Chapter 3 - Textbook Questions

What is the policy period start appliable to most policies of commercial property insurance?

Policy period takes effect 12:01am at the address of the Named Insured as stated on the policy

Explain how the defining of policy period in this way can cause potential problems for insurers

This creates an opportunity for fraud if the person who is newly insured claims for a loss which already occurred

After a total fire loss to insured property, the insurer paid the full amount of the claim directly to the insured. The insured immediately left town and was never heard from again. Does the mortgagee named on the policy have any rights of action against the insurer? Explain

Since the insurer knew of the existence of the mortgagee (it was named on the policy), it can be called upon to pay the claim twice

Insurers often do not provide a breakdown of the individual rates charged for coverages provided by the policy.

• What reasons might the insurer have for adopting this practice?

• Does this practice comply with the legislated requirements for disclosure of costs of insurance?

• they do not want to divulge their rates to competitors

• no - but insurers will usually provide rating details on request

Legislation has been struck in all Common Law provinces which requires that policies insuring against the peril of fire include certain other coverages. Identify those other coverages required to be insured by fire policies

All fire policies must include coverage against direct loss or damage from:

• fire,

• lightning and

• explosion of natural, coal, or manufactured gas

Even though the fire policy is rarely used, it is important for brokers to understand its workings. Explain

The basic fire policy serves as the model for other broader commercial property forms

Identify 3 conditions which serves to increase the physical hazard present in a risk and for which coverage is excluded by the fire policy

• Vacancy

• Unoccupancy

• When premises shut down

Summarize the by-laws exclusion contained in the commercial property insurance policies

Any increase in the costs to rebuild, repair or replace the insured's building after a loss which are incurred in order to comply with a law or by-law are not insured by the policy

Briefly outline the provisions of the removal clause

• Coverage is provided for property which is at a location(s) not indicated on the policy provided the insured is able to show that such property was "necessarily" removed to prevent loss;

• The amount of coverage, in the event of loss to property at unnamed location, is limited to the amount of insurance remaining after the payment of any losses at the location insured by the policy;

• Coverage at an unnamed location is limited to the least of 7 days or the unexpired term of the policy

Briefly summarize the coverage provided by the debris removal clause

Covers removal of debris from insured premises after loss or damage to insured property from an insured peril

Indicate the approach an adjuster would use to determine if coverage is provided by the Broad Form Policy

The adjuster would review the exclusions. if the loss is not specifically excluded, payment will be made

What is the purpose of the insurer in incorporating this section into the policy?

Extensions were incorporated by insurers to broaden coverages and make their policy more competitive

Do the limits of coverage applicable to each extension increase the limits of liability provided by the policy?

Limits of coverage applicable to each extension do not increase the amount of insurance under the form. when the policy limits have been fully paid out to cover other losses insured by the policy, there is no coverage available to the insured under this section.

Is the policy deductible applicable to losses covered under the extensions provided by the policy?

Deductible applies to the extensions

Summarize the coverages provided by the following Extensions of Coverage: Removal

If any of the insured property is necessarily removed from the premises to prevent loss or damage or further loss or damage to the property, for 7 days only, or for the unexpired term of the policy if less than 7 days, the insurer will insure the property removed and any property remaining in the location(s) specified

Summarize the coverages provided by the following Extensions of Coverage: Debris Removal

• Covers costs of removal of debris of insured property, as a result of an insured loss;

• coverage included for removal of debris blown onto an insured location by windstorm;

• Amount not considered in determination of ACV for application of co-insurance penalty

Summarize the coverages provided by the following Extensions of Coverage: Personal Property of Officers and Employees

• If policy covers equipment, at the option of the insured, extension can be applied to cover property of officer and employees;

• If property insured elsewhere only covered if insured is liable;

• Up to max of $250 per officer/employee;

• Applies at location(s) on Dec page or Newly Acquired Location

Summarize the coverages provided by the following Extensions of Coverage: Building Damage by Theft

• Available on broad form only;

• Covers damage from theft;

• Attempted theft, vandalism or malicious acts (except by fire) to building owned by insured not covered under Broad Form policy or building for which insured is liable;

• Max of $2,500;

• Damage to glass and lettering or ornamentation is excluded

Summarize the coverages provided by the following Extensions of Coverage: Growing Plants, Trees, Shrubs or Flowers in the Open

• Covers damage caused by named perils (except windstorm or hail) or from theft or attempted theft

  • $500 for each growing plant, tree, shrub, flower, or;

  • $5,000 for any one occurrence

Identify 4 coverages ordinarily included in commercial insurance package policies

• Coverages usually provided in commercial package are:

  • Property insurance

  • Business interruption

  • Liability insurance

  • Crime insurance

List 5 (16) qualities of a risk which will influence the amount of the rate credit provided to an insured under a commercial package policy

• Building construed after 1945

• Sprinklered

• Alarmed (local or central)

• Sole occupant

• Grade floor entirely of concrete with no basement

• Neighborhood

• Maintenance and safety

• Management

• Judgment of broker

• Building insured in addition to business contents

• Detachment

• Enclosed shopping mall

• Circuit breakers

• Increased deductible

• Claims free (with same insurer)

• Ground floor area below specified size

Provide 2 advantages and 2 disadvantages of the package policy approach to commercial property insurance

• Advantages:

  • Simplicity of application form

  • Cost of insurance to consumer determined on the spot

  • Coverages provide adequate protection for most small commercial businesses

  • Broad coverages provided eliminate many common claims problems

• Disadvantages:

  • One size does not fit all

  • No standard package policy forms