged areas of property
• Identifies what kind of subcontractors will be needed
• Considers whether other damage may ensue because of repair process
• Identifies how much demolition, debris removal, and final clean up is required.

Question 40

Understanding property repair estimates (5)

Answer 40

-In the estimate, each room is identified by name and size.

Each repair activity is then listed by the following:

• Function (typically short forms are used to identify recurring functions, such as R and R for remove and replace)
• Unit amount (area, volume, length)
• Cost per unit
• Total cost

Question 41

Understanding property repair estimates - describe profit and overhead and the 2 ways it can be calculated. (3)

Answer 41

• Just like insurers, contractors are in business to make money – they generally estimate what the damage will be, then they apply any overhead and profit, then tax to arrive at the final estimate / cost.
• Straight profit and overhead is calculated by multiplying total by an agreed percentage.
• Cumulative profit and overhead is calculated by multiplying total by agreed overhead percentage and then multiplying that total by another percentage representing profit allocation.
• Look at example on page 10-29

Question 42

Flooring replacement (2)

Answer 42

• Many insurers have chosen to use flooring specialists to evaluate and estimate the replacement of flooring.
• Its important that adjusters have a basic understanding of estimating and property repair methods concerning flooring.

Question 43

Roofing claims - describe the process of estimating and handling roofing claims for loss adjusters. (5)

Answer 43

• To estimate the cost of repairing a roof, adjusters must understand the basics of roof measurement and repair. Including having an understanding of the following:
• Basics of Roof Measurement and Repairs – Asphalt shingles are the most common and come in different weights. They are rectangular shape and have three tabs. The heavier the shingle the longer it will last and the more it will cost. They generally come in bundles, 3 bundles covers 100 sq ft.
• Age – As asphalt shingles age they become more brittle, after a certain point, they can not be repaired and have to be replaced.
• Colour Match – other than basic black – shingle manufacturers change their colours and die lots regularly, making some colours obsolete even after only a few months. It is up to the adjuster to make the call on colour – if it can’t be matched, at times the entire roof has to be replaced due to a few shingles being blown off.

Adjuster must be aware of any hidden damage – plywood sheathing may be damaged by rot – usually not covered, but needs to be replaced before roof can be replaced – negotiation with insured is key

Question 44

Roofing claims - describe the process of estimating and handling roofing claims for loss adjusters continued… (2)

Answer 44

• Roofs come in a wide variety of styles. The most common are gable roof and hip roof. The line along the top of the roof is called the ridge, the lower edges are the eaves and the flat surfaces leading up to ridge are called slopes.
• Hip and gable roofs are easy to measure. A gable roof is made up of two rectangles so you just get the area for the rectangles and add them together. A hip roof is the same except you include an additional 10-15% to cover the waste factor associated with this type of roof.

Question 45

Basis of claim payment- What are claim payments limited to? (3)

Answer 45

Claim payments are limited to:

A) The financial interest the insured has in the property

B) The limit of insurance

C) Subject to policy limitations

Question 46

What conditions must be met for an insurer to pay for the costs of repair or replacement without deduction of depreciation? (4

Answer 46

• Repairs or replacement must take place at the same location
• The same occupancy must be maintained
• Materials of the same quality must be used
• Repairs or replacement must take place within a reasonable time after the loss.

Question 47

Describe the single limit option (1) and guaranteed replacement cost. (1)

Answer 47

• Single limit option - allows the insured to use the sum of the insurance on building, detached private structures, contents, and ALE as a single amount that can be applied to any category as required. (See example pg 10-33)
• Guaranteed replacement cost - the insurer will replace the building even if the costs exceeds the amount of insurance purchased.

Question 48

What are the exceptions where only actual cash value will apply rather than replacement cost? (2) and how does an adjuster assess actual cash value? (2)

Answer 48

• Antiques, fine arts, paintings by their very nature cannot be replaced. As well, the value of some articles stem from their age or history (memorabilia, souvenirs, collectors items)
• Property that is not maintained in good working condition or property that is no longer used for its original purpose.

To assess actual cash value:
-adjuster determines the value of property as of the moment immediately before the loss.

-Most common formula is replacement cost minus depreciation.

Question 49

What other considerations must adjusters have when making a claim payment? (4)

Answer 49

• Adjuster must determine whether there is a mortgagee and that they are included in payment of settlement.
• When property has salvage value, the adjuster must deduct the amount from the claim if the insured keeps the item.
• Must consider deductibles- generally one per occurrence, if 2 deductibles apply, usually only the larger of the two is applied to the loss. On personal property, when a special limit of insurance applies, the limitation is applied to the loss that exceeds the deductible. (see example on page 10-34)
• Adjuster must consider impact of inflation