Property Insurance – COPE & Residential/Commercial Exposures (Ch.6) Notes

COPE Framework – Quick Orientation

• COPE stands for Construction, Occupancy, Protection, Exposure; used by underwriters & brokers to collect, organize, and communicate every fact that can influence property-insurance risk.
• Each COPE element is examined for BOTH material (tangible) and moral (human-behavior) hazards.

Construction

• Building-code compliance evolves; municipalities enact bylaws to bring minimum standards up to new codes. Older buildings may need by-law coverage.

Seven Standard Construction Classes

• $1.$ Frame
• $2.$ Joisted masonry
• $3.$ Masonry veneer
• $4.$ Non-combustible
• $5.$ Masonry non-combustible
• $6.$ Modified fire-resistive
• $7.$ Fire-resistive (safest; typical of high-rises).

Key Notes

• Frame = most common for dwellings & small commercial risks.
• Mass-timber (engineered wood panels) used in $6$–$10$-storey apartments; insurers still classify as Frame.

Critical Construction Details to Review

• Size of dwelling
  • Larger-than-neighbourhood homes may have been altered, creating unknown structural changes.
• Type of construction
  • Typical Canadian: brick / brick-veneer or wood-frame with wood-joist roof.
  • Emerging/atypical: straw-bale, RTM (Ready-to-Move) modular. Repairs can be costly.
• Building age
  • Older wood dries → more flammable.
  • Out-of-date wiring, plumbing, deteriorated roofs raise loss frequency & severity.

Building Services (Major Loss Drivers)

• Heating
  • Common: forced air, radiators, radiant.
  • High-hazard: wood stoves, biomass (grain, corn, pellets).
  • Geothermal = eco-friendly but expensive → increases dwelling value.
  • If oil-fired: confirm above/below-ground tank, steel gauge, leakage history.
• Electrical
  • Knob-and-tube (ca $1940$–$1950$): ceramic tubes in joists → insulation decay → fire.
  • Aluminum (ca $1970$): soft, breaks, overheats esp. when mated with copper; acceptable only when outlets/receptacles replaced.
  • ESA (Ontario) inspects and certifies updates.
  • Minimum main service: $100$-amp panel.
• Plumbing
  • Lead/galvanized supply lines corrode → leaks.
  • Clay drainage tiles allow root intrusion → sewer backup.
  • Downspouts tied into sanitary drains overload city sewers.
• Roof
  • Steel: life $50$–$100$ years; asphalt shingles ≈ $10$ years.
  • Deteriorated roofs = wind & water losses.
  • Wear/tear & maintenance are policy exclusions.

Under Construction / Renovation

• Vacated or gutted structures change the risk (no occupants, open walls, ignition sources).
• Broker must notify insurers; minor work may be endorsed, major work may need builders-risk policy.
• Clients should obtain contractor liability certificates.

Occupancy

• Refers to how the premises are used (owner-occupied, rented, vacant, business, etc.).

Owner vs. Rented

• Homeowners generally maintain property better; tenant-occupied dwellings therefore draw higher premiums or require endorsements.
• More kitchens & baths → more fire/water exposure → rate surcharge.

Lease Term

• Long-term tenants = stability; short-term (e.g.
  Airbnb peer-to-peer) = higher frequency of damage & liability → emerging specialized coverages.

Vacant vs. Unoccupied

• Unoccupied: contents remain, intent to return.
• Vacant: no contents, no intent to return.
• Courts blur lines; rely on policy wording.
• Risks: undetected fire, theft, vandalism, freezing.
• Mitigation: friend checks heat/water; drain system. Failure → loss may be excluded.

Home Business

• Not automatically covered by homeowners.
• Increases foot traffic & liability.
• Underwrite by business type, size, inventory, employees.

Commercial Buildings

• Type of business dictates hazard class and rate (e.g. welding shop vs. office).
• Older downtown buildings may have removed internal protection.

Common vs. Special Hazards

• Common: present in almost all occupancies (heating, lighting, housekeeping).
• Special: unique to specific occupancy (spray booths, flammable liquids, kilns, etc.).

Protection

• Fire insurance responds to fire, lightning, limited explosion, plus smoke & water damage.

Public Protection (FUS Grades)

• $1.$ Protected – municipal dept & hydrants.
• $2.$ Semi-protected – dept present but no hydrants.
• $3.$ Unprotected – rural; expect total loss.
• Better grade = lower rates.

Private Protection (Within Premises)

• Sprinklers, smoke/CO detectors, water-intrusion sensors.
• Best water systems auto-shut main valve on alarm.

Alarm System Checklist

• Type / make / model.
• Installer (homeowner vs. licensed contractor).
• Monitoring station connection.
• Perils monitored (fire, burglary, water).

Exposure (External)

• Possibility of loss from neighbouring peril or territory characteristics.

Neighbouring Buildings & Land Use

• Close spacing between dwellings → surcharge.
• Adjacent commercial (restaurant, garage) increases residential premiums.
• In strip-mall or multi-tenant buildings, each occupancy’s hazard affects the others.

Geographic Factors

• Flood plains: areas that water bodies expand into during events; new construction often prohibited.
• Sewer backup: combined storm/sanitary pipes (common in older cities) raise severity; sump pumps & backwater valves may be mandatory.
• Smart tech: sensors that text owners or shut off water.

Alternative Residential Occupancies

Condominiums

• Unit owner holds interior space & improvements; condo corporation owns structure & common elements.
• Owners need contents, betterments & loss-assessment coverage.
• Bare-land (vacant-land) condos: owner owns lot & dwelling; corp may still levy special assessments → bare-land loss-assessment endorsement.
• Freehold (whole-lot) condo: owner has building, leases land; needs full homeowner coverage plus assessment protection.

Co-operatives

• Equity co-op: members own shares + lease units.
• Non-equity (non-profit) co-op: similar but no individual ownership.
• Co-op insures building; members need tenant package.

Life Lease Housing

• Non-profit/charitable sponsor; buyer acquires right to occupy for life, pays monthly fees & taxes.
• Responsible for unit repairs; require tenant insurance.

Apartments

• Rating based on building type, construction, location; ground-floor commercial (e.g. grocery, restaurant) is a surcharge.

Seasonal Dwellings (Cottages)

• Often frame, vacant offseason, limited fire protection.
• Policy factors: age, construction, protection, seasonal usage, heat source, year-round access, neighbourhood watch, shared ownership, rental status.
• Outbuilding limits usually part of main-building limit.

Mobile Homes

• Permanently sited but retain frame, axle, wheels, hitch; may be anchored with “tie-downs.”

Business Occupancy Exposures

Residential Rental Properties

• Rental = business operation.
• Personal-lines markets restrict number of units; $4$–$6$ units usually written as commercial.
• Review lease clauses: tenant must reimburse owner or carry Tenant Legal Liability (TLL).
• TLL covers tenant for damages caused by insured peril; allows insurer to subrogate.

Home Business vs. Commercial

• Decision depends on size (employees, customers), inventory, insurer appetite.

Farms

• Combine personal (dwelling) and commercial (barns, livestock, crops) exposures.
• One farm policy with separate limits for dwelling vs. agricultural property.
• Dwelling: age, condition, heating (oil, propane, outdoor wood).
• Oil tanks: verify age, construction, CSA/ULC rating.
• Identify farm operations (cash crop, dairy, poultry) & business-interruption needs.
• Land exposures: ponds (liability, flood), seasonal income variability.

Assisting Clients – Best Practices

Arranging Coverage

• Understand marketplace offerings.
• Analyze client needs vs. policy forms, limits, deductibles.
• Provide clear, sufficient information so client makes informed choice.

Premium Discounts / Preferred Rates

• Mortgage-free
• Non-smoker
• Age group (e.g. mature client)
• Multi-product / account credit
• Loyalty
• Monitored security system (installed by licensed contractor)
• Good credit score
• Claims-free history

Insurer Inspections

• Common for high-value, unusual, or high-risk properties.
• Verify location, construction, occupancy; produce replacement-cost estimate.

Replacement-Cost Clauses

• Provides new-for-old substitute without depreciation.
• Insurance valuation excludes land; therefore \text{replacement cost} < \text{market value} + \text{land}.
• Guaranteed Replacement Cost: insurer pays full rebuild even if cost > declared limit, provided policy conditions met.

Glossary Highlights

• Endorsement: written amendment altering policy terms.
• Subrogation: insurer, after paying loss, assumes insured’s right to recover from liable party.
• Friendly vs. Hostile Fire: friendly = controlled/useful; hostile = escapes intended confines.