Study 9 - Commercial Property Insurance: Summary Flashcards
Commercial property insurance
- Commercial property wordings include fire, named perils, multi-peril, all risks, inland marine, and floaters
- The most comprehensive coverage includes building, equipment, stock, contents, or all property
- Insureds choose limits of insurance for each category selected
- Available in named-perils and all-risks versions
Two basic perils formats used in commercial property policy wordings
- Named-Perils form
- Broad Form (All risks)
Commercial property - named-perils form
- Provides insurance for fire and additional perils named on form
- Extent further clarified by the exclusions
- Buildings only, contents only, or both buildings and contents together
- Contents generally includes stock, packaging and labeling, equipment, improvements, property of others, and all contents usual to the business
- In some cases risks are best suited to named risks, like vacant buildings
Commercial property - Broad form (All Risks)
- Provides insurance on all risks, subject to conditions, limitations, and exclusions
- Can be building, contents, or both combined
- “All risks” is not the same as “all losses”; many exclusions
Commercial property exclusions (definition and types)
Exclusions specify property not insured or certain perils not covered
Types of exclusions
- Generally not insurable (i.e. war risks or nuclear contamination)
- Losses not accidental or extraneous
- Losses wholly or partly under the control of the insured
- Wear and tear losses
- Losses excluded because of the particular coverage
Examples of property exclusions in commercial insurance (7 examples)
- Cash and other valuable property
- Automobiles
- Aircraft (including drones and other types of flying devices)
- Watercraft
- Furs or jewellery
- Property vacant for specified number of days (e.g. 30 days)
- Property undergoing work
- Computer hardware and software coverage is seriously limited by other exclusions
- Most are insurable under other policy wordings
Examples of perils excluded in commercial insurance (9 perils)
- Flood and earthquake: coverage available by extension, specifically defined
- Sewer backup and overland water: coverage available, high deductible
- Bylaws: covers extra costs related to legal requirements
- Inventory shortage: coverage rarely available
- Pollution: spills or contamination on property excluded, but small limits available
- Environmental hazards: mold, fungus, and other hazards considered uninsurable
- Terrorism: wordings rewritten after 9/11 to exclude peril
- Equipment breakdown: separate insurance is generally available
- Cyber risks: excluded under data and data problem exclusion
Factors influencing amount of insurance carried on commercial property broad form
Amount of insurance depends on 1) Actual cash value vs replacement cost value, and 2) coinsurance clause
- Limits of insurance
- Extensions
- Valuation
- Coinsurance
- Blanket limits
- Fluctuating values
Limits of insurance
- The insured determines the limit of insurance to be carried
- Insurers expect the values insured to be commensurate with risk
- Rates and premiums are calculated on this assumption
- Agents and brokers help with valuations
- Insurance possible on building, equipment, stock, contents, and all property
Extensions
Wording generally extends to include small, specified limits on common business risks
- Contents at temporary locations
- Newly acquired buildings
- Contents at newly acquired locations
- Property in transit
- Property in the custody of sales representatives (excluded when kept in unlocked vehicle)
The limits are in addition to, and not part of, the limit for building or contents
Valuation
- Option of actual cash value or replacement cost value
- ACV - replacement cost minus depreciation
- Sometimes ACV is better choice; sometimes RCV not offered
- RCV cost for repair or replace with like kind and quality, no depreciation
- Limit based on value of new item, comes with higher premium
- RCV includes “same site clause,” but can be removed
- Historic or heritage requires special wording
Coinsurance
- Requires insureds to bear a portion of loss if underinsured
- Encourage insureds to carry adequate insurance on their property
- Percentage of the property value or as a specific amount
Blanket limits
- Option of insuring all property on a blanket limit instead of having individual limits for each type of property
- Use single property of every description (POED) limit
- Use a contents of every description (COED) limit
- Advantageous for multiple locations
Fluctuating values
- Some businesses have wide swings in the value of stock
- Retailers, manufacturers, and distributors of seasonal goods
- Stock reporting basis: policy on highest anticipated value of stock on hand
- Peak season endorsement: increases the limit for a specific period
Why insurance does not provide coverage for inventory shortage
Documentary evidence is needed to prove that the stock was in the insured’s care, custody, and control at the time of the inventory shortage
