Study 7 - Extensions, Endorsements, Floaters

Question 1

What parts provide the primary protection under a Homeowners form?

Answer 1

Policy wordings.

Question 2

What function do extensions perform in a propery policy?

Answer 2

A feature of policy wording that enhances the coverage offered by the policy. It is part of the policy wording, rather than added to it.

Question 3

What four main purposes do extensions serve?

Answer 3

• extensions provide temporary coverage for increased exposures
• extensions increase of add coverage of loss costs not contemplated in the limits for primary coverages
• extensions expand or restrict the policies coverage under specific circumstances
• extensions encourage loss prevention or mitigation. This purpose for an extension may be furthers in some cases by waiving of a deductible.

Question 4

What is an endorsement?

Answer 4

• an endorsement is an amendment added to a written document altering it’s provisions. Endorsements override specific terms in the policy by:
• removing coverage for certain property or perils
• adding warranties or additional conditions
• altering or removing policy conditions or limitations
• offering permission for activities, occupancy, or parties that may not otherwise be covered

Question 5

What is a free-form endorsement?

Answer 5

An endorsement specifically written to address particular circumstances of a risk - uniquely composed for a particular risk.

Question 6

What is the significance of contra proferentem for endorsements?

Answer 6

The language and intent of an endorsement must be clear for the insurer to rely on it, especially when it restricts coverage.

Question 7

Why have water escape and sewer backup losses become much more frequent than fire losses?

Answer 7

They have become more common with the introduction of interior plumbing systems and interior fire suppression systems.

Question 8

What is covered by an earthquake endorsement?

Answer 8

Includes coverage for mudslide, landslide, volcanic eruption, or other earth movement that occurs at the same time as an earthquake and includes aftershock for a time period specified in the policy.

Question 9

What threat is posed to individuals by having personal information stored on computers?

Answer 9

Any time personal information is entered into a computer, there is an opportunity for an unscrupulous person to find that data and use it for illicit purposes.

Question 10

What does the term floater mean?

Answer 10

Additional coverage for movable items, such as jewellery or antiques, beyond what is included in the Homeowners policy. A policy designed to cover property that floats, or moves from location to location.

Question 11

How did the term floater originate?

Answer 11

Come from inland marine insurance, which itself is derived from ocean marine insurance. The transportation aspect of inland marine insurance was broadly interpreted to include personal property that could be moved from one location to another or was taken on trips.

Question 12

In what three ways does a floater operate?

Answer 12

1. Enhance limit or perils for property insured in the policy wording.
2. Provide coverage for scheduled items. This allows the policy wording to provide coverage for unscheduled items of the same property (special limits of insurance)
3. Offer coverage on property that might not be covered otherwise.

Question 13

For what kind of property is a Scheduled Personal Property Endorsement especially well suited?

Answer 13

It is particularly beneficial for insuring small computers. They are covered, under this endorsement, for losses on or off premises, even if the computer is used in whole or part for business purposes.

Question 14

Why is debris removal expense not automatically covered under a watercraft floater?

Answer 14

When a boat sustains a loss while in the water and becomes submerged, recovery may be very complex are arduous. Further, recovery must be timely or the risk of pollutants entering the water from fuel tanks and lines escalates.

Question 15

Why might someone insured under a homeowners form also need a fine arts floater?

Answer 15

To extend coverage beyond the Special Limits of Insurance for fine arts items, and the ability to insure the item on an agree-value basis.

Question 16

Explain the Sewer Backup endorsement.

Answer 16

Damage cause by the escape of water from a sewer, sump, or septic system is not covered under the habitational forms. Generally, insurers will offer a sewer backup endorsement which provides coverage for a specified limit.

Question 17

Explain the flood endorsement.

Answer 17

Because the Sewer Backup Endorsement does not cover damage from flooding, many insurers have developed distinct flood endorsements.

Does not cover loss or damage caused by:

• the backing up or overflow of water from within sewers, sumps, septic tanks, or drains located inside buildings.
• water below the surface of the ground
• fire, explosion, smoke, leakage from fire-protective equipment, theft, riot, vandalism, or malicious acts
• leakage from a watermain.

Question 18

What is the purpose of a Vacancy Permit?

Answer 18

If an insurer agrees to maintain coverage on a vacant building, it must grant permission for the vacancy by way of a Vacancy Permit, for which additional premium is usually charged.

Question 19

What is the purpose of the By-Laws Endorsement?

Answer 19

To cover additional costs due to by-laws regulating the zoning, demolition, repair, or construction of the buildings for reconstructing the building after a loss. Building codes outline minimum specifications for essential building components such as insulation, plumbing, heating and electrical services, fire egress and suppression systems, and structural load bearing properties. Some code requirements could become costly for the insured. Any indemnity afforded must be triggered by an insured peril.

Question 20

What is the purpose of the Home-based Business Endorsement

Answer 20

Whether the business exposure arises from telecommuting or from a home-based business, this endorsement may be added to a policy to enhance property limits or perils and ensure proper coverage for property, liability, and consequential losses.

Question 21

What is the purpose of an Identity Theft endorsement?

Answer 21

Any time personal information is entered into a computer, there is an opportunity for an unscrupulous person to find that data and use it for illicit purposes. The theft of another identity can cause intense financial and emotional damage. This endorsement may provide coverage for the costs associated with restoring an insured’s identity.

Question 22

Explain the purpose of the Fine Arts Floater.

Answer 22

Though fine arts are items of personal property and are therefore not excluded by personal property policies, they are often fragile or easily damaged and the Homeowners forms do exclude loss for breakage of fragile or brittle objects, unless by a specified peril. Personal property policies settle claims on the basis of actual cash value or replacement cost, but fine arts value may fluctuate much more than the value of ordinary property. Under this floater, the insured may therefore choose to insure the item on a agree-value basis.

Question 23

Explain the purpose of the Personal Articles Floater.

Answer 23

Personal Articles Floaters offer additional coverage above and beyond the Special Limits of Insurance. Underwriters may require appraisals to verify both ownership and value of items insured under the floater.

Question 24

Explain the purpose of the Scheduled Personal Property Endorsement.

Answer 24

Although it is similar to the Personal Articles Floater in that both forms allow a policyholder to identify particular items of property on a schedule and insure them for broader coverage or higher limits than under a Homeowners form. The Scheduled Personal Property is not restricted to the principal residence.

Question 25

Explain the purpose of Watercraft Floaters.

Answer 25

Provide coverage for watercraft beyond what is covered in the Homeowners forms.They usually list each component - hull, outboard motors, and trailers - separately. Valuations are done using appraisals called marine surveys. Debris removal is excluded due to the complex and arduous recovery and the risk of pollutants entering the water. Removal of Wreck coverage for watercraft is part of the liability coverage under the water floater.

Question 26

Explain the purpose of Vacation or Recreational Trailers floaters.

Answer 26

Homeowners forms exclude all type of vehicles other than watercraft. On Recreational Trailer Floaters, Coverage A represents the unit itself, which includes built in units. MOst Recreational Trailer Floaters offer

Question 27

What exclusions are unique to the Watercraft Floater?

Answer 27

• damage caused by marine life
• Damage caused directly or indirectly by flood of any nature, waves, tidal waves, tsunami, high water, waterborne objects, or ice.