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57 Cards in this Set
- Front
- Back
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ch 4 Replacement Cost
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the time of loss is important because values fluctuate insureds are indemnified for the actual cash value of their loss at the time of loss example: Jims camera is damaged in fire accident. 4 years ago, he bought it for $1,900. The same model in used store is $175. Jim wants the insurer to pay him $950, the cost if he bought a brand new one. The insurer offers $225 because the policy pays only the actual cash value at the time of the loss. |
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ch 4 how is acv unfair?
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with acv and depreciation determines indemnity, it is unfair in some situations. ex. furniture that has been taken care of and is in good condition, yet the insured receives less for it. |
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ch 4 Depreciation and what is our duty?
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we should allow a small amount each month or year for depreciation on all our possessions. then if they need to be replaced or they become the subject of a claim, a fund will be there to cover the shortfall in the settlement caused by depreciation. |
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ch 4 Moral Hazard
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the insured may possibly damage to make a profit. a danger that the possible profit from a loss may tempt insureds to bring loss on themselves. there is a temptation to profit from a loss |
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ch 4 Commercial Insurance at replacement cost includes these conditions:
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1. Replacement must be made promptly 2. Replacement must be on the same site or an adjacent site. You can't build anywhere else 3. Payment will be limited to the cost of replacing or repairing on the same site with new property of similar quality 4. Settlement will be made only when the work is completed and then for no more than the actual cost of the work. (Must be same type of occupancy.) 5. All other insurance covering the same perils must have the same replacement cost provisions. ex. if you want to start a new business, restaurant you cannot. |
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ch 4 Automatic Reinstatement
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when the amount paid by the insurer equals the amount of insurance in the policy, the insurer has fulfilled its obligation. |
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ch 4 Automatic Reinstatement: what is there is multiple losses? |
an insured could have many losses during the policy period. earlier losses may exhaust the amount of insurance, leaving the insured unprotected against later losses. for example, if the losses do not exhaust the amount of insurance the amount remaining after earlier losses have been paid may be insufficient for the insured to avoid a coinsurance penalty on later losses. |
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ch 4 Reinstatement was not automatic, so what happened? |
insured had to request insurers, after the amount of insurance was reduced by a loss payment, to restore it to its original level. usually insurers agreed |
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ch 4 what are the 2 important features of the IBC wording of the Automatic Reinstatement clause? |
IBC wording recommended by the IBC states "loss under (any item of) this policy shall not reduce the amount of insurance. 2 important features: 1. the amount of insurance remains unchanged throughout the policy period even if losses are paid. your limit always remains the same. 2. if the insured cancels the policy after a loss, even 1 equal to the full amount of insurance the insurer must return premium (calculated on short rate basis) for the unexpired part of the policy period, as required by statute. example, you have a total loss, you could cancel your policy. if you dont want to rebuild if you are retiring. |
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ch 4 Named and Unnamed Locations what is stock? |
In a commercial enterprise, such movable property is considered stock. goods that the insured manufactures or acquires that are usual to the insureds business or that the insured is obligated to keep insured or for which the insured is legally liable. moveable property that is not stationed is stock |
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ch 4 what is a Declaration Form? |
distributor has other locations, insurers will agree on this form if the insurer is satisfied that the distributor's business records and systems are well organized, the solution to our distributors problems is a policy with a Declaration Form. this form ensures that stock will be fully covered, up to the peak values stated in the form, how much the values fluctuate at risk, for a premium that reflects no more than the value that were actually at risk. the form incorporates a schedule with an address and limit of insurance for each location. the limit may not be the same for each location. the insurer charges a deposit premium but adjusts it at the end of the policy period and each renewal period. |
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ch 4 to calculate the deposit premium. |
to calculate the deposit premium, the insurer first sets a premium rate for each location. then the insurer applies the rate to the provisional limit for the location to determine the premium for that location. the total of premiums for all locations is then discounted by a percentage. |
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ch 4 what are expectations with Declaration Form? |
true values must be reported on regular basis. insurer must periodically report to the insurer the actual values at each location. the dates set out on the form might be, monthly or quarterly. at the end of the period, the sum of the values that were reported throughout the period for each location is divided by the number of reports to determine the average value at each location. the earned premium for each location is then determined by applying the appropriate rate to the average value. the sum of all the earned premiums is compared with the deposit premium paid. if the total earned premium is greater than the deposit, the insured is charged additional premium for the difference. if the earned premium is less than the deposit, a premium refund is allowed to the insured, but it may be reduced in the likely event of a minimum premium. |
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ch 4 for Declaration Forms, how to encourage the insured to cooperate? |
the insured must report true values on the required dates. 2 clauses are included in the form. 1. if the insured fails to report values as required, the premium adjustment at the end of the term will use the provisional amount of insurance for a given location in place of any values not reported. 2. the insurer has the right to verify the true value at a location on the date to which a report of value relates. 3. verification of the reports will usually form part of any loss adjustment. if the reported value proves less than the true value, the loss payment will be reduced in proportion to the loss as the reported value bears to the true value. |
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ch 4 Additional Perils: what could be added to fire policies? |
Damage to: -falling aircraft -earthquake -windstorm -tornado -hail -sprinkler leakage -riot -malicious damage -weather -water damage -smoke damage -civil commotion -impact by vehicles but the Fire Insurance provisions of the Insurance Acts do not automatically apply to the additional perils. |
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ch 4 what 6 additional perils are included in the property policies issued by most insurers? |
Explosion Impact by aircraft and land vehicles riot, vandalism or malicious acts smoke leakage from fire protective equipment windstorm or hail the additional perils do not change the amount of insurance or the property insured. the property insured against the peril of fire is the same property insured against the additional perils. a claim for damage by on of the additional perils has the same impact on the policy as a loss by fire. |
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ch 4 Premium for Additional Perils |
insurers charge additional premium for added perils. there are more possibilities of a claim under the policy if more perils are included. the more perils, the more damage possibly when the additional perils are automatically included in the insurer's forms, the additional charge is included in the total rate for each item of property. this is justified because more possibilities of a claim if more perils are added. |
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ch 4 Terms for Additional Perils |
the basic fire policy terms apply to all perils covered in the contract some of the additional perils may require additional terms. a policy may be unique and not standard. |
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ch 4 what is the role of IBS forms? |
most insurers base their policies on IBC forms. policies vary between insurers |
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ch 4 Explosions |
it covers most kind of explosion damage but there are some exceptions. explosion of nature, coal or manufactured gas |
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ch 4 Explosions: Exclusions |
there shall be no event of liability caused by explosion, rupture, or bursting in of the following, controlled by the insured: 1. Steam Boilers, attached piping under steam pressure (these objects are used for heating). a) the portions containing steam or water under steam pressure of all boilers b) piping and apparatus containing steam or water under steam pressure from external source c) explosion of combustion gases that can happen in a fire box or the flues of a furnace is excluded only for a steam boiler of the chemical recovery type The Combustion chambers or fire boxes of steam generating boilers of the chemical recovery type d) smelt dissolving tanks (may be found in paper mills and are used to recover caustic chemicals). they contain a greater-than-average explosion hazard. c and d involve special underwriting considerations and underwriters grant these 2 only rarely. |
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ch 4 Explosions: Exclusions ii ) |
ii) pressure vessel or piping with an internal working pressure exceeding 103 kilopascals, except manually portable gas cylinders. this includes Hot Water Boilers used for heating buildings or compressed air storage tanks in automobile garages and service stations. iii) moving or rotating machinery or parts of same when such damage is caused by centrifugal force or mechanical breakdown. This can be insured under a boiler and machinery policy. iv) any vessels and apparatus and pipes connected while undergoing pressure tests. the purpose of a test is to verify that the equipment involved will withstand the pressures. the insurer does not intend to pay for the cost of replacing such equipment if it fails the test. v) gas turbines |
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ch 4 the following are not explosions... |
electric arcing or any coincident rupture of electrical equipment due to arcing. bursting or rupture caused by hydrostatic pressure or freezing bursting or rupture of any safety disc, rupture, diaphragm or fusible plug.
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ch 4 Second Set of Exclusions for Explosions |
not explosions under the peril. these are not considered explosions. if a fire results, the fire damage will be covered under the fire peril. a) electric arcing can cause damage to electrical apparatus. it makes a sharp noise & very sudden b) hydrostatic pressure tests (applying pressure of liquid) are used to test for hidden damage of a vessel. c) safety devices or fusible plugs are devices intended to burst or rupture. the exclusion applies if the device bursts accidentally. |
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ch 4 Impact by Aircraft, Spacecraft or Land Vehicle |
coverage should expand to include the impact if they become separated and fall to earth too. the cost of repair caused by recurring minor damage is not recoverable under this peril. for example, moving vehicles in and out of yards, loading causes minor scrapes the insured wont bother to repair. there will be no liability due to loss or damage of: 1. caused by land vehicles belonging or under the control of the Insured or their employees. 2. to aircraft, spacecraft or land vehicles causing the loss 3. caused by any aircraft or spacecraft when being taxied or moved inside or outside of "buildings". Loss to the vehicles is excluded. |
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ch 4 the word impact.... |
the word impact is not defined. |
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ch 4 the extended definition of equipment |
includes motor vehicles not licensed for use on public highways (forklifts) |
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ch 4 what is the third exclusion of aircraft or spacecraft being moved? |
an exclusion is when being taxied or moved inside or outside of buildings .. this activity presents a greater hazard The word MOVE means movement on the ground and does not include movement while the aircraft is in flight. |
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ch 4 Aircraft or spacecraft, what is not an exclusion and IS covered?? |
there is NO exclusion for impact by an aircraft owned by the insured also with land vehicles. |
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ch 4 what is a riot? |
it has a precise legal meaning.. an act or threat of violence by one or more persons who are part of an assembly of 3 or more persons that might give rise to damage to property or injury to persons |
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ch 4 Riot, Vandalism or Malicious Acts |
riot includes open assemblies of strikers inside or outside the premises who have quitted work and of locked-out employees |
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ch 4 Riot, Vandalism or Malicious Acts Exclusions |
1. due to cessation of work or by interruption to processes or business operations or by changes in temperature. 2. due to flood or release of water impounded by a dam or due to any explosion other than an explosion in respect of which there is insurance under the peril of explosion. 3. due to theft or attempt thereat. |
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ch 4 what does vandalism mean? |
wilful, or malicious destruction of or damage to property |
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ch 4 what is malicious acts |
courts have ruled that theft is a malicious act. theft is excluded from additional peril |
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ch 4 what does smoke mean? |
smoke due to a sudden, unusual and faulty operation of any stationary furnace. concerns only a stationary furnace fire policies cover loss by hostile fire. loss due to smoke from a hostile fire. sudden and unusual and fault operation in ALL these ways at once. the 3 are a trigger for coverage under this peril. |
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ch 4 Leakage from Fire Protective Equipment
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example: hit the sprinkler head |
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ch 4 Fire Protective Equipment; Premises; Declarations
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1. brand piping from a join system where branches are used entirely for the purpose other than fire protection 2. any watermains located outside of the described "premises" and forming a part of the public water distribution system 3. any pond or reservoir in which the water is impounded by a dam. |
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ch 4 what does Premises mean?
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means the entire area within the property lines at the locations described on the Declarations Page and areas under adjoining sidewalks and driveways
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ch 4 Property Protection Systems clause
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1. sprinkler or fire extinguishing system 2. fire detection system 3. intrusion detection system: shall also notify the insurer of the cancellation or non-renewal of any contract which provides monitoring or maintenance services to any of these systems. |
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ch 4 Windstorm or Hail
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for this coverage to apply, the force of wind must be strong enough to be considered a storm. A normal wind that might topple over property is not a windstorm. there shall in no event be any liability for damage of: 1. to interior of the buildings insured or their contents unless damage occurs concurrently with and results from an aperture caused by windstorm or hail 2. directly or indirectly caused by any of the following: driven by wind or windstorm, snow load, ice load, tidal wave, tsunamis, high water, overflow, flood, waterborne objects, waves, ice, landslip |
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ch 4 Windstorm or Hail: Exclusions
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2 exclusions: 1. damage to the interior of the building or to contents is covered only if the damage occurs at the same time as and results from an opening caused by windstorm or hail. example: a wind tears roofing off the building at the same time rain comes in. if the rain comes some time after the wind damage, the rain damage would NOT be covered even if the later rain was part of another storm. 2. losses due to other causes that might have had wind or windstorm as a fact are excluded. |
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ch 4 Removal of Windstorm Debris
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the insurer will indemnify the insured for expenses in removing debris but it will not indemnify for costs removing debris of property that is not insured under the policy. it could include trees |
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ch 4 Other Additional Perils
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Water Escape, Sewer Backup Flood Collapse |
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ch 4 water escape
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3 parts to this coverage: 1. freezing of heating, plumbing, or a/c systems. the pressure of frozen water can burst a pipe which the water is contained. 2. water escape from a plumbing, heating or a/c system. common causes of leakage from water pipes are rust, corrosion that causes pipes separate at their joints. there is NO coverage for the cost of repairs to the system EXCEPT for damage by freezing 3. escape of water from a public watermain. |
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ch 4 Water Escape Exclusions:
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2. water escaped from a sewer, sump, septic tank or downspout 3. losses that occur while a building is vacant or in course of construction even if permission was given for the vacancy shut off water |
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ch 4 Sewer Backup
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you have to purchase coverage separately |
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ch 4 Adverse Selection
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the coverage will be requested mainly for risks susceptible to sewer backup there is a concentration of risks in susceptible areas insurers do not want to pay all these claims at once Fort MacMurray Fire |
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ch 4 Flood
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waves, tides, tidal waves, the rising of, breaking out of overflow of any body of water |
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ch 4 what would a body of water include?
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the intent is to insure against direct damage by surface water from certain sources |
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ch 4 Exclusions of Flood
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2. water below the surface of the ground that exerts pressure on or flows, seeps or leaks through sidewalks or driveways or walls or basements or through doors or windows or openings of sidewalks, driveways, walls or floors seepage is not covered |
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ch 4 Adverse Selection of Flood
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location and exposure to potential loss is the prime rating factor an underwriter would not likely agree to cover a risk located on a flood plain. |
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ch 4 deductible for floods
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depending on the risk, the deductible may be $5,000. it may be expressed as a percentage of the value of the property insured. |
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ch 4 there is no liability for Collapse for what?? |
means collapse of foundations, walls, floors or roof no liability for: 1. caused by tidal wave, high water, overflow, flood, waves, iceload, earthquake 2. outdoor equipment, fences, walks, driveways, retaining walls 3. occurring during, during and resulting from the making of repairs and alterations or extensions involving foundation or support of a floor OR roof. |
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ch 4 what are the major causes of Collapse?
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building collapse can cause heavy losses. the major causes of collapse are: 1. weight of ice or snow on roof 2. error or deficiency in design 3. defective workmanship 4. weakening or removal of foundation support for example by excavation for an adjoining building 5. collapse of floors due to overload of contents. 6. earth movements such as earthquake, landslide, or mudslide. |
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ch 4 the coverage includes collapse but excludes what?? |
collapse by earth movement of any kind. Earth movement is excluded in collapse.. |
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ch 4 structural damage |
the weight of ice, sleet, or snow on a roof can cause structural damage that may or may not represent an actual collapse. the coverage is usually extended to include structural damage to a building insured or containing property insured caused by weight of snow, ice or sleet |
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ch 4 Deductible |
deductibles often included in policies for commercial risks. deductibles apply to all insured perils. the deductible is normally shown on the Declarations Page |
