Chapter 7 – Property Insurance: Wordings, Packages & Endorsements

Fire Insurance & Core Policy Wordings

  • Fire Policy (original property insurance wording)
    • Covers losses from fire, lightning, limited explosion + resultant smoke & water damage
    • Only “hostile” fires (uncontrolled/unintended) qualify – not “friendly” fires (intended, contained)
    • 3 legal tests for a covered fire:
    1. Actual ignition must occur
    2. Something burns that ought not to have burned
    3. The event is accidental / a casualty
  • Extended Coverage Endorsement (EC)
    • Adds perils such as windstorm, hail, smoke, riot, etc.
  • Added Coverage Package = Fire + EC + Theft (burglary, robbery, holdup, attempted theft)

Personal-Lines Package Policies

  • 3 Standard Forms
    1. Comprehensive ("all-risk")
    • Covers every loss except those specifically excluded → broadest protection
    1. Basic ("named / specified perils")
    • Only the listed perils are covered
    1. Broad
    • All-risk on buildings + Named-perils on contents
  • Liability section almost always included → indemnifies insured for legally required sums for bodily injury (BI) & property damage (PD)

Typical Personal-Lines Exclusions & Conditions (7 Key Clauses)

  1. Exclusions
    • Catastrophic, uninsurable, or against public policy (war, nuclear, intentional acts)
    • Inherent vice / nature of property (rust, spoilage)
    • Wear & tear, gradual deterioration
    • Specific uninsurable property or separate-policy items (aircraft, valuable papers, flood, earthquake)
    • Regional natural-hazard differences noted (BC–earthquake; ON–tornado; AB–hail)
  2. Sue & Labour Clause
    • Insured must take reasonable steps to minimize loss (tarp roof, board windows, shut off water, hire emergency plumber, etc.)
  3. Basis of Settlement (reinforces principle of indemnity & insurable interest)
    • (1) Actual Cash Value (ACV)
      • ACV=Cost to Repair/Replace−Depreciation\text{ACV}= \text{Cost to Repair/Replace} - \text{Depreciation}
      • Alternate ACV methods: fair market value or all relevant evidence
      • Depreciation = loss of value via use, age, obsolescence
    • (2) Replacement Cost (RC)
      • No depreciation deduction; must rebuild same site/occupancy/like-quality within a "reasonable time"
    • (3) Guaranteed Replacement Cost (GRC)
      • Insurer pays full rebuilding cost even if above limit provided:
      1. Insured amount = 100%100\% of RC at last valuation
      2. Insurer notified of improvements ≤90\le 90 days
      3. Extra cost not due to by-law changes
  4. Notice to Authorities → Police must be advised after malicious act, robbery, theft
  5. Pair & Set → Loss of one item = reasonable % of pair/set value (prevents better-than-new gain)
  6. Parts → Damage to one part ≠ loss of whole article; only the part’s value is paid
  7. Subrogation
    • After paying a claim the insurer obtains the insured’s right to recover from the at-fault party
    • Releases signed before loss do not affect the insured’s recovery under the policy

Homeowners Package Policy (Owner-Occupied)

  • Available in Comprehensive, Broad, or Named-Perils versions (all include exclusions)
  • Split into Section I (Property) & Section II (Liability)

Section I – Property Coverages

Coverage A – Dwelling Building
  • House + anything permanently attached (pool, built-in appliances, underground piping, shrubs, trees)
  • Specifically excludes lawns unless scheduled
Coverage B – Detached Private Structures
  • Separate by space/fence/utility line (garage, shed, gazebo). Connections by fence/utility ≠ attachment.
Coverage C – Personal Property (PP)
  • Contents owned by insured + uninsured property of others at premises
  • Worldwide temporary coverage (30-day theft limitation on stored items)
  • Student property while temporarily away at school covered
  • Special Monetary Limits (low limits on portable, theft-prone items – jewellery, fur, coin collections, etc.). Can be increased by endorsement.
Coverage D – Additional Living Expense (ALE)
  • Pays additional costs after an insured peril makes dwelling uninhabitable OR civil authority blocks access
  • 3 utilisations (can combine):
    1. ALE (hotel, meals, laundromat) – no fixed time limit; "reasonable time to restore/relocate"
    2. Fair Rental Value – lost rent for parts previously rented; reasonable time; no cap
    3. Prohibited Access – civil authority evacuation; max 22 weeks
  • Example: Brianne’s fire ⇒ hotel + coin-laundry fees beyond normal covered

Extensions of Coverage (Automatic, Often Additional Limit)

  • Debris Removal – extra 5%5\% of Coverage A
  • Removal / Property Removed – 3030 days or policy expiry
  • Moving to Another Home – 3030 days, while in transit & at new location
  • Fire Department Charges – $1000\$1000
  • Change of Temperature – consequential water/temperature damage (burst pipe)
  • Freezer Food – $2000\$2000 for power outage or freezer breakdown
  • Lock Replacement – $500\$500, no deductible, theft must be reported
  • Tear-Out – cost to open walls/ceilings for plumbing repair after water damage
  • Arson Conviction Reward – $1000\$1000, no deductible; anti-fraud incentive
  • Credit/Debit Card, Forgery, Counterfeit Money – $1000\$1000, no deductible
  • Inflation Protection – automatic annual increase reflecting material & labour cost index

Tenant (Renter) Policy Forms

  • No dwelling building coverage
  • Forms: Comprehensive & Named Perils
  • Provide:
    1. Personal Property
    2. Personal Liability (e.g. fire damage liability to landlord)
    3. Additional Living Expense (% of PP limit)
    • Includes vandalism/malicious mischief coverage to dwelling, even though tenant not owner

Condominium / Co-operative Unit Owners Policies

  • Forms: Comprehensive & Named Perils
  • Standard: PP, Liability, Additional Living Expense
  • Special Add-Ons
    1. Improvements & Betterments – upgrades (kitchen reno, hardwood) beyond standard unit; condo corp pays “standard unit,” policy covers upgrade difference; limits purchasable
    2. Loss Assessments – pays unit owner’s share when condo corp levies assessment due to:
    • Underinsurance, coinsurance penalty, uninsured/excluded peril, or breach of condition
    • Not available to pay the corporation’s deductible
    1. Unit Additional Protection – covers the individual unit if condo-corp policy insufficient, non-existent, or ineffective
  • Co-operative members usually buy a tenant policy

Mobile Homes, Seasonal Dwellings & Rental Properties

Mobile Homeowners Policy

  • Named-Perils
  • Coverage: building + built-in appliances (treated as part of building), contents, liability
  • Exclusions: while moving (unless emergency), loss by conversion; RC usually not offered (high depreciation)

Vacation Trailers / Campers

  • When attached/towed → covered by auto policy; when parked/unattached → insured under HO, tenant or condo policy (or separate policy) for trailer + attachments + contents

Cottage / Seasonal Dwelling

  • Usually named-perils; theft, vandalism, glass, collapse by snow excluded unless endorsed
  • Considered "seasonal" if unoccupied > 6060 days; visiting every ≤60\le 60 days = unoccupied not vacant
  • Detached structures insured within dwelling limit
  • Pro-rata distribution clause may apply across multiple locations

Rental Property (you own, tenant occupies)

  • Named-perils (vandalism often excluded) or sometimes all-risk
  • Higher deductible than principal residence
  • >4–6 rental units → rated as commercial risk
  • Loss of rental income insured via business-interruption endorsement; liability extended from owner’s HO policy

Optional Personal-Lines Floaters

  1. Personal Articles Floater (PAF)
    • All-risk, worldwide, no deductible, valued basis; covers cameras, furs, jewellery, firearms, computers, collectibles, certain motorized items (golf carts, wheelchairs, e-bikes)
    • Excludes wear & tear, vermin, nuclear, war, intentional acts, power surge (unless lightning)
    • Illegal or confiscated property excluded; musical instruments played for a fee excluded
    • Some classes issued as blanket subject to 100%100\% coinsurance
  2. Fine Arts Floater
    • Paintings, sculptures, china, antique furniture; all-risk, no ded; fragile breakage excluded; professional packing warranty
  3. Sports Equipment Floater – all-risk, no ded; breakage while in use excluded
  4. Marine / Boat Insurance
    • Separate policy when boat exceeds size/value/power limits
    • Coverage options: agreed value, ACV, liability, medical, repair cost, emergency services, uninsured watercraft, trailers, personal effects, accessories
    • Common exclusions: rental/commercial use, racing, repair/renovation, outside navigation limits, lay-up period use, war, seizure, freezing

Farm Property Wordings

  • Farm Policy = Dwelling & contents (like HO) + separate farm-business section (commercial-type wording)
  • Named-perils on dwelling, detached private structures, PP, ALE; buildings insured ACV or RC (rarely GRC)

Extended Coverage Endorsement – Two-Part

  1. Applies to dwelling & contents – broader (rupture/escape of water, broader explosion, wider wind/hail)
  2. Applies to farm property/operations – narrower

Rebuilding Clause – Deferred Payment

  • To curb arson fraud
  • Insurer pays 50%50\% up-front when damage > 23\tfrac{2}{3} of building value; remainder only if rebuilt within 9 months & within 200 ft(60  m)200\text{ ft} (60\;m) of original site

Farm Machinery & Equipment Floater

  • Mobile machinery; all-risk (many exclusions); Canada & U.S.; 80%80\% coinsurance

Livestock Coverage

  • Accidental death or necessary destruction (named-perils or all-risk + theft)
  • Limits per class & per animal; 80%80\% coinsurance

Produce / Consequential Loss / Contamination

  • Fire + EC; 80%80\% coinsurance; harvested crops/seeds/chemicals/packaging; growing crops excluded (gov’t plans)

Sudden & Accidental Pollution Clean-Up – pays when gov’t orders farm clean-up

Farm Business Interruption – replaces lost profits during operational shutdown

Business (Commercial) Policy Wordings

  • "Business" = continuous operation for financial gain; home-based business may be endorsed onto HO
  • Commercial Policies can be Fire & EC, Named-Perils, or All-Risk (crime & water usually excluded from Named)
  • Choice of settlement: ACV or RC
  • Standard components: Statutory conditions, policy conditions, limitations, exclusions, Declarations (items, limits, deductible, coinsurance %, premium)

Coinsurance Clause (encourages adequate insurance)

Insurer Pays=(Amount CarriedAmount Required)×Loss\text{Insurer Pays}=\left(\frac{\text{Amount Carried}}{\text{Amount Required}}\right) \times \text{Loss}

  • Amount Required commonly = % (e.g. 80%80\% or 90%90\%) of property’s value

Commercial Package Variants

Small/Medium Enterprise (SME) Packages
  • Retail, realty offices, salons – pre-set bundles (contents, tenant improvements) with Fire & EC or All-Risk; optional flood/earthquake/sewer backup
Commercial Building, Equipment & Stock (CBES)
  • Suits larger risks; Named-Perils or All-Risk; insured can choose any combo of Building, Equipment, Stock
  • Definitions matter:
    • Building → fixed structures, extensions, permanent fixtures, maintenance supplies, indoor trees/plants (owner-occupied)
    • Equipment → all contents except stock; includes tenant improvements & customers’ property in CCC (care, custody, control)
    • Stock → merchandise plus packaging, wrapping, advertising materials
Commercial Building Form (CBF)
  • All-Risk on building only; Broad-form CBES ≈ combined CBF + CPF
Commercial Property Floater (CPF)
  • Covers stock, equipment, tenant improvements (NOT building)
  • All-risk, incl. theft, Canada & U.S.; applies on-premises, newly acquired locations, & in transit; includes sales reps’ samples
  • Premium = Fire & EC base rate + loading; deductible & coinsurance apply
Office Equipment Floater – similar to CPF but aimed at office risks (lawyer, dentist, realtor)
Valuable Papers & Records
  • Standard property policy only pays blank‐media cost; this endorsement pays re-creation cost; all-risk, scheduled location with some extensions
Accounts Receivable Endorsement – reimburses uncollectable amounts, extra collection expenses, loan interest when A/R docs destroyed
Electronic Data Processing (EDP) Equipment Form – computers, servers, software; loss must stem from tech peril
Installation Floater – mini builders-risk for HVAC, plumbing, electrical components awaiting/under installation; insured value = completed contract
Equipment Floater – covers large mobile construction equipment (cranes, excavators)
Glass Insurance – breakage (excludes fire, war, nuclear)
Equipment Breakdown Insurance (Boiler & Machinery) – sudden release of pressure / electrical or mechanical breakdown of controlled machinery and panels
Business Interruption Insurance (BII)
  1. Income Replacement
    a) Earnings Approach – maintains payroll & fixed expenses
    b) Profits Approach – indemnifies until business returns to pre-loss earning level
  2. Extra Expense – reimburses abnormal costs to keep operations going (often office-based)
Cyber-Risk Insurance
  • Covers financial loss, BI disruption, reputational harm from IT failure or attack
  • 3 risk categories: deliberate breach, accidental breach, operational IT mis-management
  • Direct losses: system repair, data restoration, ransom $$, fraud loss, legal defense
  • Indirect losses: extra expense, professional fees, lost business, reputation, opportunity
  • Insured perils: privacy-breach data theft, virus transmission, security failure outages, social-media IP or defamation claims

Common Endorsements

  1. Water Damage (often with sub-limits, higher deductible, anti-concurrent causation wording)
    a) Sewer Backup – water enters via drains within building due to overwhelmed municipal system
    b) Overland Water – fresh surface water (rain, snowmelt, river/lake) ingress at/above ground level
    c) Ground Water – sudden entrance through foundation walls/floors below grade
    d) Flood – salt-water events (tsunami, tidal); usually excluded on personal lines, purchasable for commercial
  2. Increased Cost of Demolition / Construction (By-Law Endorsement)
    • Pays to demolish undamaged portion, clear site & meet new building code requirements; subject to sub-limit & deductible
  3. Earthquake Endorsement – adds earth movement (earthquake, landslide, snowslide, volcanic, sinkhole); excludes tidal wave & coincidental rain/snow damage; waiting period before coverage attaches
  4. Identity Theft – reimburses legal fees, notarization, certified mail, lost wages due to identity-fraud recovery; automatically included in many HO/Tenant/Condo forms