Study 7 – Proper Insurance Continued
1. Does an all-risks policy insure every kind of loss? (p. 3)
All-risk policies do not specify certain perils, rather all types of losses are covered except for those excluded. All-risks policies are intended to be broader than named peril policies and thus they are often called Broad Form wordings. All-risks policies do not insure against every possible kind of loss; no policy does this.
2. Review the additional perils expected to be insured by an all-risks policy. (p. 2)
An all-risks policy is expected to cover certain major perils that are not included in the basic named perils form:
· Theft
· Water damage
· Transportation risks
3. Review the perils and property exclusions in an all-risk policy. (p. 3)
Perils excluded from an all-risks policy:
· Earthquake and floods
· Water seepage into basements
· Centrifugal force, mechanical or electric breakdown.
· Atmospheric changes, rust or corrosion, marring, scratching or crushing
· Smoke from agricultural smudging
· Rodents, insects or vermin
· Delay, loss of market, loss of use
· Employee dishonesty
· Snowslide, landslide, and earth movement
· Settling, expansion, contracting, moving, shifting or cracking unless concurrently and directly caused by a peril not otherwise excluded.
The wide coverage provided by all-risks insurance is tempered by excluding and limiting certain types of property.
· Coverage is limited for growing plants, trees, shrubs or flowers in the open to named perils excluding windstorm, hail, theft, or attempted theft. There is a limit imposed per item which includes any expense incurred for removal.
· Coverage is limited for furs, fur garments, jewels, jewellery, costume jewellery, watches, pearls, precious and semi-precious stones, and pre-recorded video tapes to named perils except when the items Is less than $1,000. Coverage is provided on an all-risks basis for items up to $1,000
· Property insured under Marine Insurance and property while waterborne are only covered while on a regular ferry or railway car transfer in connection with land transportation.
· Property on loan, on rental, or property sold by the insured under a deferred payment plan is excluded except while such property is in the custody of a carrier for hire for the purpose of delivery at the risk of the insured.
· Property in the custody of a sales representative is only covered if an amount of insurance is shown on the Declarations page.
· Property illegally acquired, kept, stored or transported is excluded. As well, property seized or confiscated for breach of any law or by order of public authority is excluded.
4. What are the chief features of the CPF and CBF? (p. 5-6)
The CPF is essentially a “contents” form and covers stock, equipment and tenant’s improvements. There is limited coverage for damage to the building caused by theft. The insured must own the building or be liable for the damage for coverage to apply.
· Coverage is all risks subject to various exclusion subjected on a typical all-risks policy.
· Applies at specified locations, newly acquired premises and elsewhere in transit.
· There is a coinsurance clause (90%)
· A deductible is required
· A detailed application is usually required
The CBF covers building and corresponds to the CPF for contents. It was designed to insure commercial buildings as well as office buildings, apartment blocks, churches, hospitals and other non-mercantile risks.
· Available in either the all-risk or named perils forms.
· Application may or may not be required.
5. What are the advantages of the Commercial Building, Equipment and Stock – Broad Form? (p. 6)
It offers the advantage of a single all-risk wording to insure a building, its equipment and stock where coverage is required on both building and contents. Basically combines both the CPF and CBF.
It is intended for retailers, wholesalers, distributors and similar non-manufacturing risks.
6. What is the first step to take when leased premises are involved? (p. 16)
Ask to see the leases and examine them and providing proper coverage cannot be done before this.
8. Review the points discussed under “Tenant’s Insurances.” (p. 17)
Insurance may be on the leased building and or contents. The building insurance may be required to be in the name of the landlord and subrogation against the tenant may be waived. The waiver is achieved by a clause in the policy in which the insurer agrees not to take over any right the landlord may have against the tenant for the damage.
9. Do the same with “Landlord’s Insurances.” (p. 18)
The chief coverage arranged by the landlord is usually on the building. Remember that the tenant may still be liable despite the waiver of subrogation clause discussed earlier. This can happen either if the sum insured is not enough to pay the entire damage, or if the loss is caused by a peril not insured.
Tenant’s legal liability insurance can be arranged that will provide coverage against both shortage of the sum insured, and deficiency in the perils insured.
10. What point arises about amendments to a lease? (p. 18)
If you are representing the tenant and a clause in the lease causes difficulty, it may be possible to persuade the landlord to alter the lease. The lease will have been drawn up by a lawyer and the landlord frequently does not know exactly what his/her lease says and may be quite agreeable to changing it.
11. Note the comments about occupied buildings. (p. 18)
Policies previously described that cover buildings do not apply during construction. For this a builders’ risk policy is needed.
Builders’ risk policies cease to provide coverage once the completed building is occupied or handed over to the owner.
12. Why is it essential to review the construction contract? (p. 19)
This will specify details of the insurance required and to be certain that what you offer is at least as extensive. It may be wise to offer wider coverage, but not narrower. If there is some feature you cannot secure advise your client in writing.
13. What is the usual basis for the sum insured? (p. 19)
The amount of insurance is usually based on computed value. The individual building project is insured for the full estimated completed value from the start of construction. At the start, the actual value is very small, increasing gradually until it reaches the full amount near the end of the construction period. The rate is adjusted to take this into account.
14. What points arise about items not provided by the general contractor? (p. 19)
The value at risk may include items not provided by the general contractor and therefore not included in the contract price, for example, elevators and boilers. To make sure these are covered, one must obtain a builders’ risk policy.
Contractors’ sheds, scaffolding and form work (for concrete) are usually covered by the builders risk policy since they are generally used on the particular job only. However contractor’s equipment and tools are not because they are generally used by the contractor for a serious of jobs. Most contractors buy an equipment floater to insure equipments and tools on an annual basis.
15. What points should be watched about a) the period of insurance b) construction cost running over budget? (p. 19)
The builders’ risk policy is written for the period required to finish the work but can be extended for an additional premium. When coverage ceases the actual cost is reported and if less than the estimate, the corresponding premium is returned to the insured. There can be no additional charge at this point if the estimate has been exceeded because this is the maximum sum insured.
16. Why is all-risks coverage desirable and what are the usual important exclusions? (p. 19-20)
Construction involves special hazards not covered by named perils such as:
· Collapse
· Theft of materials
· Transportations
Among the exclusions in the all-risks policies are:
· Earthquake
· Flood
· Dishonesty of employees
· Faulty material, workmanship or design
· Penalties and fines under the construction contract
· Most waterborne transit, all airborne transit
17. Note the points that arise about: a) deductible b) interest covered c) blanket cover d) contractor’s installation floater? (p. 20)
a) A deductible is usual.
b) Where a contractor is involved simultaneously in a number of jobs in different housing projects, it may suit him to cover all of these under a blanket type of policy which is available.
c) A contractors’ installation floater which can be through of as a “mini” builders’ risk policy is available for minor construction, reconstruction and alteration work.
18. What points arise about: a) valuable papers b) account receivable c) office contents floater? (p. 20)
a) Most property policies that insure contents, whether fire and EC, named perils or all-risks cover records to some extent. However, coverage is limited by a records clause as in the Building, Equipment, and Stock form. That is, they only insure the cost of blank books plus the cost of copying from source material, but not the cost of reworking.
b) It will pay collection costs in excess of normal and even interest on loans to tide the insured over when collects are delayed.
c) This is frequently bought by such “office only” risks as accounts, lawyers and real estate agents. It is a non-standard form and coverage varies between insurers. The Office Contents Floater is an all-risks form and covers a designated office but also insures for limited amounts at other premises or in transit.
19. What assumption should you make about EDP? (p. 22)
The reduction in the cost of Electronic Data Processing (EDP) equipment and the introduction of mini computers means that you should assume that each business or professional client probably uses a computer and will need coverage.
This coverage should apply to the actual computer and its associated equipment (hardware) plus diskettes, magnet takes (software).
20. Why do ordinary policies not provide adequate coverage for EDP? (p. 23)
Ordinary property policies do not normally exclude hardware or software but they do not provide adequate coverage. EDP items are subject to various perils not covered by typical all-risks policies. Among these perils are:
· Equipment breakdown
· Air conditioning failure
· Electrical damage
21. What features will be included in a good EDP package policy? (p. 23)
A good package policy will include the following features:
· All-risks coverage with few exceptions (flood and earthquake are usually covered)
· Equipment breakdown, air conditioning failure, and electrical damage are covered.
· Damage to equipment and media/data during processing is covered.
22. What is the: a) basis of loss settlement b) usual coinsurance percentage? (p. 23)
a) Coverage for equipment is ACV, but replacement cost can be bought. For media/data coverage is usually the cost of repairing or replacing.
b) Coinsurance of 80% is usual for equipment, but not for media/data.
23. What are the other coverages usually provided in an EDP package? (p. 24)
The EDP package may provide other coverages such as:
1. Valuable papers
2. Accounts receivable
24. Review the points mentioned about: a) leased EDP equipment b) mini-computer policies? (p. 12)
a) As with all leased property, the EDP equipment lease should be examined and it may state that the owners insure the equipment and that subrogation against the lessee is waived thus giving the lessee full benefit of the insurance.
If subrogation is not expressly waived, a request in writing should be made. If there is a refusal, an legal liability for damage insurance must be acquired.
b) These policies are intended for insureds with equipment of limited value but may be subject to restrictions in regards to the sums insured for additional coverages such as extra expense.
25. What is the formula that expresses the principle behind a DIC policy? (p. 25)
A Different in Conditions (DIC) policy covers the difference in conditions (i.e. extra coverage) between a fire and extended coverage policy (FEC) or named perils policy and an all-risks policy (AR) and can be expressed as:
FEC + DIC = AR
26. Note the points made in regard to DIC: a) widening coverage b) method of writing a policy? (p. 25)
a) DIC widens the coverage but does not increase the dollar amount of insurance. DIC is often written for a smaller amount than the FEC policy because the extra hazards are covers often could not cause a total loss as a fire could.
b) The most common way of writing a DIC is for the insurer to take an all-risks policy and then states in it it does not cover the perils insured by the insured’s policy.
27. What points should be noted about DIC coverage in regard to: a) flood and earthquake b) business interruption insurance c) deductibles? (p. 26)
a) Flood and earthquake are normally excluded but can be added for an additional premium. They may also be limited to sums insured smaller than the main DIC insurance.
b) If an insured needs DIC coverage for physical damage, he will also have a BII exposure.
c) A deductible is usual in a DIC policy. It may be considerably higher than for FEC, particularly as respects earthquake and/or flood.
28. What underwriting information should be obtained for a DIC submission? (p. 16)
· The likelihood of an earthquake occurring
· The height of the land which may cause floods
· Transportation details
· Burglary safeguards
· Loss experience
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