Property Insurance Unit 11

property insurance

coverage on real property such as office buildings, factories, warehouses 

business personal property

furniture, fixtures, machinery and inventory

Commercial property policy must include

• commercial property declarations form 

• commercial property conditions form 

• one or more commercial property coverage forms 

• the causes of loss form

• other mandatory endorsements 

Commercial property declarations form

provides additional information about the premises to be insured and the specific property forms that will apply. It also includes the name and addresses of any mortgage or lien holders

Commercial property coverage forms

contain descriptions of the specific coverages being provided to the business. Each commercial property coverage form defines what property is covered, what property is not covered, how limits and deductibles apply, and what special conditions apply

Causes of loss forms

list the perils that the property is insured against. There are 3 separate causes of loss forms

• basic

• broad

• special (open)

Conditions Form

attached to every commercial property policy. Establishes the policy provisions with respect to the following issues: 

• control of property

• legal action against the insurer

• other insurance

• policy period and coverage territory

• transfer of recovery rights against others (subrogation)

• concealment, misrepresentation, and fraud

• no benefit to bailee

• insurance under 2 or more coverages

• liberalization

Control of property condition

states that an act of neglect of a person beyond the insured’s direction or control will not affect the insurance. In addition, if the insured violates a condition of the policy with regard to a specific location, the insurance applicable to other locations will not be affected

Legal Action against the insurer/ Legal action against us Condition

gives the insured two years from the date that direct physical loss occurred to bring an action against the insurer. Such an action cannot be brought unless the insured has complied with all conditions of the policy

Other insurance condition

states that when there is other insurance written on the same basis, the policy pro rates with other policies. If there is other insurance covering the same loss but subject to a different plan or coverage, the policy is excess over the other insurance.

Policy period & Coverage territory condition

states that a loss must occur during the policy period and in the coverage territory to be covered. The coverage territory is usually in the US, its territories and possessions, Puerto Rico and Canada

Transfer of Rights of recovery against others to us condition

gives the insurance company subrogation rights

Subrogation

defined as a legal right that allows one party (ex: your insurance company) to make a payment that is actually owed by another party (ex the other drivers insurance company) and then collect the money from the party that owes the debt after the fact

Concealment or Fraud Condition

states that the commercial property coverage is void if the insured intentionally conceals or misrepresents a material fact concerning the coverage, the covered property, the insured’s interest in covered property, or a claim.

No Benefit to Bailee Condition

prohibits a bailee from being from being reimbursed by the insured’s commercial property insurance if the insured’s property is damaged or destroyed while in the bailee’s custody. Remember, a business is a bailee when they have care, custody and control of a customer’s property

Liberalization Condition

states that any revision that broadens coverage without requiring additional premium will automatically apply to the coverage part if the revision is adopted by the insurer during the policy period or within 45 days of the policy’s effective date

Building and Personal Property Coverage form

most commonly purchased form, and the form that is the core of the commercial property coverage part

Covers buildings, the insured’s business personal property, and the personal property of others located at the business premises

Insured may select coverage for one or more of these categories

Coverage is only provided for coverages that have a limit of insurance shown in the declarations

In addition to the building itself, building coverage includes:

• completed additions

• fixtures, including outdoor

• permanently installed machinery and equipment

• personal property used to maintain or service the premises, such as fire extinguishers

• outdoor furniture, floor coverings, certain appliances

• if not otherwise covered, additions under construction and alterations or repairs to the building, including materials, equipment, supplies and temporary structures within 100 ft of the described premises

Business personal property

covered while it is in the building, in the open, or in a vehicle within 100 ft of the premises. Includes:

• furniture 

• fixtures

• machinery

• equipment

• stock

• the value of labor, parts, or services on the personal property of others (ex: the business has invested money and labor into a tractor it is repairing for a farm customer)

• if the insured has a tenant, the improvements and betterments added by the insured (paid at ACV)

• leased personal property that the insured has a contractual responsibility to insure, unless its otherwise covered

Personal property of others

pays for damage to property of others in the insured’s care, custody or control, regardless if the insured is liable for that loss. Person who owns the property receives the payment for loss

Stock

the insured’s merchandise. Includes item stored or offered for sale, raw materials for manufacturing, materials in the process of being manufactured, manufactured items, and supplies used in packaging and shipping.

Improvements and betterments

fixtures, alterations, installations, or additions that are made a part of a building that the insured tenant occupies but does not own, and which are acquired by or made at the expense of the insured but cannot legally be removed by insured

Coverage exclusions

• money, accounts, food stamps, notes, securities and other related property (lottery tickets held for sale are covered)

• animals, unless boarded or held for sale

• autos for sale

• bridges, roads, walks, patios, and other paved surfaces 

• contraband

• cost of excavations and other ground preparation

• foundations of buildings, structures, machinery or boilers if their foundation is below the basement level or below ground level if there is no basement

• land, water, growing crops, and laws

• retaining walls that are not part of a building

• bulkheads, pilings, piers, wharves, and docks

• property covered under another policy in which it is more specifically described

• underground pipes, flues, and drains

• the cost to replace or restore information contained in valuable papers or records, including those that exist as electronic data, except as provided in the coverage extensions

• vehicles, including watercraft and aircraft, that are licensed for use on public roads

• the following property while outside of buildings, except as provided in the coverage extensions

  • fences

  • antennas (including satellite dishes)

  • signs that are not attached to the building (attached signs covered for $2,500

  • trees, shrubs and plants

Additional Coverages that are automatically included

• Debris removal

• preservation of property

• fire department service charge

• pollutant cleanup and removal

• electronic data

Debris removal

reimbursement for the cost and expense associated with cleaning up and debris removal after a loss. the insurer will pay up to 25% of the sum of the deductible plus the amount the insurer pays for direct physical loss for damage to the covered property. If removal costs are more than that amount or the actual loss plus the debris removal is more than the limit of the policy, an additional $25,000 per occurrence is available.

example: a tornado strikes a business resulting in $75,000 in damage and $25,000 in debris removal. The building is insured for $200,000 with a $5,000 deductible.

Insured will receive $25,000 for debris removal because $75,000 (the amount paid for the loss plus the deductible) x 25% = $18,750. This amount is less than the amount of debris removal expenses

Preservation of property

pays for loss to property that was removed from the insured location to protect it from peril insured against. Coverage only applies if the loss occurs within 30 days after property was removed

Fire Dept Service Charge

pays up to $1,000 for a fire dept service charge. This is paid in addition to th limit of insurance, no deductible applies

Pollutant Cleanup and removal

covers the cost to extract pollutants from land or water at the insured’s premises if the pollution was caused by a covered cause of loss. Subject to $10,000 limit per policy period that applies in addition to the policy limit. Expense must be reported to insurer in writing within 180 days of loss

Electronic data

pays to replace or restore electronic data that may have been destroyed or corrupted by a covered cause of loss. Means information, facts, or computer programs. Max that will be paid is $2,500 for all loss or damage sustained in any one policy year.

Coverage Extensions

Provide additional limits of insurance. Only apply if the insured has agreed to meet an 80% or higher co-insurance requirement or has purchased a reporting form. Apply to property located in or on the building described in declarations or in the open or in a vehicle within 100 ft of the described premises.

• newly acquired or constructed property extension

• personal effects and property of others extensions

• valuable papers and records other than electronic data extension

• property off premises extension 

• outdoor property extension

• non owned detached trailers extension

Newly acquired or constructed property extension

if the insured acquires a building at another location or builds a new building on the described premises, the newly acquired or constructed buildings are covered under the policy’s building coverage for up to $250,000 per location. Business personal property coverage can be extended to property, including newly acquired property, at newly acquired or constructed buildings, or to newly acquired property at the described premises. Coverage for newly acquired business personal property is $100,000 at each location

Personal effects and property of others

provides up to $2,500 of coverage for personal effects of the named insured, partners, and employees (excluding theft) and personal property of others

Valuable papers and records - other than electronic data

pays up to $2,500 to replace or restore information on damaged valuable papers and records

Property off premises extension

up to $10,000 in coverage for covered property that is away from the described premises. Coverage is provided while property is: 

• temporarily at a location the insured does not own, lease or operate

• in storage at a location the insured leases

• at a fair, trade show or exhibition

property is not covered while it is in or on a vehicle or in the care of a salesperson, except while at a fair, trade show or exhibition

Outdoor property Extension

a limited amount of coverage to fences, antennas, satellite dishes, trees, plants, shrubs. Max payable is $1,000 with $250 limit applying to any one tree, plant or shrub

Non owned detached trailers

truck drivers that make deliveries to business sometimes leave the trailer for the insured to unload, and the truck driver returns later to pick up the empty trailer. Some businesses also use rented trailers as storage facilities. In both cases, the insured is usually responsible for damage to the trailer while it is on the premises.

Trailer must be in insured’s care, custody or control at a premises described in declarations and the insured must be contractually obligated to pay for damages.

No coverage for damage that occurs while the trailer is attached to a vehicle or while it is being hitched or unhitched from a vehicle.

Limit is $5,000 unless a higher limit is shown in the declaration

Damage to signs

limit of insurance condition in the form specifies that coverage for loss or damage to outdoor signs, regardless of whether to the sign is attached to a building is $2,500 per sign

Conditions

in addition to conditions listed in the common policy conditions and commercial property conditions forms, there are also several important conditions listed in the building and personal property coverage form. 

• duties in the event of loss condition

• loss payment condition

• valuable condition

• stock condition

• tenants improvements and betterments

• vacancy condition

• mortgage holder condition

• coinsurance condition

Duties in the event of loss condition

states that after a loss, the insured must:

• notify insurer about the loss or damage as soon as possible, provide a description of the property involved, and describe how, when, and where the loss or damage occured

• notify the police if a law may have been broken

• take reasonable steps to protect the covered property from further damage and keep a record of expenses incurred to protect the property

• provide a complete inventory at insurer’s request

• allow the insurer to inspect the property, examine books and records, and take samples of the property at its request

• testify under oath with regard to the claim if requested by insurer

• send a signed, sworn statement of loss within 60 days at the insurance company’s request

Loss Payment condition

states that the insurance company will give the insured notice of how it intends to value the loss within 30 days after it receives the insured’s sworn statement of loss. As long as the insured has complied with all of the terms of the coverage part and has reached agreement with the company on the amount of the loss, the insurer will pay the loss within 30 days after it receives the sworn statement of loss 

Valuation Condition

describes how losses will be settled. Most losses are paid at an ACV basis. However, if coinsurance conditions are met and costs are $2,500 or loss, the policy will pay the cost of building repair or replacement without taking depreciation into account

Stock condition

already sold is valued at its net selling price

Tenants’ improvements and betterments

valued at ACV

Vacancy condition

states if a building has been vacant for more than 60 consecutive days before the loss, insurer will not pay for a loss due to vandalism, water damage, theft or attempted theft, building glass breakage, or sprinkler leakage. In addition, any amount that would otherwise be paid for a covered loss will be reduced by 15%. Buildings under construction are not considered vacant. 

Mortgage Holder Condition

promises to pay losses to any mortgage or lien holders named in the declarations as their interest may appear. The insurer must provide 10 days written notice if it cancels for non payment of premium and 20 days written notice if it cancels for any other reason allowed by policy. If the insurer decides not to renew, it must give the mortgage or lien holder at least 10 days advance written notice.

Coinsurance condition

states that when the insured’s amount of coverage at the time of loss does not meet the required coinsurance percentage, the company reduces the payment it would otherwise make in the same proportion as the insurance carried bears to the insurance required.

LOSS x did carry / should carry

Builders risk Coverage Form

this form covers commercial, residential, or farm buildings that are under construction.

Coverage includes both the building under construction and its foundation. 

Fixtures, machinery, equipment used to service the buildings and the building materials and supplies can be covered if they will become a permanent part of the building and are within 100 ft of the building 

Coverage may be extended to cover building materials and supplies owned by others but in the insured’s care, custody or control, provided they are within 100 ft of the described building. 

Max paid is $5,000

This coverage is written for 1 year but ends when one of the following first occurs: 

• policy expires/is cancelled

• property is accepted by purchaser

• interest in property ceases

• construction is abandoned 

  • 90 days after completion

  • 60 days after building is occupied in whole or in part or put to intended use

Not covered:

• land or water

• lawns, trees, shrubs or plants when outside buildings

• radio and tv antennas when outside of buildings, including lead in wiring, masts or towers

• signs not attached to buildings (attached are covered for $2,500)

Amount of coverage available under builders risk coverage form

determined in accordance with the anticipated completed value of the building under construction. 2 coverages available: completed value form and the builders risk reporting form

Completed value form

example:

limit of insurance is set based on completed value of project. sometimes has a coinsurance clause.

value on date of completion: $100,000

Limit of liability: $100,000

Deductible: $1,000

Amount of loss: $40,000

Loss Payment: $40,000 - $1,000 =$39,000.00

builders risk coverage form conditions

includes most of the same conditions found in the building & personal property coverage form, with the following variations:

• there is no vacancy provision because buildings under construction are not considered vacant

• there is a clause stating that all property is valued at ACV at the time of loss

Builders risk reporting form

provides another option with regard to the amount of insurance that must be carried. When this form is attached to the builders risk coverage form, the insured is allowed otherwise purchase a smaller amount of insurance that gradually increases as the value of the building under construction increases. Requires a report of value that must be filed with the insurer each month.

Contractor files ACV of property covered every 30 days.

Insurance company will not pay more for any loss than the values last reported before loss.

Used when the anticipated completion value of the building is very large and will take a long time to complete.

100% coinsurance required

Condominium association coverage form

insurers a condominium association against direct physical loss or damage to:

• buildings

• business personal property

• personal property of others in the care, custody or control of the association while it is at the premises

it can be used to insure the condominium associations of residential or commercial condominiums. Again, the perils insured against are contained in the causes of loss forms.

Definition of building: Includes coverage for items such as permanently installed machinery and equipment. It will also cover outdoor fixtures that are a part of the building as well as other specifically named personal property. In general, the definition of building does not include personal property owned, used, or controlled by a unit owned.

HO-6 insurers the condo owner’s personal property and the interior walls, built in cabinets, and floors of a unit.

Business personal property includes only property owned by the association

Condominium commercial unit owners coverage form

designed for the owner of a condominium. It covers the condominium’s contents and is available only for the owner of a commercial condominium. (Residential condominium owners can obtain contents coverage with an HO-6). It covers the unit owner’s business personal property and the personal property of others in the insured’s care, custody or control. Does not cover buildings; this coverage is typically provided under the condominium association coverage form issued to the association. 

Coverages

2 types of business income coverage forms

• business income with extra expense coverage form

• business income without extra expense coverage forms

Business Income coverage forms

pay for losses of income that the insured sustains due to a direct physical loss from a peril insured against that forces the insured to suspend operations during the period of restoration. Begins on the date of the direct physical loss and ends on the date on which the property can be repaired, rebuilt or replaced with reasonable speed

Suspension

means a slowdown or cessation of the insured’s business activities

Time Element Coverage

business income coverage is also known as time element coverage since it provides coverage for the loss of business income over a period of time that resulted from direct physical loss. Business income includes net income that would have been earned if the loss had not occurred and the costs of continuing normal operations, including payroll

To be covered, suspension of operations must be a result of a direct physical loss to property at the described premises caused by a peril insured against in the causes of loss form

Extra Expense

a coverage that reimburses the insured for expenses incurred to keep a business going after a loss caused by a peril. For a business that must continue at all costs (newspaper or bank)

Business income with extra expense coverage form

includes an extra expense coverage that reimburses the insured for money spent to avoid or minimize a business shutdown. It covers only expenses the insured would not have incurred If the property had not been damaged

Business income without extra expense coverage form

replaces the extra expense coverage with an expense to reduce loss coverage that expenses the insured incurs to reduce loss, up to the amount the loss is reduced

with either business income forms, insured may select

• business income coverage, including rental value coverage

• business income coverage, other than rental value coverage

• rental value coverage only

Rental value includes

the total anticipated rental income from a Tenant occupancy, all amounts that are legal obligations of the tenant and would otherwise be the insured’s obligations, and fair rental value of any part of the premises occupied by the insured

Business income coverage form coinsurance clause

coinsurance applies to business income coverage but not to extra expense coverage

• waived when either the max period of indemnity or

Additional coverages

• extended business income

Extended business income additional coverage

pays for loss of business income, even after operations have been resumed until the business has been restored, but for no more than 60 days from the date the business is resumed

Business income coverage forms optional coverages

• extended period of indemnity

• maximum period of indemnity

• monthly limit of indemnity

• agreed value 

Extended period of indemnity Optional coverage

gives the insured extended business income coverage for the number of days stated in declaration, rather than the 60 days allowed by extended business income additional coverage

Maximum period of indemnity optional coverage

limits reimbursement for extra expenses or loss of business income to no more than the amount of loss incurred during the first 120 days following the direct loss

Monthly limit of indemnity Optional coverage

allows the insured to establish the amount of reimbursement for loss of business income during each 30 day period. The insured selects a fraction that is multiplied by the limit of insurance to determine the maximum that could be paid for each 30 days 

Agreed Value Optional Coverage

requires the insured to submit a business income report/worksheet every 12 months that shows financial data for the 12 months prior to the submission as well as estimated data for the 12 months following. As long as a new worksheet is submitted every 12 months, the coinsurance clause will not apply. Instead, insured is expected to carry insurance to value, or the agreed value established by worksheets. If the insured fails the file the required financial data, the coinsurance clause is reactivated.

Business Income from Dependent Properties - Broad Form

a variation on the business income forms. Provides coverage for the following:

• insureds who depend on another business as their sole supply of merchandise or raw materials may suffer a loss if their supplier is forced to cut back or eliminate shipments because of a direct physical loss. protects insured against loss due to loss at such a contributing location

• insured that depends on a particular business as the primary buyer for their products are covered under this form if direct physical loss at such a recipient location causes the insured’s earnings to suffer

• insureds may depend on a manufacturer to deliver certain products or components to the insured’s customers under a sales contract. should the manufacturing location be unable to fulfill the contract because of a direct physical loss, insureds may suffer a loss of income that can be covered under this form

• insureds may depend on another business to attract customers to their own business. Loss to such a leader location may cause insureds to suffer a loss of earnings that can be covered

Extra Expense coverage form

for businesses that have to cover extra expense to continue operations at any cost. for example: newspapers, hospitals.

Provides no reimbursement for lost business income but concentrates on reimbursing the insured for extra expenses incurred to remain in operation.

Is a time element coverage

Limits are applied to recovery depending on the period of restoration. For example: limits might be stated in the declarations as 40%/80%/100%. This means if the restoration period was:

• 30 days or less: 40% of the full amount of insurance would be paid

• 31-60 days: 80% of the full amount of insurance would be paid

• over 60 days: 100% of the full amount of insurance would be paid

Legal Liability Coverage Form

covers damages to property of others while in the insured’s control, but only if the insured is legally liable for the damage.

May choose this form to obtain a lower rate because this covers fewer losses.

Causes of Loss Form

in addition to the coverage forms that describe the property to be insured, the commercial property form require a causes of loss form.

States what perils are insured against. Lists specific exclusions. 3 types: Basic, Broad and Special

Basic Form

named perils form that lists 11 covered perils

• Fire

• lightning

• explosion (includes gasses or fuel within the furnace or flues of any fired vessel)

(WCHSHAVVER & V&MM)

• windstorm or hail (does not include damage caused by frost, cold weather, snow, sleet, or ice other than hail. damage to interior of a building or contents is only covered when hail or windstorm first creates an opening in a wall or roof)

• smoke (agricultural smudging or an industrial operation not covered)

• aircraft

• riot or civil commotion

• vandalism

• sprinkler leakage

• sinkhole collapse

• volcanic action (includes airborne volcanic blast or shockwaves, ash, dust, particulate matter and lava flow. removal of ash, dust and particulate matter is not covered if it does not cause direct physical loss to the described premises)

• vandalism & malicious mischief

not covered: vehicle damage caused by vehicles the named insured owns or operates in the course of the insured’s business

Basic Form Additional Coverage

Limited coverage for fungus, wet rot, dry rot, bacteria.

mold that results from a covered cause of loss other than fire or lightning. loss must occur during the policy period, and all reasonable means to save and preserve property from further damage at the time and after that occurrence.

coverage max $15,000 for all occurrences in a 12 month period regardless of number of claims

Broad Form

covers all listed in basic form + BIG AFFECT

• Burglary damage

• Ice, sleet, snow (weight of)

• Glass breakage

• accidental discharge of water (at the described location from within a plumbing, heating, air condition, or automatic fire protective sprinkler system, household appliance) (water also covers the cost of tearing out or replacing any part of a building to repair damage to the system from which the water or steam escaped)

• Freezing objects (plumbing, heating, air condition, automatic fire protective sprinklers, household appliances)

• Falling objects 

• Electrical current (sudden and artificially generated electrical current 

• Collapse

• Tearing asunder (sudden and accidental tearing apart, cracking or burning of steam or hot water heating, air conditioning, automatic fire protective sprinkler system, water heaters)

Collapse additional coverage

defined as an abrupt falling down or caving in of the building or part of the building that results in it being unusable.

Covered only when it is caused by one of more of the specified broad form perils or any of the following additional perils:

• breakage of glass

• hidden decay

• hidden insect or vermin damage

• weight of people or personal property

• weight of rain that collects on a roof

• use of defective material or methods in construction, remodeling, or renovation if the collapse occurs while the construction, remodeling, or renovation is in progress

Hidden decay or insect/vermin damage not covered if insured knew about the damage before the collapse.

Special Form

covers any direct physical loss not specifically excluded or limited in the form. Open perils coverage. 

List of exclusions is more extensive and detailed than in the other forms. 

Special Form exclusions

• same as excluded in other forms (earth movement, war, nuclear hazard, etc) AND

• wear and tear

• rust, corrosion, fungus, decay, deterioration, hidden or latent defects

• smog

• pollutants

• settling, cracking, shrinking, expansion

• damage caused by insects, birds, rodents, or other animals

• mechanical breakdown 

• explosion of steam boilers, pipes, engines

• dishonest or criminal acts of the insured/insured’s employees 

• voluntary parting with property if induced to do so by fraud or a trick 

• rain, snow, ice or sleet damage to personal property that is not in a building

• loss resulting from acts or decisions or the failure to act or decide

• collapse (other than included under collapse additional coverage)

• faulty planning, development, design, specifications, workmanship or repair

value reporting form

used to provide coverage based on actual values at certain locations at specific times.

insured purchases a somewhat higher amount of insurance than he thinks he will need, then reports actual values at each location on a regular basis and pays the premium on the basis of these reports at the end of the policy period based on average exposures.

coverage amounts are adjusted accordingly, reducing the risk that the insured will be uninsured or overinsured at any one location.

can include business personal property, stock, and personal property of others.

example: a large retailer with many locations and multiple warehouse.

peak season endorsement

vacation of value reporting form. allows the insured to carry increased coverage during certain seasons of the year when inventory or other covered property is higher than usual.

ordinance or law coverage endorsement 

the ordinance or law policy exclusion prohibits payment for increased costs due to the enforcement of building regulations or laws. this endorsement removes this exclusion by providing coverage when an insured’s loss is increased because of such laws

spoilage endorsement

may be added to the building & personal property and condominium commercial unit owners coverage forms to provide coverage for the insured’s perishable stock - personal property that must be maintained under controlled conditions (such as refrigerated property) to protect it from loss or damage

earthquake and volcanic eruption endorsement

must be used in conjunction with one of the causes of loss forms. covers land movement.

volcanic eruption

means the eruption, explosion or effusion (pouring forth) of a volcano. all earthquake shocks or volcanic eruptions that occur within any 168 hour period constitute a single earthquake/volcanic eruption. expiration of the policy does not reduce the 168 hour period.

earthquake - sprinkler leakage only

insured may choose to limit coverage to sprinkler leakage caused by an earthquake or volcanic eruption and not cover other losses resulting from these perils. indicate by entering “earthquake - sprinkler leakage only” on the policy declarations. the 168 hour time period for earthquake/volcanic eruption also applies to this coverage