RMIN 5100S Test 2 Brown

categories of commercial loss exposures

1. property (tangible v intangible)

2. personnel (death, disability, retirement, injury of employees)

3. liability (your responsibility for bodily injury)

4. net income (reduction in income due to direct loss)

commercial property loss exposures (categories)

type of property

causes of loss to property

financial consequences of property losses

commercial property coverage part

types of property

real and personal

real property

land & buildings, all property permanently attached to buildings, driveways, sidewalks, underground piping, etc, plumbing, wiring, HVAC (within the walls)

personal property

all property that is not real property (tools, cash, furniture, clothing)

personal property classifications

contents (business personal property/BPP and property of others in the insured's care, custody, and control)

Property in transit - limited amount of coverage; might need separate cargo insurance

Property in the possession of others

"Floating" property - photographer has camera, handyman has tools, farmer has tractors; limited amount of coverage; might need inland marine endorsement

causes of loss to property

Fire - poses greatest risk to large or total loss

Windstorm (hurricane/tornadoes)

Theft

Flood

Earthquake

Terrorism

War

financial consequences of property loss

Cost to repair or replace damaged property

Loss of business income while property is being repaired or replaced (indirect loss)

Extra expenses to resume operations (business has to temporarily relocate, rent vehicles)

coinsurance in health

requires the insured to pay a certain percentage of covered medical expenses in excess of the deductible and/or copayment

Purpose: to reduce overutilization of policy benefits, to reduce premiums

coinsurance in property

requires the insured to insure their property to a specific percentage (full) of its value. If not insured to that value (full), the insured is penalized with lower claim payments at the time of loss

Purpose: encourage insureds to insure property to its full value, achieve equity in rating

Why would someone choose to not insure their property to its full value?

Premium is a function of the limit (amount) of insurance. The higher the amount of insurance, the higher the premium

Most losses are partial losses

Due to the time and cost involved, insurers do not verify every detail reported by the insured at the time of application

property coinsurance equations

loss payment=

amount of insurance required=

= ((amount of insurance carried/amount of insurance required) x loss) - deductible

= property reconstruction cost x coinsurance percentage

property coinsurance key points

When insurers are confident that insureds are insuring to full value, the insurance companies can apply a discounted rate to all insureds. This achieves equity in rating.

However, it is impractical/inefficient for the insurer to verify all values at policy inception

Therefore, insurers verify values at the time of a loss (claim)

If the insured has not insured their property to its full value, they are penalized by receiving a lower payment for the claim

components of a commercial package policy

common declarations

common policy conditions

2+ coverage parts

What's included in a commercial property coverage part?

1. Commercial property declarations

2. Commercial property coverage forms - what types of property are covered?

3. Cause of loss form(s) - what perils are covered?

4. Commercial property conditions - these are in addition to the common conditions

5. Endorsements - these change the policy forms above (may add or remove coverage)

commercial property declarations

contains info that pertains specifically to the property insurance

Property description and location (address/geo-code)

Types of coverage provided and amounts (limits) of insurance

Covered causes of loss (basic, broad, or special)

Deductible(s)

Coinsurance percentages

List of mortgagees

List of coverage forms and endorsements

Any optional coverages

commercial property coverage forms

- ISOs CPP program includes several different of this. It tells you what property is covered.

Typically include:

Insuring agreement - we will pay for direct physical loss to...

Covered property

Property not covered

Additional coverages and/or coverage extensions

Definitions

cause of loss forms

Basic - includes coverage for 11 perils

Broad - same perils as basic plus 3 more

Special - includes open perils coverage

BPP coverage form can cover any combo of 3 broad categories of property:

1. building

2. your business personal property

3. personal property of others

BPP - building

a. Buildings and structures described in the declarations

b. Completed additions to covered buildings

c. Permanently installed fixtures, machinery, and equipment (indoor and outdoor)

d. Personal property owned by the insured and used to maintain or service the premises

e. Additions, alterations, or repairs in progress, including materials, equipment, and supplies in connection with that work (within 100 feet or premises)

BPP - your business personal property

must be located in building or within 100 feet of building)

a. Furniture and fixtures

b. Machinery and equipment

c. "Stock" (anything in quotes is defined by policy - look at this definition)

d. Personal property owned by you and used in your business

e. Labor, materials, or services furnished or arranged by you on personal property of others (but not the actual personal property that belongs to someone else)

f. Improvements and betterments

g. Leased personal property for which you have a contractual responsibility to insure

BPP - personal property of others

a. Must be in the insured's care, custody, and control

b. Located in the building/structure described in the declarations or within 100 feet of building/structure/premises

c. Payment is made to the property owner (not the insured)

d. Payment is not made based on legal liability

property NOT covered in BPP

1. Accounts, bills, currency (money, security, & similar property)

2. Animals (exceptions for pet stores - considered "stock")

3. Automobiles held for sale

4. Bridges, roadways, walks, patios, paved surfaces

5. Contraband, property in illegal transportation, or trade

6. Cost of excavations, grading, backfilling

7. Foundations of buildings and structures

8. Land, water, growing crops or lawn

9. Personal property while airborne or waterborne

10. Bulkheads, pilings, piers, wharves, and docks

11. Property that is covered elsewhere

12. Retaining walls that are not part of a building

13. Underground pipes, flues, or drains

14. Electronic data

15. Cost to replace or restore information

16. Vehicles or self-propelled machines

17. The following property while outside the building: grain, hay, straw, or other crops & fences, radio or TV antennas, satellite dishes and their wiring, masts or towers, trees, shrubs, or plants (unless "stock" or part of a vegetated roof)

additional coverages BPP

these coverages are included regardless of which of the property coverages are present, these may address additional claims costs not addressed in the property coverages (ex: fire department service charge), & in some instances, a peril or property is excluded, but the limited coverage is added back within the additional coverages (ex: electronic data)

list of BPP additional coverages

1. debris removal

2. preservation of property

3. fire department service charge

4. pollutant clean-up and removal

5. increased cost of construction

6. electronic data

BPP additional coverage - debris removal

(up to $25,000 in addition to policy limit)

Covers cost of removing debris of covered property resulting from a covered cause of loss

Will pay up to 25% of the DIRECT (damage to building -> indirect: loss in income) loss for debris removal

If direct loss plus debris removal exceeds the Limit of Insurance, this coverage will pay up to another $25,000 for debris removal

list of BPP coverage extensions

1. newly acquired or constructed property

2. personal effects and property of others

3. valuable papers and records (other than electronic data)

4. property off-premises

5. outdoor property

6. non-owned detached trailers

7. business personal property temporarily in portable storage units

BPP additional coverage - preservation of property

a. When it is necessary to move covered property to protect it from a covered cause of loss, this provides coverage for that property while it is being moved or temporarily stored for up to 30 days

b. Coverage is broader than what the policy normally provides - pays for "any direct physical loss or damage to that property"

c. Subject to policy limits

BPP coverage extension - newly acquired or constructed property

a. Building - if policy covers building(s), coverage provided for new building being built or buildings you acquire, new/acquired building must have similar use as building in Dec or be used as a warehouse, & provides up to $250,000 in coverage at each building

b. Your business personal property - if policy covers your business personal property, coverage provided for property you acquire & provides up to $100,000 in coverage at each building

c. Period of coverage - coverage expires at policy expiration, 30 days after construction begins, 30 days after acquisition, or when values are reported to insurer

BPP additional coverage - fire department service charge

(up to $1000 at each premises)

a. Pays fire department service charges if they are required by local ordinance or assumed by contract or agreement prior to loss

b. Limit is $1000 for service at each premises in Declarations unless a higher limit is shown in the Declarations

c. For coverage to apply, the fire department must be responding to a covered cause of loss

d. In addition to policy limits

BPP coverage extension - personal effects and property of others

a. Provides up to $2500 per location for: personal effects owned by insured, partners, members, managers, or employees & personal property in your care, custody, and control

b. DOES NOT APPLY TO LOSS OR DAMAGE FROM THEFT

BPP additional coverage - pollutant clean-up and removal

($10,000 aggregate)

a. Pays expenses to extract pollutants from land or water at the described premises

b. Coverage only applies if the release, discharge, dispersal, seepage, migrations, or escape of the pollutants is the result of a covered cause of loss

c. Limit for each location is $10,000 in aggregate over the policy period

BPP coverage extension - valuable papers and records (other than electronic data)

a. Covers the cost of blank materials and labor to replace/restore valuable records for which there is no duplicate

b. Does NOT apply to electronic data

c. Provides up to $2500 per location

d. Must be caused by covered cause of loss from Basic/Broad forms

e. Valuable papers include accounts receivable, legal documents, medical records, etc

BPP additional coverage - increased cost of construction

(up to $10,000 with limitations)

a. If damages by a covered cause of loss, this covers the increased costs to comply with ordinances or law regulating the repair, rebuilding or replacement of covered buildings

b. Limit is 5% of the amount of insurance or $10,000, whichever is less

c. Coverage only applies if the RC optional coverage is selected (as opposed to ACV)

d. In addition to policy limits

BPP coverage extension - property off-premises

a. Provides coverage for property while it is away from described premises temporarily

b. Does not apply to property in a vehicle or in the care, custody, control of your salespersons (unless at fair, trade show, or exhibition)

c. $10,000 limit

BPP additional coverage - electronic data

(up to $2500)

a. Provides an aggregate limit of $2500 in coverage for this regardless of the number of locations and occurrence

b. This is an insufficient amount of coverage for any business

BPP coverage extension - outdoor property

a. Covers outdoor fences, radio & television antennas, satellite dishes, and trees/plants/shrubs

b. Limit is $1000, but not more that $250 for any tree, plant, or shrub

c. Coverage only provided for losses caused by fire, lightning, explosion, riot or civil commotion, or aircraft

coverage extensions in BPP

apply to property located in, on, or within 100 feet of building shown on Declarations, must have at least 80% coinsurance or a Value Reporting period symbol is shown on the Declarations, & coverage extensions are payable in addition to stated policy limits

BPP coverage extension - non-owned detached trailers

a. Extends your business personal property to include trailers (but not their contents) in care, custody, and control of insured

b. Does not apply to trailers while attached to a motor vehicle or that become detached from a motor vehicle during hitching/un-hitching**

c. Only applies if you have a contractual responsibility to pay for loss to trailer

d. $5000 limit

BPP coverage extension - business personal property temporarily in portable storage units

a. Provides coverage for your business personal property while temporarily stored in a portable storage unit or trailer

b. Must be stored within 100 feet of the described location

c. Coverage ends 90 days after property is placed in the unit

d. $10,000 limit

causes of loss forms

are attached to the policy to show what perils are covered (BPP shows what property is covered)

3 different forms: basic form (named perils), broad form (named perils), & special form (open perils)

covered causes of loss basic form

1. Fire

2. Lightning

3. Explosion

4. Windstorm or hail

5. Smoke

6. Aircraft or vehicles

7. Riot or civil commotion

8. Vandalism

9. Sprinkler leakage

10. Sinkhole collapse

11. Volcanic action

covered causes of loss broad form

1. Fire

2. Lightning

3. Explosion

4. Windstorm or hail

5. Smoke

6. Aircraft or vehicles

7. Riot or civil commotion

8. Vandalism

9. Sprinkler leakage

10. Sinkhole collapse

11. Volcanic action

12. Falling objects

13. Weight of snow, ice or sleet

14. Water damage

covered perils in basic and broad forms - fire

for most, fire poses greatest risk for large/total loss, covers resulting damages as well (heat, smoke, water damage from fire department)

covered perils in basic and broad forms - lightning

naturally occurring electrical charge between clouds and earth

covered perils in basic and broad forms - explosion

includes the explosion of gases or fuel in a furnace or flue, does not include rupture or bursting of pressure-relief devices or building contents

covered perils in basic and broad forms - windstorm or hail

includes hurricanes, tornadoes, straight-line winds, damage to the exterior of the building must occur in order for there to be coverage for interior damage and/or property inside the building

covered perils in basic and broad forms - smoke

damage must be "sudden and accidental" (not over time), no coverage for damage resulting from agricultural smudging or industrial operations

covered perils in basic and broad forms - aircraft or vehicles

physical damage resulting from contact with a vehicles, aircraft, spacecraft, self-propelled missile, or object thrown up by a vehicle, no coverage if the vehicle is owned by the insured, no coverage for the vehicle, aircraft, etc

covered perils in basic and broad forms - riot or civil commotion

most states define riot as a violent public disturbance by 3+ persons, includes acts of striking employees and looting

covered perils in basic and broad forms - vandalism

damage must be "willful and malicious", no coverage for theft, except for the building damage caused by burglars when breaking in or exiting

covered perils in basic and broad forms - sprinkler leakage

damages resulting from leakage or discharge from automatic sprinkler system, includes cost to tear out and replace any part of building to repair sprinklers

covered perils in basic and broad forms - sinkhole collapse

damage caused by sinking or collapse of land into underground spaces caused by water on limestone or dolomite, does not cover the cost of filling this

covered perils in basic and broad forms - volcanic action

damage resulting from the eruption of a volcano when damage caused by airborne volcanic blast, airborne shock waves, ash, dust particulate matter, or lava flow, all eruptions within a 168-hour period are considered one occurrence, does not cover earthquake damage that often accompanies volcanic eruptions

covered perils in broad form (but NOT basic)

falling objects

weight of snow, ice, or sleet

water damage

tree limb falls on building, is it covered by basic form? No

covered perils in broad form (but NOT basic) - falling objects

for coverage to apply, the outside of the building must be damaged first by the falling object, no coverage for personal property outside the building

covered perils in broad form (but NOT basic) - weight of snow, ice, or sleet

covers damage to building or personal property inside the building, no coverage for personal property outside or damage to lawns, trees, shrubs, and plants

covered perils in broad form (but NOT basic) - water damage

covers damage resulting from accidental leakage of water or steam from plumbing or appliance, coverage for interior causes of damage not exterior includes cost to tear out and replace any part of building in order to repair fixture water escaped from (but no coverage for fixture/pipe itself), no coverage for water damage due to flooding, rainfall, sewer backup, etc

concurrent causation doctrine

if 2+ perils contribute to a loss concurrently and one of the causes of loss is covered, then entire loss is covered by the policy (ex: hurricane with covered wind and uncovered external water)

anti-concurrent causation language

Courts interpret policy language based on the concurrent causation doctrine

However, there are some perils insurance companies do NOT want to pay for regardless of whether the occur independently or concurrently

As a result, insurance companies have developed this

This applies to 8 perils within the Cause of Loss forms

excluded perils subject to anti-concurrent causation (all COL forms)

1. ordinance or law

2. earth movement

3. governmental action

4. nuclear hazard

5. utility service

6. war and military action

7. water

8. "fungus", wet rot, dry rot, and bacteria

Excluded perils subject to anti-concurrent causation - ordinance or law

excludes coverage for costs required to comply building ordinances & laws, some coverage is given back in the Additional Coverage for Increased Cost of Construction (if building is half burnt from fire, then policy covers the burnt part but not the unburnt part if it needs to be demolished as well)

Excluded perils subject to anti-concurrent causation - earth movement

excludes coverage for earthquake, landslide, earth sinking, excludes volcanic eruption (but volcanic action is a Covered Peril) -> volcanic lava and ash covered, not earth shaking

Excluded perils subject to anti-concurrent causation - governmental action

excludes seizure or destruction of property by governmental authority, exception: if damage results from acts of destruction ordered by government to prevent the spread of fire, the resulting damage would be covered

Excluded perils subject to anti-concurrent causation - nuclear hazard

excludes coverage for nuclear reaction, radiation, and contamination, exception: fire resulting from nuclear reaction is covered

Excluded perils subject to anti-concurrent causation - utility service

excludes coverage for the failure of power, communication, water, or other utility service if the failure originates off premises, limited coverage if utility failure occurs on premises

Excluded perils subject to anti-concurrent causation - war and military action

excludes coverage for war, revolution, insurrection, or similar actions, current interpretation is that this exclusion does NOT apply to terrorist attacks

Excluded perils subject to anti-concurrent causation - water

excludes flood, surface water, waves/tides, storm surge, mudslide, water back-up, seepage, exclusion does not apply to fire, explosion, or sprinkler leakage caused by any of the above

Excluded perils subject to anti-concurrent causation - "Fungus", wet rot, dry rot and bacteria

excludes presence, growth, proliferation, or spread of "fungus", wet/dry rot, or bacteria, exception: fungus, rot, bacteria resulting from fire or lightning, limited coverage is given back in the Additional Coverages section of the Cause of Loss forms

other exclusions in basic and broad forms

These exclusions are not subject to the anti-concurrent causation language: artificially generated electrical current, explosion of steam boilers, mechanical breakdown, neglect

There are a few other exclusions that apply to other coverage forms (business income, leasehold interest, legal liability)

additional coverages

limited coverage for "fungus", wet rot, dry rot and bacteria

collapse

additional coverages - limited coverage for "fungus", wet rot, dry rot and bacteria

included in basic, broad, and special COL forms, provides $15,000 in aggregate coverage during the policy period for fungus, rot, or bacteria resulting from a covered COL (other than fire or lightning)

additional coverages - collapse

included in broad and special COL forms only (not basic), covers abrupt collapse if caused by:

Covered COL

Hidden decay (unless decay is known by insured)

Hidden insect or vermin damage (unless damage is known by insured)

Weight of people or personal property

Weight of rain collecting on the roof

Use of defective materials or construction methods if collapse occurs during construction

causes of loss - special form

Covers "direct physical loss unless the loss is excluded or limited in this policy", if a cause of loss is not specifically excluded, it is covered, shifts the burden of proof from the insured to the insurer, most frequently selected of the Cause of Loss forms

exclusions: basic, broad, and special

1. Ordinance or law

2. Earth movement

3. Governmental action

4. Nuclear hazard

5. Utility services

6. War and military action

7. Water

8. Fungus, wet rot, dry rot, and bacteria

9. Artificially generated electrical current

10. Explosion of steam boilers

11. Mechanical breakdown

12. Neglect

Exclusions in special form that match covered COL exceptions in broad or basic forms

Smoke from agricultural smudging or industrial operations

Rain, snow, ice, or sleet to personal property in the open

Continuous or repeated seepage or leakage of water (from Broad form)

broader coverage in special form - theft

basic & broad forms: Only covers theft by looting at the time of riot or civil commotion

special form: Covers theft of covered property under a wide variety of circumstances subject to exclusions and limitations

broader coverage in the special form - vehicles

basic & broad forms: Excludes loss/damage from vehicles owned by an insured

special form: Covers loss/damage from vehicles owned by an insured

broader coverage in the special form - windstorm

basic & broad forms: Excludes damage to interior of building caused by rain, snow, sleet, ice, sand, or dust unless roof/walls if building are damaged first

special form: Contains similar exclusion, but provides coverage when water backs up from under roof shingles because gutters are clogged with ice (ice damming)

exclusions unique to special form

since this is an open perils policy, meaning perils are covered if not excluded, there are additional exclusions within the special form:

Wear and tear

Rust, corrosion, decay, deterioration, or hidden/latent defect

Smog

Settling, cracking, shrinking, or expansion

Infestation and waste products of insects, birds, rodents, or other animals

Mechanical breakdown

For personal property - dampness or dryness of atmosphere, changes or extremes in temperatures, or marring/scratching

why do you think insurers exclude perils in special form?

Business owners have some control over them (putting screens over vents to prevent rodents), some things are unavoidable and occur over time (wear and tear, rusting, etc) and insurance is meant to cover sudden and accidental claims, it covers losses resulting from these conditions though (rodent chews through wire and causes fire -> wire damage not covered, but fire damage is)

special form - concurrent causation exclusions

The special form also excludes the following (but provides coverage if one of the following results in a covered cause of loss):

Weather conditions

Acts or decisions by governmental body or organizations

Faulty, inadequate or defective planning, zoning, surveying, design, specifications, etc

Example: So, the faulty design itself is not covered, but if the faulty design causes a fire, the resulting fire damage is covered

other exclusions/limitations in special form

Loss or damage to products

Property excluded unless damage is caused by "specified cause of loss":

-Animals

-Fragile articles

-Builders machinery and equipment while away from described location

Lawns, trees, shrubs, or plants that are part of a vegetated roof

Considering animals and fragile articles, what are examples of situations in which they would be covered? When would they not be covered?

Covered: if caused by specified cause of loss

Not covered: if not caused by specified cause of loss (fire, lightning, wind, etc) -> pet store would not be covered for an animal that dies naturally

Theft-related exclusions in special forms

Dishonest/criminal acts by insured, partners, members, employees, etc

Voluntary surrendering of property as result of fraud/trickery

Property transferred away from premises on the basis of unauthorized instructions

Theft of construction materials

Inventory shortages/unexplained disappearance

Special limits for theft of furs, jewelry, precious metals, stamps, tickets, etc

special form - additional coverages & coverage extensions

"Fungus" (also included in basic and broad)

Collapse (also included in broad)

Property in transit - up to $5000 for property in a vehicle operated and owned/leased by an insured (named perils coverage)

Water damage, other liquids, powder or molten material damage - covers cost to tear out and replace part of a building in order to repair appliances/system/pipe in which water/liquid is escaping from

chapter 2 reminders

At least one of the COL forms must be added to the Building and Personal Property (BPP) coverage form

The COL forms show what perils are covered

The BPP shows what property is covered

Commercial property coverage part

CP declaration

CP coverage form (BPP)

CP COL form (basic, broad, special)

CP conditions

limits of insurance

BPP states that "the most we will pay for loss or damage in any one occurrence is the applicable Limit of Insurance in the Declarations"

Limits apply separately to each occurrence, but occurrence is not defined

Recall that payments under all Coverage Extensions and most Additional Coverages are paid in addition to the limit of insurance

Policy may include specific/scheduled limits (individual limits for building $100,000, business personal property $50,000, personal property of others $10,000) or blanket limit ($160,000 blanket on the building, business personal property, and personal property of others)

specific vs blanket limits

If specific limits, the limits are displayed on the Declarations

If blanket limits, the limit is the total of all limits

Blanket limits can increase the amount of debris removal paid (25% of total coverage)

You can have blanket limits for the building and for the building personal property

example

deductibles

The insurer is not obligated to pay losses less than the deductible

The deductible is applied once per occurrence (policy period)

The deductible is subtracted from the loss (not the Limit of Insurance) when determining the amount payable

When specific limits of insurance apply (not blanket), the losses cannot be combined in applying the deductible

Coinsurance is applied prior to the deductible

BPP loss conditions

abandonment

appraisal

duties in the event of loss or damage

abandonment

prohibits the insured from abandoning damaged property to the insurer for disposal (repair/disposal is responsibility of insured)

appraisal

establishes a method to resolve disputes about the amount of loss (does not apply to disputes about coverage)

duties in the event of loss or damage:

Notify police if loss results from violation of law (vandalism, theft, etc)

Promptly notify the insurer of a loss

Take reasonable steps to protect the property from further loss

Provide inventory of damaged/undamaged property and values

Permit insurer to inspect the damage and obtain copies of records

Cooperate with the insurer

Submit signed, sworn proof of loss within 60 days of insurer request

Submit to examinations under oath (EUO) if requested

loss payment (insurer options)

1. Pay value of lost/damaged property

2. Pay cost to repair/replace lost/damaged property

3. Take over property and pay agreed/appraised value

4. Repair, rebuild, or replace the damaged property with property of like kind/quality

recovered property

if the insurer has paid a loss, and property is later recovered, the other party must be notified (typically involves stolen property)

vacancy

if building has been vacant for more than 60 consecutive days prior to loss, the insurer will not pay for loss caused by vandalism, sprinkler leakage (unless protected against freezing), glass breakage, water damage, or theft

valuation

covered property losses are settled at ACV (reflects RC-depreciation)

BPP additional conditions

coinsurance

mortgage holders

BPP additional conditions - mortgage holders

If a mortgagee is shown on the Declarations, the insurer is obligated to include them on any loss payment

Insurer may be obligated to make loss payments to mortgagees even though it denied coverage to the insurance (ex: arson)

If insurer cancels or non-renews the policy, they must provide written notice to the mortgagee