Cpcu 551

Front 1

Discovery form

Back 1

Form that covers losses discovered during the policy period even though they may have occurred before the policy period.

(Compared with loss sustained form, re: commercial crime. Loss sustained is the most commonly used of these two.)

Front 2

Loss sustained form

Back 2

Form that covers losses actually sustained during the policy period and discovered no later than one year after policy expiration.

(Compared with discovery form, re: commercial crime. Loss sustained is the most commonly used of these two.)

Front 3

Employee Theft coverge

Back 3

Insures an employer against theft of its property by its own employees.

Front 4

Theft (definition as part of Employee Theft coverage)

Back 4

The unlawful taking of money, securities, or other property to the deprivation of the insured.

For the purposes of employee theft coverage, theft includes forgery.

Front 5

Unlawful taking (definition as part of Employee Theft coverage)

Back 5

An act that is not authorized by law or is a violation of a civil or criminal law.

(Proof of unlawful taking does not have to meet the standards needed to obtain a criminal conviction.)

Front 6

Where employee theft coverage applies

Back 6

United States (including its territories and possessions), Puerto Rico, and Canada. Coverage also applies to loss caused by an employee who is temporarily outside the covered territory for not more than ninety consecutive days.

Front 7

"Employee" as defined for employee theft coverage

Back 7

A natural person (as opposed to a corporation engaged by the insured) who is:

* Currently employed by the insured or an ex-employee who employment ended in the past 30 days
* Compensated by the insured by salary,w ages, or commissions
* Subject to the control and direction of the insured

This also includes temps and leased employees (except outside the insured's premises), plus the insured's corporate directors, managers (if an LLC), officers, or trustees while performing duties.

Front 8

Difference b/w "temp" and "leased" employee

Back 8

Temps are persons furnished to the insured either to substitute for permanent employees who are on leave or to meet seasonal or short-term work load conditions. Leased employees are regular workers who are nominally employed by a labor-leasing firm but subject to day-to-day control by the organization that leases them.

Front 9

LLC

Back 9

Limited liability corporation, a form of corporate organization that offers the limited liability of a corporation but avoids the double taxation to which regular corporations are subject.

Front 10

Difference b/w "employee theft" and "employee dishonesty"

Back 10

Employee dishonesty forms cover loss resulting from an employee's dishonest act, and that phrase encompasses a broader range of offenses than "theft".

Front 11

What qualifies as "employee dishonesty"?

Back 11

To reduce this broad scope of coverage, employee dishonesty forms typically require that the employee must have acted with "manifest intent" (that is, evident intent) to (1) cause a loss to the insured and (2) obtain financial benefit for the employee or for another person or entitty that employee wants to receive the benefit. Furthermore, the financial benefit must be something other than wages, commisssions, or other employee benefits. Sometimes referred to as a "dual trigger" or a "triple trigger", all elements of manifest intent must be present in order for employee dishonesty coverage to apply.

Front 12

"Securities" definition for employee theft coverage

Back 12

Negoitiable adn nonegotiable instruments or contracts representing eithe rmoney or other property. (Stocks, bonds, tokens, tickets, stamps in current use, etc.)

Front 13

"Other property" definition for employee theft coverage

Back 13

All tangible property, other than money and securities, which has intrinsic value.

Does not include computer programs, electronic data, or any other specifically excluded property. Also does not include intangibles such as copyrights, patents, intellectual property, etc.

Front 14

"Occurrence" in the context of employee theft

Back 14

(1) An individual act
(2) The combined total of all separate acts whether or not related; or
(3) A series of acts whether or not related;

committed by an "employee" acting alone or in collusion with other persons.

For example, if a bookkeeper fo a small insruance agency embezzled $190K by stealing cash receipts or inserting her name as payee on customers' checks during 100 separate incidents, each for less than $10,000, and the limit of insurance was $10,000, the court would likely side with the interpretation that the theft constituted a single series of acts and that the $10,000 limit was the most the insured was liable to pay.

Front 15

Termination as to Any Employee condition (employee theft)

Back 15

Provides automatic termination of employee theft coverage with respect to any employee who has committed a dishonest act as soon as the act is known to the insured or any partner, officer, director, etc. not in collusion with the employee. Also, the condition gives the insurer the right to cancel coverage with respect to any employee by providing 30 days' advance notice to the insured.

Front 16

Employee Benefit Plans condition (employee theft)

Back 16

Eliminates the need to attach the Employee Retirement Income Security Act of 1974 (ERISA) compliance endorsement to the policy to satisfy the fidelity bonding requirement of ERISA.

Front 17

"Forgery" definition

Back 17

The signing of the name of another person or organization with intent to deceive; it does not mean a signature which consists in whole or in part of one's own name signed with or without authority, in any capacity, for any purpose.

Front 18

"Disappearance and destruction" for commercial crime insurance

Back 18

The addition of the words 'disappearance and distruction' increases the scope of the coverage to include losses even when they do not result from an unlawful act. For example, coverage is provided for money and securities that are destroyed in a fire. Disappearance is covered regardless of whether it is mysterious or whether theft appears to be the cause of the disappearance.

Front 19

Robbery

Back 19

The unlawful taking of property from the care and custody of a person by one who has caused or threatened to cause that person bodily harm; includes situations in which the thief commits an obviously unlawful act that is witnessed by the custodian of the stolen property (such as an observed "smash and grab" theft from a shop window)

Front 20

Custodian

Back 20

A person who has care and custody of property inside the premises, excluding any person while acting as a "watchperson" or janitor.

Front 21

Safe Burglary

Back 21

The unlawful taking of property from within a locked safe or vault by a person unlawfully entering the safe or vault as evidenced by marks of forcible entry upon its exterior;

or the unlawful taking of a safe or vault from inside the premises.

Marks of forcible entry into the premises are not required.

Front 22

Difference between custodians and messengers

Back 22

Custodian has care & custody of property INSIDE the premises; a messenger has care and custody fo property OUTSIDE the premises

A watchperson or janitor can be a messenger, but not a custodian. An employee taking cash and checks to the bank for deposit in the insured's account is an example of a messenger.

Front 23

Computer fraud coverage

Back 23

Coverage for loss of covered property due to use of a computer to fraudulently transfer covered property to the wrongdoer

Front 24

Most organizations do not buy all 8 of the coverages included in the Commercial Crime Form. A typical firm might select the following

Back 24

1. Employee Theft
2. Forgery or Alteration
3. Inside the Premises: Theft of Money and Securities
5. Outside the Premises
6. Computer Fraud
7. Funds Transfer Fraud

leaving out:

4. Inside the Premises - Robbery or Safe Burglary of Other Property
8. Money Orders and Counterfeit Money

Front 25

Transfer or Surrender of Property exclusion (to INside the Premises commercial crime coverage)

Back 25

Excludes transfer or surrender of property to someone outside the premises because of unauthorized instructions or any of several different types of threats against the insured. Many unauthorized instructions losses involve computer fraud, which is excluded because it can be insured under the Computer Fraud insuring agreement.

This exclusion also applies when an employee designs unauthorized instructions to defraud the employer.

This exclusion does NOT apply under insurance agreement 5 (Outside the Premises) to the types of threats that might be made against a messenger in a typical robbery.

Front 26

Discovery

Back 26

The time when the named insured first becomes aware of facts taht would cause a reasonable person to assume that a covered loss has been incurred; the amount of the loss or its details need not be known for a loss to have been discovered.

Mere suspicion of a loss is not sufficient to constitute discovery.

Front 27

Extended discovery period

Back 27

A specified period following the cancellation of a commercial crime policy; if discovered by the insured during this period, a loss that occurred before the cancellation date will be covered under the canceled policy.

Front 28

ERISA

Back 28

Employee Retirement Income Security Act of 1974 - requires each fiduciary of a qualifying employee benefit plan and each person who handles plan assets to be bonded. ERISA bonding can be provided by naming the particular plan or plans as insureds for the employee theft insuring agreement.

Front 29

Fiduciary

Back 29

Practically anyone whose role in employee benefits involves discretionary control or judgment in the design, administration, funding, or management of a benefit plan.

Front 30

Fidelity bond

Back 30

Synonymous with employee theft or employee dishonesty insurance

Front 31

Equipment breakdown insurance is also known as

Back 31

Boiler and machinery insurance

Front 32

Categories of equipment that can be covered under equipment breakdown policies

Back 32

- Boilers and pressure vessels
- Electrical equipment
- Mechanical equipment
- Air conditioning and refrigeration equipment
- Office equipment and systems

Front 33

Efforts to prevent equipment breakdown losses tend to focus on:

Back 33

operator training, regular maintenance of the equipment, and inspections to help detect and correct hazards before accidents occur

(since the initiating causes of losses are often operator error, faulty maintenance, etc.)

Front 34

Actions a licensed inspector (for equipment breakdown insurance purposes) might take:

Back 34

- Comment on suitability of equipment for the job
- Request the testing of controls and safety devices
- Check equipment maintenance
- Review operators' logs
- Review the insured's training programs
- Provide underwriters with information they need to keep rates and coverages in line with the exposures

Front 35

Boiler

Back 35

A fired pressure vessel constructed of cast iron or steel in which water is heated to produce steam or hot water

Front 36

Fired pressure vessel

Back 36

A closed container that is heated by the direct fire of burning fuel and can withstand internal pressure

Front 37

Economizer

Back 37

(Another type of fired pressure vessel)

Preheats water being fed into or returned to a boiler

Front 38

Separately fired superheater

Back 38

(Another type of fired pressure vessel)

Raises the temperature of steam after it leaves the boiler.

Front 39

Common types of breakdown losses to fired pressure vessels:

Back 39

- Explosion caused by excessive internal pressure of steam
- Overheating (referred to as 'dry-firing') caused by continued firing when there is insufficient water in the vessel, usually because of the failure of the low-water cutoff.
- Cracking of cast iron sections because of expansion and contraction stresses, rust growth between sections, porous castings, and tie rods that are too tight
- Bulging or "bagging" (swelling), usually caused by improper heat transfer because of buildup of scale or sediment

Front 40

Firetube Scotch marine boiler

Back 40

One of the oldest boiler designs in current use.

Front 41

Firetube boiler

Back 41

Boiler in which the combustion process adn the resulting gases are contained inside the tubes; water (and steam) are outside the tubes

Front 42

How many times do hot gases pass through firetubes before exiting from the top of a firetube Scotch marine boiler?

Back 42

3 x

Front 43

Unfired pressure vessel

Back 43

A closed vessel that can withstand internal pressure or vacuum but is not heated by the direct fire of burning fuel

Examples: air tanks, liquefied gas tanks, and steam-jacketed vessels

Subject to explosion, bulging, cracking, and implosion (collapse)

Front 44

T or F: The steam boiler explosion exclusion in commercial property policies does not extend to explosion of unfired pressure vessels, which is therefore covered under commercial property forms and usually excluded under equipment breakdown policies

Back 44

TRUE. T or F: The steam boiler explosion exclusion in commercial property policies does not extend to explosion of unfired pressure vessels, which is therefore covered under commercial property forms and usually excluded under equipment breakdown policies

Front 45

Combustion explosion

Back 45

a.k.a., furnace explosion

A unique type of explosion involving boilers which is actually covered by commercial property policies. It occurs when unburned fuel or gases that have accumulated in a steam boiler or another type of fired vessel are ignited.

Front 46

The Main Street segment

Back 46

Relatively small insureds, often thinly financed and therefore vulnerable to business income or extra expense losses; tend to have uncomplicated breakdown exposures, primarily heating and air conditioning

Front 47

Midsize commercial segment (equipment breakdown)

Back 47

In this group, the equipment breakdown exposures become more complex, including production machinery and processing equipment in addition to heating and air conditioning

Front 48

Large industrial insureds commercial segment (equipment breakdown)

Back 48

Complex equipment breakdown exposures.

Sample insureds include utilities, chemical companies, oil and natural gas companies, heavy manufacturers, and mining companies

Front 49

Policy definition of "breakdown"

Back 49

Failure of pressure or vacuum equipment, mechanical failure (including rupture or bursting caused by centrifugal force), and electrical failure (including arcing), subject to exclusions

Front 50

T or F: Equipment breakdown insurance covers only loss to the covered equipment.

Back 50

FALSE. In reality, breakdown to covered equipment during the policy period is the event that triggers coverage. Once equipment breakdown coverage is triggered, it covers any of the types of loss describe din any of the insuring agreements that apply to the policy.

Front 51

Examples of what does NOT constitute 'breakdown' of equipment:

Back 51

- Malfunction including but not limited to adjustment, alignment, calibration, cleaning or modification
- Defects, erasures, errors, limitations or viruses in computer equipment and programs including the inability to recognize and process any date or time or provide instructions to "Covered Equipment"
- Leakage at any valve, fitting, shaft seal, gland packing, joint or connection
- Damage to any vacuum tube, gas tube, or brush
- Damage to any structure or foundation supporting the 'Covered Equipment' or any of its parts
- The functioning of any safety or protective device
- The cracking of any part on an internal combustion gas turbine exposed to the products of combustion

Front 52

Expediting expenses

Back 52

Expenses incurred to speed up the repair or replacement of covered property

(context: equipment breakdown; overlaps extra expense coverage to some degree, but is not as broad)

Front 53

Definition of "business income" in the context of equipment breakdown - business income insuring agreement

Back 53

Net income that would have been earned + continuing normal operating expenses incurred (including employee payroll)

Front 54

Period of restoration (in the context of equipment breakdown)

Back 54

Continues for five consecutive days after the damaged property is repaired or replaced with reasonable speed. (Can be extended.)

Front 55

How to best insure computers and electronic data?

Back 55

One of three approaches:

- Insure these items as business personal property in a commercial property policy. (Excludes many perils; coverage is very limited)

- Use an inland marine electronic data processing (EDP) equipment floater. (Premium can be higher than it is when using a commercial property policy.)

- Use a combination of equipment breakdown coverage and commercial property coverage (may not provide adequate limits for loss of data from perils other than breakdown of covered equipment)

Front 56

Four types of deductibles that can be used with equipment breakdown insurance

Back 56

- Dollar
- Time
- Multiple of Daily Value
- Percentage of Loss

Front 57

Definition of "one breakdown"

Back 57

Includes all additional breakdowns that result from an initial breakdown at the same premises

Front 58

The word "included" shown beside a coverage in the declarations of an equipment breakdown policy means that

Back 58

The limit shown for that coverage is part of, not in addition to, the limit per breakdown.

The insurer will not pay more under each overage than the limit of insurance applicable to that coverage.

Front 59

Dollar deductible

Back 59

Simply the dollar amount shown as such in the declarations

Front 60

Time deductible

Back 60

Used for time element coverages. Referes to the insurer not being liable for any loss occurring during the specified number of hours or days immediately following the breakdown

Front 61

Multiple of Daily Value

Back 61

Alternative deductible for time element coverages. It is shown in the declarations as a number (such as 3) times the insured's daily value, calculated as the amount of business income that the insured would have earned during the period of restoration if no breakdown had occurred, and divided by the number of working days in that period.

e.g.: The insured's business was interrupted for six days because of a breakdown to covered equipment. If the breakdown had not occurred, the business income for those six days would have been $30,000. If the business income and extra expense deductible is three times the daily value, the amount of the deductible would be calculated in these two steps:

1. $30,000 / 6 = $5,000
2. 3 x $5,000 = $15,000

Front 62

Percentage of loss deductible

Back 62

Most frequently used with spoilage damage coverage. The dollar amount of the deductible for a particular claim is calculated by multiplying the specified percentage by the gross amount of the loss (before application of any deductible or coinsurance penalty)

Front 63

If a minimum deductible is specified in the declarations, it will apply to a loss if:

Back 63

It will apply if the dollar amount calculated for the multiple of daily value deductible or the percentage of loss deductible is less than the minimum deductible.

Front 64

If a maximum deductible is specified int he declarations, it will apply to a loss if:

Back 64

It will apply if the dollar amount calculated for the multiple of daily value deductible or the percentage of loss deductible is more than the maximum deductible.

Front 65

Suspension condition

Back 65

Allows the insurer or any of its representatives to immediately suspend equipment breakdown insurance on an item of equipment that the insurer determines to be in a dangerous condition

Front 66

Joint or Disputed Loss Agreement

Back 66

Condition that addresses claim situations in which the insured's equipment breakdown insurer and the insured's commercial property insurer disagree on which insurer covers a loss; each insurer pays half the loss to quickly indemnify the insured; insurers then resolve their differences

Front 67

Jurisdictional inspections condition

Back 67

A condition in equipment breakdown policies that provides that the insurer will perform required inspections of boilers and other equipment on the insured's behalf

Front 68

BOP

Back 68

A package policy that includes most of the property and liability coverages needed by small and midsize businesses. Businessowners policies typically provide building and business personal property coverage, business income and extra expense coverage, and the equivalent of commercial general liability coverage.

Front 69

Farmowner's policy

Back 69

A package policy used for covering traditional farms. Covers both residential loss exposures and farming business loss exposures.

Front 70

For farm-related insurance: When the insured is a traditional farm family that lives on its own farm, how is the insurance structured?

Back 70

A form covering residential property exposures is included in the policy along with other forms that cover the farm business exposures.

Front 71

For farm-related insurance: When the insured is an agribusiness corporation, how is the insurance structured?

Back 71

The form covering residential property exposures is omitted.

Front 72

For farm-related insurance: When a farm engages in additional business activities, how is the insurance structured?

Back 72

The farm coverage forms can be combined with other commercial property and liability forms in a commercial package policy.

Front 73

Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form covers:

Back 73

Residential building and personal property exposures, as well as additional living expenses and loss of fair rental value resulting from damage to such property.

Front 74

T or F: Coverage B of Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form covers farm structures such as barns and silos

Back 74

FALSE. Barns and silos can be covered under the Barns, Outbuildings, and Other Farm Structures Coverage Form.

Front 75

Broad (aggregate definition) of Commercial Property Insurance

Back 75

All types of commercial property insurance covering property loss and related net income loss.

The broad definition encompasses all types of commercial property insurance, such as commercial property, crime, and inland marine insurance

Front 76

Narrow (singular definition) of Commercial Property Insurance

Back 76

One particular type of commercial property insurance that covers loss of or damage to buildings and business personal property at specified locations.

Narrow definition denotes one of the specific types of commercial property insurance, such as commercial property, crime insurance, or inland marine insurance.

Front 77

Risk management process

Back 77

1. Identify loss exposures
2. Analyze loss exposures
3. Examine feasibility of risk management techniques
4. Select the appropriate risk management technique
5. Implement selected risk management techniques
Monitor results and revise the risk management program

Front 78

Four categories of loss exposure:

Back 78

1. Property loss exposure
2. Liability loss exposure
3. Personnel loss exposure
4. Net income loss exposure

Front 79

Property loss exposure

Back 79

A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization has a financial interest.

Front 80

Liability loss exposure

Back 80

A condition that presents the possibility that a person or an organization will sustain a loss resulting from a claim made against that person or organization by someone seeking money damages or some other legal remedy.

Front 81

Personnel loss exposure

Back 81

A condition that presents the possibility of loss caused by a key person’s death, disability, retirement, or resignation that deprives an organization of that person’s special skill or knowledge that the organization cannot readily replace.

Front 82

Net income loss exposure

Back 82

A condition that presents the possibility of loss caused by a reduction in net income.

Front 83

Avoidance

Back 83

Risk control technique that eliminates any possibility of loss

Front 84

Risk control

Back 84

Avoiding or minimizing loss

Techniques:
- Avoidance
- Loss Prevention
- Loss Reduction
- Separation
- Duplication
Diversification

Front 85

Proactive avoidance

Back 85

Deciding not to assume a loss exposure in the first place. (Risk control technique)

Front 86

Abandonment

Back 86

Eliminating a loss exposure that already exists. (Risk control technique)

Front 87

Loss prevention

Back 87

Involves reducing the frequency of a particular loss

(Risk control technique)

Front 88

Loss reduction

Back 88

Involves reducing the severity of a particular loss

(Risk control technique)

Front 89

Separation

Back 89

Involves dispersing a particular activity or asset over several locations. (Risk control technique.)

Separation involves the routine, daily reliance on each of the separated assets or activities, all of which regularly form a portion of the organization’s working resources.

Front 90

Duplication

Back 90

Involves relying on backups – spares or duplicates – used only if primary assets or activities suffer loss

(Risk control technique)

Front 91

Diversification

Back 91

Involves providing a range of products and services used by a variety of customers

(Risk control technique)

Front 92

Risk financing

Back 92

Methods of paying for loss

Techniques:
- Retention
Transfer

Front 93

Retention

Back 93

Involves generating funds from within the organization to pay for losses. (Risk financing technique.)

Front 94

Transfer

Back 94

Involves generating funds from outside the organization to pay for losses and includes insurance and noninsurance transfer. (Risk financing technique.)

Front 95

Hazard

Back 95

Refers to a condition that increases the frequency and/or severity of loss

Front 96

1. Two approaches to risk control measures

Back 96

Engineering approach
Human behavior approach

Front 97

Engineering approach to risk control

Back 97

Attacks hazards by reviewing and improving the design and location of properties and equipment, to reduce the number of hazards

Front 98

Human behavior approach to risk control

Back 98

Attacks hazards by modifying people’s behavior to reduce the frequency of unsafe acts.

Front 99

1. Fire requires three elements

Back 99

An initial source of heat
2. Oxygen
3. Fuel (contents and construction materials)

A fourth element, an uninterrupted chain reaction, causes the fire to flame up and spread, rather than just to smolder.

Fire prevention efforts focus on removing one or more of the four elements.

Front 100

Levels of combustion

Back 100

Wood frame construction is more combustible than joisted masonry,

Joisted masonry is more combustible than noncombustible construction

Front 101

Fire stop

Back 101

Solid pieces of materials that are inserted between wall studs or other supporting members to delay the flow of heat through spaces that would otherwise be open

Front 102

Fire wall

Back 102

A self-supporting solid wall that prevents a fire from passing through or around it

Front 103

Fire division

Back 103

A space in a building that is separated from other spaces in the building by a fire wall

Front 104

Burglary

Back 104

Theft by someone who forcibly enters the place where the property is kept

Front 105

Robbery

Back 105

Involves the use (or threat) of force against the person from whom the property is taken

Front 106

Employee theft

Back 106

(also called employee dishonesty or embezzlement)

Theft that an employee commits against his or her own employer

Front 107

Monoline policy

Back 107

A policy covering only one line of business

Front 108

Multiline policy

Back 108

A policy covering two or more lines of business; also referred to as a “package policy”

Front 109

Commercial package policy (CPP)

Back 109

Policy that covers two or more lines of business by combining ISO’s commercial coverage parts.

Under ISO Commercial Lines Manual (CLM) policywriting rules, widely used by insurers, one of the coverage parts of a CPP must cover buildings and/or business personal property, and another must cover commercial general liability.

Front 110

• Each coverage part of the CPP consists of these 4 components:

Back 110

One or more declarations forms
• One or more coverage forms
• For some lines of insurance, a general conditions form
Any applicable endorsements

Front 111

- In addition to coverage parts, a CPP also contains these:

Back 111

A common declarations form for the entire policy
A Common Policy Conditions form

Front 112

Businessowners policy (BOP)

Back 112

A package policy that combines most of the property and liability coverages needed by small and medium-size businesses.

Businessowners policies typically provide building and business personal property coverage, business income and extra expense coverage, and the equivalent of commercial general liability coverage. Other coverages are either included automatically or available as options.

Front 113

Output policy

Back 113

A policy that combines, in one form and associated endorsements, all or most of the commercial property coverages that the insured organization needs, and uses a flexible rating plan.

IN a CPP, each of these coverages would have to be provided by a separate coverage part or coverage form. Thus, an output policy uses a more seamless approach in providing commercial property insurance.

Front 114

- Policy provision categories

Back 114

Declarations
- Definitions
- Insuring agreements
- Exclusions
- Miscellaneous provisions
Conditions

Front 115

Policy condition

Back 115

Any insurance policy provision that qualifies an otherwise enforceable promise of the insurer

Front 116

Six conditions contained in the Common Policy Conditions form

Back 116

* Cancellation
* Changes
* Examination of Books and Records
* Inspections and Surveys
* Premiums
* Transfer of Rights and Duties Under This Policy

Front 117

T or F: If two or more insureds are listed in the declarations, any of them can request cancellation.

Back 117

FALSE. If two or more insureds are listed in the declarations, only the one listed first (called the first named insured) can request cancellation

Front 118

Changes condition of the Common Policy Conditions form

Back 118

States that policy constitutes the entire contract between the insurer and the named insured, and that the policy can be changed only by a written endorsement issued by the insurer

Front 119

Examination of Books and Records condition of the Common Policy Conditions form

Back 119

States that the insurer reserves the right to examine and audit the insured’s books and records related to the policy at any time during the policy period and for up to three years after the policy’s termination.

Front 120

Inspections and Surveys condition of the Common Policy Conditions form

Back 120

The insurer has the right, but not the obligation, to inspect the insured’s premises and operations at any reasonable time during the policy period.

Front 121

Premiums condition of the Common Policy Conditions form

Back 121

The first named insured is responsible for paying the policy premium. If the insurer owes a return premium, it will make payment only to the first named insured.

Front 122

Commercial Property Conditions

Back 122

A required component of the commercial property coverage part that contains conditions applicable to all commercial property coverage forms.

Is attached to every commercial property coverage part in a CPP or monoline policy. Conditions include:

- Concealment, Misrepresentation, or Fraud
- Control of Property
- Insurance under Two or More Coverages
- Legal Action Against Us
- Liberalization
- No Benefit to Bailee
- Other Insurance
- Policy Period and Coverage Territory
Transfer of Rights of Recovery Against Others to Us (the Subrogation Condition)

Front 123

What happens to the insured’s rights and duties under a policy if an individual named insured dies?

Back 123

The insured’s rights and duties under the policy are automatically transferred to the insured’s legal representatives, or, if the insured’s legal representatives have not yet been appointed, to any person having proper temporary custody of the insured property.

Front 124

Transfer of Rights and Duties Under This Policy condition of the Common Policy Conditions form

Back 124

States that the insured cannot transfer any rights or duties under the policy to any other person or organization without the insurer’s written consent.

Front 125

Other Common Conditions (beyond those in the Commercial Property Conditions)

Back 125

* Valuation
* Coinsurance
* Insured’s Duties in the Event of a Loss
* Appraisal
* Loss Payment
* Recovered Property
* Vacancy
* Mortgageholders
* Loss Payees

Front 126

Actual Cash Value

Back 126

Cost to replace property with new property of like kind and quality less depreciation.

(Replacement cost is determined at the time and location of the loss, so depreciation is subtracted from the current replacement cost, not the original cost.)

Many states adhere to the broad evidence rule in determining ACV in that every indicator of value must be considered.

Front 127

Replacement Cost

Back 127

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

Front 128

Insurance to value

Back 128

The goal of obtaining premiums based on an amount of insurance that is 80 to 100 percent of the property’s full value.

Front 129

Coinsurance condition

Back 129

The insured agrees to carry insurance at least equal to a specified percentage of the covered property’s value. The coinsurance percentage most commonly used is 80 percent

Front 130

Coinsurance formula

Back 130

((Limit of insurance) / (Value of covered property x Coinsurance percentage)) x Amount of covered loss – Deductible

a.k.a.

“Did over should times loss, minus deductible” = Amount of loss payable

Front 131

T or F: AAIS forms call for subtracting the deductible before applying the coinsurance penalty.

Back 131

TRUE. AAIS forms DO call for subtracting the deductible before applying the coinsurance penalty.

This difference is important because subtracting the deductible from the loss before multiplying results in a slightly higher recovery.

Front 132

Concealment, Misrepresentation or Fraud condition (Commercial Property Conditions)

Back 132

Says the policy or coverage part is void if any insured commits fraud related to the insurance, or if there is intentional concealment or misrepresentation by any insured of a material fact with respect to the coverage part/property.

Front 133

Control of Property condition (Commercial Property Conditions)

Back 133

States that, if the insured does not have control of the property (for example, when an entire building is rented to another firm or when the insured is a tenant in a building where the protective systems are controlled by the building owner), any act of neglect by others will not affect coverage.

Front 134

Insurance Under Two or More Coverages condition (Commercial Property Conditions)

Back 134

When two or more of the policy’s coverages apply to a property loss, the insurer will pay no more than the actual loss amount.

Front 135

Legal Action Against Us condition (Commercial property Conditions)

Back 135

Before an insured can sue or bring legal action against the insurer under the terms of the insurance policy, the insured must comply with all the policy’s terms.

Front 136

Liberalization condition (Commercial Property Conditions)

Back 136

If the insurer, during the policy period or up to 45 days before policy inception, adopts any revision that would broaden coverage without requiring additional premium, the insured automatically benefits from the broadened coverage.

Front 137

No Benefit to Bailee condition (Commercial Property Conditions)

Back 137

The insurer will pay the insured(s) for any covered loss while the insured’s property is in the temporary custody of a commercial bailee, but will not treat the bailee as an insured.

The insurer may exercise its right to take action against the bailee to recover the amount paid to the insured.

Coverage is provided to the insured when the insured is the bailee if there is coverage in the policy on property of others in the care, custody, or control of the insured.

Front 138

Other Insurance condition (Commercial Property Conditions)

Back 138

When another applicable policy is subject to the same terms, conditions, and provisions as the coverage part, the insurer agrees to pay its share on a pro rata basis (calculated by dividing the applicable policy limit of the coverage part by the total of all policy limits covering on the same basis, and multiplying the result by the amount of the loss).

Front 139

Policy Period and Coverage Territory condition (Commercial Property Conditions)

Back 139

The policy period is determined by the date(s) or time period shown on the policy Declarations sheet, generally beginning at 12:01 AM standard time for the address listed.

The coverage territory is the United States, Puerto Rico, and Canada. Property located in other parts of the world is not insured unless the coverage territory is modified.

Front 140

Transfer of Rights of Recovery Against Others to Us (the Subrogation Condition)

Back 140

After an insurer has paid its insured for damage to covered property, the insurer has the right to seek recovery from any responsible third party to the extent of the payment made to its insured. The insured is not permitted to take any action that will hinder the insurer’s ability to recover from the third party; except:

If the named insured waived its right of recovery in writing before a loss occurs.

After a loss has occurred, the insured can waive its recovery rights against someone else covered by the policy form (for example, a landlord when named as an additional insured), a business firm that either owns or is owned by the insured, or a tenant of the insured (subrogation against a tenant is prohibited by law in some states)

Front 141

T or F: When higher than 80 percent coinsurance applies, the rate is reduced.

Back 141

TRUE. With 90 percent coinsurance on building or contents insurance, the 80 percent coinsurance rate is typically reduced by 5 percent. With 100 percent coinsurance, the 80 percent coinsurance rate is typically reduced by 10 percent. Therefore, an insured who agrees to 100 percent coinsurance pays a premium rate that is 10 percent lower than what the rate would have been for 80 percent coinsurance.

Front 142

T or F: In policies that contain a coinsurance condition, coinsurance can often be suspended by the agreed value method.

Back 142

TRUE. In policies that contain a coinsurance condition, coinsurance CAN often be suspended by the agreed value method.

Front 143

Insured’s Duties in the Event of Loss condition

Back 143

The insured must comply with the conditions precedent (the prescribed duties in the event of loss) before the insurer is obligated to make any payment.

Front 144

Appraisal condition

Back 144

If the insurer and the insured disagree about the value of covered property or the amount of a covered loss, the appraisal condition allows either party to demand an appraisal.

Front 145

Notice of Loss (Insured duty in the event of loss)

Back 145

Requires prompt notice of loss. Written notice is not required.

Front 146

Police Report (Insured duty in the event of loss)

Back 146

If a law might have been broken, the police must be notified.

For example, if theft is a covered cause of loss, theft losses must be reported to the police.

Front 147

Protection of Property Against Further Loss (Insured duty in the event of loss)

Back 147

All reasonable steps must be taken to protect the property from further loss, such as temporary covering over a damaged roof or removal of contents from the building to a safe location.

Front 148

Inventory and Inspection (Insured duty in the event of loss)

Back 148

A complete inventory of damaged and undamaged goods, including quantities, costs, values, and amount of loss claimed, may be required. The insured must allow the insurer to inspect the property and examine the records documenting the loss.

Front 149

Proof of Loss (Insured duty in the event of loss)

Back 149

The insurer may require insureds to sign a sworn proof of loss containing information requested by the insurer

Front 150

Examination Under Oath (Insured duty in the event of loss)

Back 150

Any insured may be required to submit to questioning under oath concerning the claim. Usually any refusal will void coverage.

Front 151

Loss Payment condition

Back 151

The insurer usually has the option of either paying the value of the lost or damaged property or paying for repair or replacement.

Front 152

Recovered Property condition

Back 152

If either the insured or the insurer recovers any insured property after the loss settlement, the other party must be notified.

Front 153

Vacancy condition

Back 153

IF the building in which the loss occurs has been vacant for sixty consecutive days before the loss, the insurer is not obligated to pay for loss caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft.

Front 154

Mortgageholders condition

Back 154

Applies to covered loss to buildings or structures only. The insurer agrees to pay mortgageholders to the extent of their financial interests in the property and agrees to pay them “in their order of precedence, as interests may appear”.

Front 155

Loss Payees condition

Back 155

Loss payees other than mortgageholders, such as the owner of equipment leased to the insured or the insured’s landlord, can be named on the policy declarations page.

Any loss payment made to the loss payee will satisfy the insured’s claims against the insurer for the owner’s property.

Front 156

Loss Payable Clause (Loss Payable Provisions endorsement)

Back 156

Provides the loss payee with the right to have payment of any loss made jointly to the loss payee and the insured

Front 157

Lender’s Payable Clause (Loss Payable Provisions endorsement)

Back 157

Provides that a loss payee whose interest in the insured property is established by written agreements, such as bills of lading or financing statements, receives protection similar to that provided by the Mortgageholders condition

Front 158

Contract of Sale Clause (Loss Payable Provisions endorsement)

Back 158

Provides that a purchaser or seller has the right to have payment of any loss made jointly to the loss payee and the named insured as their interests may appear.

Front 159

Building Owner Loss Payable Clause (Loss Payable Provisions endorsement)

Back 159

Provides that the owner of a building in which the insured is a tenant can be covered as a loss payee. The insurer further agrees to adjust losses to the described building with the building owner who is shown as loss payee.

Front 160

Building and Personal Property Coverage Form (BPP)

Back 160

Can be used to cover any combination of three broad categories of property:
- Building
- Your Business Personal Property
- Personal Property of Others

BPP is the most commonly used commercial property coverage form in ISO’s CPP program

Front 161

Real property

Back 161

Consists of land, all structures permanently attached to the land, and whatever is growing on the land.

(Thus, a building and property permanently attached to it are real property.)

Front 162

Personal property

Back 162

All tangible property (property with physical form and characteristics) other than real property.

(The primary characteristic of personal property is that it is not permanently attached to real property.)

Front 163

Building (as defined in the BPP)

Back 163

The building or structure described in the Declarations, including:
* Completed additions;
* Fixtures, including outdoor fixtures;
* Permanently installed machinery & equipment
* Personal property owned by you that is used to maintain or service the building or structure or its premises (e.g., fire-extinguisher, outdoor furniture, floor coverages, appliances)
* Additions under construction, alterations and repairs to the building or structure (if not covered by other insurance)
* Materials, equipment, supplies and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations or repairs to the building or structure

Front 164

Fixture

Back 164

Any personal property affixed to real property in such a way as to become part of the real property

Front 165

T or F: The building definition in the BPP is restricted to a structure with four walls and a roof.

Back 165

FALSE. It can be any structure, such as a three-story parking garage with no walls, if it is described in the declarations.

Front 166

T or F: Furniture and other household personal property owned by a landlord and provided in a furnished apartment or room are covered under the BPP.

Back 166

FALSE. Furniture and other household personal property owned by a landlord and provided in a furnished apartment or room are NOT covered under the BPP.

Front 167

7 specific categories of Business Personal Property

Back 167

1. Furniture and fixtures
2. Machinery and equipment
3. “Stock”
4. All other personal property owned by you and used in your business
5. Labor, materials, or services furnished or arranged by you on personal property of others
6. Your use interest as a tenant in improvements or betterments
7. Leased personal property that you have a contractual responsibility to insure, unless otherwise provided for under Personal Property of Others

Coverage can apply to all of these categories or can be restricted to one or more of them by specifying the extent of coverage in the declarations or by endorsement

Front 168

Trade fixtures

Back 168

Fixtures and equipment that may be attached to a building during a tenant’s occupancy, with the intention that they be removed when the tenant leaves.

Front 169

Stock

Back 169

Merchandise held in storage or for sale; raw materials; and in-process or finished goods.

Front 170

Labor, Materials, or Services Furnished on Property of Others (Category 5 of Business Personal Property)

Back 170

Coverage that includes the insured’s work on personal property of others. (This clarifies that the BPP will cover labor and materials the insured has put into customers’ property, if the property is destroyed by an insured peril while still on the insured’s premises.)

Applies only to the extent of the insured’s own costs; it does not cover any other part of the customers’ property. Category 5 also does not cover the insured’s anticipated profit on the work performed.

Front 171

T or F: Leased personal property that the insured is required by contract to insure is covered as part of Your Business Personal Property unless otherwise covered under Personal Property of Others.

Back 171

TRUE. Leased personal property that the insured is required by contract to insure IS covered as part of Your Business Personal Property unless otherwise covered under Personal Property of Others.

Front 172

Improvements and betterments

Back 172

Alterations or additions made to the building at the expense of an insured who does not own the building and who cannot legally remove them.

Front 173

Distinction between fixtures and trade fixtures

Back 173

Fixtures are part of the realty and are the building owner’s property. Trade fixtures, however, are characterized by the tenant’s right (or obligation) to remove them when the tenant vacates the premises. Trade fixtures may include counters, machinery, and appliances.

Many cases are determined by trade customs. As an example:
Walk-in freezers and refrigerators in a restaurant and the stage machinery in a theater may be completely built in and firmly attached to the structure. However, by custom they are trade fixtures subject to removal by the tenant and not building improvements that become the property of the building owner.

Front 174

T or F: The most common arrangement is for the landlord to carry insurance on the building, including the landlord’s interest in the improvements and betterments, while the tenant insures its use interest in the same property.

Back 174

TRUE. The most common arrangement IS for the landlord to carry insurance on the building, including the landlord’s interest in the improvements and betterments, while the tenant insures its use interest in the same property.

Front 175

T or F: A coverage extension for Business Personal Property provides up to $2,500 per location for property of others in the insured’s care, custody, or control.

Back 175

TRUE. A coverage extension for Business Personal Property DOES provide up to $2,500 per location for property of others in the insured’s care, custody, or control.

Front 176

Commercial bailment

Back 176

The temporary possession by one party (the bailee) of personal property of another party (the bailor) for a specific purpose beneficial to both parties.

(Cleaners and shoe repairers are obvious examples of commercial bailees.)

Front 177

BPP’s Personal Property of Others agreement

Back 177

Insures personal property of others only while it is (1) in the named insured’s care, custody, or control and (2) located in or on the building described in the declarations or in the open (or in a vehicle) within 100 feet of the described premises.

Payment of Personal Property of Others is made to the owner of the property, not to the insured. The coverage pays regardless of whether the insured is legally liable for the loss.

Front 178

“Within 100 feet of the described premises” is ordinarily interpreted to mean:

Back 178

It is ordinarily interpreted to mean within 100 feet of the nearest boundary of the land considered to be part of the insured premises, as opposed to meaning within 100 feet of the building.

(However, if the policy describes the location as 1234 Main Street, Suite 1403, it is generally held that the coverage applies only within suite 1403 and that the 100-foot extension is calculated from the exterior of suite 1403, not the entire premises at 1234 Main Street.

Front 179

Property Off-Premises extension (BPP)

Back 179

Provides $10,000 of coverage for property away from the described premises – specifically, at other locations within the policy territory, which consists of the USA (+ territories + possessions), Puerto Rico, & Canada

Front 180

Newly Acquired or Constructed Property extension (BPP)

Back 180

Provides coverage for property at locations within the policy territory that the insured acquires after the policy’s inception. The policy territory consists of the USA (+ territories + possessions), Puerto Rico & Canada

Front 181

Categories of items excluded from the BPP

Back 181

* Buildings and other real property
* Plants and outdoor property
* Other personal property

Front 182

Exclusions – BPP – Buildings and other real property

Back 182

Excluded items under this exclusion include:

* Buildings
* Land
* Water
* Bridges
* Roadways, walks, patios, and other paved surfaces
* Retaining walls that are not a part of a building
* Bulkheads, pilings, piers, wharves, and docks
* The cost of excavations, grading, back filling, or filling
* Foundations below the lowest basement floor or, if there is no basement, the surface of the ground
* Underground pipes, flues, and drains

Front 183

Exclusions – BPP – Plants and outdoor property exclusions

Back 183

Excluded items under this exclusion include:

* Outdoor grain, hay, straw, and other crops
* Outdoor trees, shrubs, and plants (unless they are the insured’s merchandise)
* Outdoor radio or television antennas, including satellite dishes, their lead-in wiring, masts, and towers
* Outdoor fences

Front 184

Exclusions – BPP – Other Personal Property

Back 184

Several additional types of personal property are not covered by the BPP (though they are for the most part insurable under other insurance forms). These include:

* Money, securities, and similar property
* Electronic data and valuable papers
* Vehicles, watercraft, and aircraft
* Animals
* Property More Specifically Defined in Another Form (e.g., stock, electronic data processing equipment)
* Airborne or waterborne personal property

Front 185

Electronic data as defined by BPP

Back 185

(note: an excluded item)

Includes information, facts, or computer programs used with electronically controlled equipment.

(The BPP excludes all electronic data, subject to two exceptions: stock of prepackaged software and data covered under Electronic Data additional coverage.)

Front 186

Cost to replace or restore information on valuable papers and record

Back 186

An excluded item under the BPP: Other Personal Property exclusions. In essence, the BPP excludes the cost to replace or restore information on valuable papers and records, including those that exist as electronic data.

Front 187

Valuable papers and records

Back 187

Include, but are not limited to, proprietary information, books of account, deeds, manuscripts, abstracts, drawings, and card index systems. (Excluded in the BPP)

Front 188

T or F: The BPP animal exclusion applies to animals owned by the named insured and held for sale or owned by others and boarded by the insured.

Back 188

FALSE. The BPP animal exclusion does NOT apply to animals owned by the named insured and held for sale or owned by others and boarded by the insured.

Front 189

Six additional coverages to the BPP

Back 189

* Debris removal
* Preservation of Property
* Fire Department Service Charge
* Pollutant Cleanup and Removal
* Increased Cost of Construction
* Electronic Data

Front 190

Debris Removal (additional coverage to the BPP)

Back 190

Covers the cost of removing debris of covered property resulting from a covered cause of loss during the policy period.

The removal expenses will be paid only if they are reported in writing within 180 days after the loss. The most that the insurer will pay for such debris removal is 25 percent of the sum of the direct loss payment plus the deductible amount. Because this amount may not be sufficient in some cases, an additional $10,000 limit per location is provided if the direct loss plus debris removal expense exceeds the limits of insurance or the debris removal expense exceeds the 25 percent limitation of direct losses.

The Debris Removal additional coverage includes the cost to clean up pollution at the insured’s premises caused by an insured peril.

Front 191

Preservation of Property (additional coverage to the BPP)

Back 191

Extends the policy to protect covered property while it is being moved and for up to thirty days at the new location.

Front 192

Fire Department Service Charge (additional coverage to the BPP)

Back 192

Pays fire department charges up to $1,000 if they are required by local ordinance or are assumed by contract before the loss occurs.

Front 193

Example:

Debris removal is less than 25 percent of the sum of loss payment plus deductible. How much does the insured collect?

* $100,000 limit on the building
* $1,000 deductible
* $10,000 damage to building
* $2,000 debris removal

Back 193

Insured collects:

$10,000 for building damage
+ $2,000 for debris removal
= $12,000
- $1,000 deductible

= $11,000 that the insured collects

(See example page 2.17)

Front 194

Example:

Debris removal is greater than 25 percent of the sum of loss payment plus deductible. How much does the insured collect?

* $100,000 limit on the building
* $1,000 deductible
* $36,000 damage to building
* $22,000 debris removal

Back 194

Insured collects:

$36,000 for building damage
- $1,000 deductible
= $35,000 that the insurer pays for direct physical loss
+$19,000 for debris removal

= $54,000 total that the insured collects

(See example page 2.17)

Front 195

Pollutant Cleanup and Removal (additional coverage on the BPP)

Back 195

Provides limited coverage for the cleanup and removal of pollutants from land or water at the described premises.

These expenses must be reported in writing within 180 days after the loss. An aggregate limit of $10,000 per location applies to all such expenses that occur during each separate twelve-month period.

Front 196

Pollutant (as defined by the BPP)

Back 196

Any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Front 197

Increased Cost of Construction (additional coverage on BPP)

Back 197

Provides a small amount of insurance to cover the increased cost to comply with ordinances or laws regulating the repair, rebuilding, or replacement of covered buildings. The amount of insurance is equal to 5 percent of the amount of insurance or $10,000, whichever is less.

No coverage applies to these items:
* Loss to any undamaged portion of the building that an ordinance or law does not permit to remain in use
* The cost to demolish the undamaged portion of the structure and remove its debris

Front 198

T or F: The aggregate limit of coverage for Electronic Data (an additional coverage in the BPP) is $5,000 per policy year regardless of the number of occurrences or locations covered.

Back 198

FALSE. The aggregate limit of coverage for Electronic Data (an additional coverage in the BPP) is only $2,500 per policy year regardless of the number of occurrences or locations covered.

Front 199

T or F: The BPP coverage extensions apply only if at least 80 percent coinsurance or a value reporting period symbol is shown in the declarations.

Back 199

TRUE. The BPP coverage extensions DO apply only if at least 80 percent coinsurance or a value reporting period symbol is shown in the declarations.

Front 200

Six BPP coverage extensions

Back 200

* Newly Acquired or Constructed Property
* Personal Effects and Property of Others
* Valuable Papers and records (Other Than Electronic Data)
* Property Off-Premises
* Outdoor Property
* Non-Owned Detached Trailers

Front 201

Newly Acquired or Constructed Property coverage extension (BPP)

Back 201

If the policy covers a building, the Newly Acquired or Constructed Property extension provides automatic coverage for a new building being constructed at the premises described in the declarations.

Automatic coverage is also provided for newly acquired buildings at other locations, provided the purpose of the newly acquired building is similar to the use of the building described in the declarations or the newly acquired building will be used as a warehouse. The maximum amount of coverage is $250,000 at each building.

If the policy covers business personal property, the extension also provides automatic coverage for:

* Business personal property at any newly acquired location other than fairs, trade shows, or exhibitions
* Business personal property located at newly constructed or acquired buildings at the location described in the declaration
* Newly acquired business personal property at the described premises

Front 202

Limit for Newly Acquired or Constructed Property coverage extension

Back 202

$100,000 at each building

Front 203

Newly Acquired or Constructed Property coverage extension terminates automatically at the earliest of three dates:

Back 203

* The expiration date of the policy
* Thirty days after the acquisition of the new location or the start of construction of the new building
* The date the insured notifies the insurer of the new location or new building

Front 204

Personal Effects and Property of Others coverage extension (BPP)

Back 204

Provides a limited amount of coverage for personal effects (such a coat or jewelry) owned by an individual insured or a partner, a member, an officer, a manager, or an employee of the insured while on the premises described in the declarations. Personal effects are not covered for loss by theft.

The limit on all property covered by this extension (personal effects and property of others) is $2,500 at each described location.

Front 205

Valuable Papers and Records (Other Than Electronic Data) coverage extension (BPP)

Back 205

This extension provides $2,500 of coverage for the cost of researching or reconstructing the lost information, but it does not apply to electronic data.

Front 206

Property-off-Premises coverage extension (BPP)

Back 206

Provides up to $10,000 coverage for covered property while it is away from the described premises. Also covers property in storage at a location leased after the inception of the current policy and property at any fair, trade show, or exhibition.

Front 207

Outdoor Property coverage extension (BPP)

Back 207

Covers loss to outdoor fences; radio and television antennas (including satellite dishes); signs not attached to buildings; and trees, shrubs, and plants.

It covers only loss by fire, lightning, explosion, riot or civil commotion, and aircraft (F.L.A.R.E.)

Front 208

F.L.A.R.E.

Back 208

Fire, lightning, explosion, riot or civil commotion, and aircraft – the losses covered by the Outdoor Property coverage extension (BPP)

Front 209

Non-Owned Detached Trailers coverage extension (BPP)

Back 209

Trailer leases usually require that the lessee provide insurance for the trailer while it is leased. The Non-Owned Detached Trailers extension permits the insured to extend “your business personal property” to include such trailers. The limit of liability is $5,000 unless a higher limit is shown in the decs.

Front 210

BPP conditions

Back 210

* Limits of insurance
* Deductible
* Valuation

Front 211

Standard BPP deductible

Back 211

$500. Rate credits are available for deductibles higher than $500.

Front 212

T or F: The deductible comes off the loss, not the limit of insurance.

Back 212

TRUE. The deductible DOES come off the loss, not the limit of insurance.

For example: payment under a policy with a $100,000 limit and a $1,000 deductible:

* $500 loss: No payment (loss is less than the deductible)
* $100,000 loss: $99,000 payment ($100,000 - $1,000 deductible)
* $110,000 loss: $100,000 payment ($110,000 - $1,000 deductible exceeds the limit of insurance)

Front 213

T or F: In the BPP, when an occurrence involves loss to two or more items of covered property that are insured for separate limits, the losses cannot be combined in determining the application of the deductible.

Back 213

TRUE. The BPP states that, when an occurrence involves loss to two or more items of covered property that are insured for separate limits, the losses cannot be combined in determining the application of the deductible.

For example, the insurer would make no payment for fire damage of $800 to a building and $400 to business personal property under a policy with a $1,000 deductible that had separate building and business personal property limits.

Front 214

T or F: With blanket insurance, a single limit of insurance applies to two or more items of covered property.

Back 214

TRUE. With blanket insurance, a single limit of insurance DOES apply to two or more items of covered property.

Front 215

T or F: The standard valuation provision for most property covered by the BPP is replacement cost.

Back 215

FALSE. The standard valuation provision for most property covered by the BPP is ACV.

Front 216

T or F: Stock that has been sold but not delivered is valued at replacement cost.

Back 216

FALSE. Stock that has been sold but not delivered is valued at selling price less any unincurred discounts or expenses.

Front 217

Optional coverages of the BPP

Back 217

* Agreed Value
* Inflation Guard
* Replacement Cost
* Extension of Replacement Cost to Personal Property of Others

Front 218

Agreed Value optional coverage

Back 218

Optional coverage that suspends the Coinsurance condition if the insured carries the amount of insurance agreed to by the insurer and insured.

Front 219

T or F: The agreed value option provides that if the limit of insurance equals or exceeds the agreed value stated in the declarations, losses will be paid in full up to the limit of insurance.

Back 219

TRUE: The agreed value option provides that if the limit of insurance equals or exceeds the agreed value stated in the declarations, losses will be paid in full up to the limit of insurance.

If the limit of insurance is less than the agreed value, the amount of loss payment is calculated by this equation:

Loss payment = ((Limit of insurance / Agreed value) x Loss) – Deductible

(See 2.26 if context is needed)

Front 220

Inflation Guard optional coverage

Back 220

Coverage for the effects of inflation that automatically increases the limit of insurance by the percentage of annual increase shown in the declarations.

Front 221

Replacement Cost optional coverage

Back 221

Coverage for losses to most types of property on a replacement cost basis (with no deduction for depreciation or obsolescence) instead of on an actual cash value basis.

Front 222

BPP (and other) Causes of Loss – Basic Form

Back 222

Form that covers fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action

Front 223

BPP (and other) Causes of Loss – Broad Form

Back 223

Form that covers basic form perils plus falling objects; weight of snow, ice, or sleet; water damage; and (as additional coverage) collapse caused by certain perils

Front 224

Perils covered by the BPP (and other) Causes of Loss – Basic Form

Back 224

* Fire
* Lightning
* Explosion
* Windstorm
* Hail
* Smoke
* Aircraft
* Vehicles
* Riot
* Civil Commotion
* Vandalism
* Sprinkler leakage
* Sinkhole collapse
* Volcanic action
* (as additional coverage) Fungus

Front 225

Perils covered by the BPP (and other) Causes of Loss – Broad Form

Back 225

* All basic form coverages
* Falling objects
* Weight of snow, ice, or sleet
* Water damage
* (as additional coverage) Collapse caused by certain perils

Front 226

T or F: For a loss to be covered, a covered cause of loss need not be the proximate cause of the loss.

Back 226

FALSE. For a loss to be covered, a covered cause of loss MUST be the proximate cause of loss.

Front 227

T or F: Once a covered peril has occurred, all subsequent damage is also covered, even when an excluded peril has meanwhile intervened, unless the policy clearly states otherwise.

Back 227

TRUE. Once a covered peril has occurred, all subsequent damage is also covered, even when an excluded peril has meanwhile intervened, unless the policy clearly states otherwise. This rule has been modified by the anti-concurrent cause language incorporate into many forms; consequently, proximate cause is an area in which the advice of coverage counsel may be needed in complex cases.

Front 228

Friendly fire

Back 228

One that remains inside its intended receptacle

Front 229

The flame or glow requirement

Back 229

Courts have generally held that a fire must involve a flame or glow and rapid oxidation.

The flame or glow requirement may not be met when a substance merely smokes because of a buildup of heat but does not actually flame or glow.

Front 230

T or F: In addition to covering loss of property actually burned by a fire, the fire peril covers heat and smoke damage resulting from a fire, as well as water damage resulting from attempts to put out the fire.

Back 230

TRUE. In addition to covering loss of property actually burned by a fire, the fire peril DOES cover heat and smoke damage resulting from a fire, as well as water damage resulting from attempts to put out the fire.

Front 231

Explosion

Back 231

A large-scale, rapid, or spectacular expansion or bursting out or forth. (Excludes bursting resulting from water.)

Front 232

T or F: Damage caused by rain that a windstorm blows through an open window, roof vents, or cracks is covered as part of the Windstorm or Hail cause of loss.

Back 232

FALSE. Damage caused by rain that a windstorm blows through an open window, roof vents, or cracks is NOT covered. But if the windstorm breaks a window and wind-blown rain enters the structure through the broken window, the policy will ocver the resulting water damage.

Front 233

Smoke (cause of loss)

Back 233

Limited to smoke causing sudden and accidental loss or damage.

A value of the smoke peril: it extends coverage to smoke resulting from friendly fires, such as smoke from a fireplace or furnace

Front 234

Value of the smoke peril

Back 234

It extends coverage to smoke resulting from friendly fires, such as smoke from a fireplace or furnace

Front 235

General purpose definition of “riot”

Back 235

An assemblage of three or more persons in a public place for the purpose of accomplishing concerted action – and in a turbulent and disorderly manner – a common purpose.

Front 236

General purpose definition of “civil commotion”

Back 236

A public uprising by a large number of people who, acting together, cause harm to people or property

Front 237

Vandalism (cause of loss)

Back 237

Willful and malicious damage to, or destruction of, the described property.

Thus, both intent and motive must be established for a loss to be considered vandalism. (Vandalism, in contrast to riot and civil commotion, may involve only one person.)

Front 238

Sprinkler leakage (cause of loss)

Back 238

Leakage or discharge of any substance from an automatic sprinkler system. (Also includes the collapse of automatic sprinkler system tanks.)

Front 239

Building Glass – Tenant's Policy endorsement

Back 239

Covers the building glass described in the endorsement's schedule against the causes of loss (Basic, Broad, or Special, as well as any related endorsements) indicated in the schedule, up to the limit of insurance stated in the schedule.

Front 240

Protective Safeguards endrosement

Back 240

States that fire coverage is automatically suspended if the insured knows that the sprinkler system is not operational and fails to notify the insurer.

Front 241

Sinkhole collapse (cause of loss)

Back 241

Loss or damage caused by the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite.

Damage to the land on which the building is situated is NOT covered.

Front 242

Volcanic action (cause of loss)

Back 242

Direct loss or damage resulting from the eruption of a volcano when the loss or damage is caused by:
a) Airborne volcanic blast or airborne shock waves
b) Ash, dust or particulate matter; or
c) Lava flow

Front 243

T or F: The volcanic action peril covers costs to remove volcanic debris unless the debris has caused physical loss or damage

Back 243

FALSE. The volcanic action peril does NOT cover costs to remove volcanic debris unless the debris has caused physical loss or damage

Front 244

T or F: Volcanic action is distinct from volcanic eruption.

Back 244

TRUE. Earth Movement exclusion excludes coverage for “volcanic eruption, explosion or effusion” but by exception allows coverage for resulting damage caused by volcanic action, as defined, or by fire,

Front 245

What constitutes a “single occurrence” as far as volcanic action is concerned?

Back 245

All volcanic eruptions that occur within any 168-hour period (7 consecutive days) will be considered a single occurrence.

Front 246

Exclusions from the Falling Objects cause of loss

Back 246

Damage to personal property in the open. Also, damage to the interior of a building or structure, or property inside a building or structure, unless the falling object first damages the roof or an outside wall.

Front 247

Water Damage peril (cause of loss)

Back 247

Covers damage caused by accidental discharge or leakage of water or steam as the direct result of the breaking apart or cracking of a plumbing, heating, air conditioning, or other system or appliance located on the described premises.

Front 248

Additional coverages to the Basic and Broad Form causes of loss

Back 248

The Basic and Broad Form both contain an additional coverage for loss resulting from fungus, wet rot, dry rot, or bacteria, and the Broad Form also contains an additional coverage for loss resulting from the abrupt collapse of a building or personal property inside a building.

Front 249

Most the insurer will pay for fungus damage to property, including the costs of necessary tearing out and replacement of property and of testing for the presence of fungus after damaged property has been repaired or replaced

Back 249

$15,000 per annual policy period.

This limit is the most the insurer will pay even if the fungus resulting form a particular loss continues or recurs in a later policy period.

Coverage applies only when the fungus is the result of one or more covered causes of loss that occur during the policy period. The additional coverage does not apply to losses resulting from fire and lightning, because the fungus exclusion does not exclude fungus resulting from fire and lightning.

Front 250

Additional Coverage – Collapse (broad form cause of loss)

Back 250

The insurer agrees to pay for loss or damage caused by the abrupt collapse of a building or any part of a building, or the abrupt collapse of personal property inside a building.

Front 251

Collapse coverage (an additional coverage on the cause of loss broad form) applies only if the collapse is caused by one of these perils (6):

Back 251

* Any cause of loss covered by the Broad Form
* Hidden building decay (unless known to the insured before the collapse)
* Hidden insect or vermin damage (unless known to the insured before the collapse)
* Weight of people or personal property
* Weight of rain that collects on a roof
* Use of defective materials or methods in construction, remodeling, or renovation

Front 252

Basic and Broad Form Exclusions (all – 12)

Back 252

Exclusions subject to anti-concurrent causation language:
* Ordinance or law
* Earth movement
* Governmental action
* Nuclear hazard
* Utility services
* War and military action
* Water
* Fungus, wet rot, dry rot and bacteria

Exclusions NOT subject to anti- concurrent causation language:
* Artificially generated electrical energy
* Explosion of steam boilers
* Mechanical breakdown
* Neglect

Front 253

Basic and Broad Form Exclusions – Exclusions subject to anti-concurrent causation language (8):

Back 253

* Ordinance or law
* Earth movement
* Governmental action
* Nuclear hazard
* Utility services
* War and military action
* Water
* Fungus, wet rot, dry rot and bacteria

Front 254

Basic and Broad Form Exclusions – Exclusion NOT subject to anti-concurrent causation language (4):

Back 254

* Artificially generated electrical energy
* Explosion of steam boilers
* Mechanical breakdown
* Neglect

Front 255

Anti-concurrent causation wording

Back 255

The lead-in paragraph to the first group of cause-of-loss exclusions states that these exclusions apply to loss or damage caused directly or indirectly by any of the excluded causes, “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”

Front 256

Concurrent Causation Doctrine

Back 256

Holds that a loss is covered when caused by two or more independent, concurrent perils only if one of the perils is covered – even if the other peril or perils are clearly excluded.

Front 257

Ordinance or Law exclusion (basic and broad causes of loss)

Back 257

Excludes loss resulting from:

The enforcement of any ordinance or law (1) regulating the construction, use or repair of any property; or (2) Requiring the tearing down of any property, including the cost of removing its debris.

Front 258

T or F: The BPP provides limited coverage for 'ordinance or law' under the Increased Cost of Construction additional coverage.

Back 258

TRUE. The BPP DOES provide limited coverage for 'ordinance or law' under the Increased Cost of Construction additional coverage. Additionally, higher limits and broader coverage can be provided by the Ordinance or Law Coverage endorsement.

Front 259

Definition of “earth movement”

Back 259

(1) Earthquake, including any earth sinking, rising or shifting related to such event
(2) Landslide, including any earth sinking, rising, or shifting related to such event
(3) Mine subsidence, meaning subsidence of a man-made mine, whether or not mining activity has ceased
(4) Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface.

Front 260

T of F: If Earth Movement results in fire or explosion, insurers pay for the loss or damage caused by that fire or explosion.

Back 260

TRUE. If Earth Movement results in fire or explosion, insurers DO pay for the loss or damage caused by that fire or explosion.

Front 261

Governmental Action exclusion (basic and broad causes of loss forms)

Back 261

Excludes any “seizure or destruction of property by order of governmental authority”.

However, the insurer agrees to pay for loss or damage caused by or resulting from acts of destruction ordered by governmental authority at the time of a fire to prevent its spread.

Front 262

Nuclear Hazard exclusion (basic and broad causes of loss forms)

Back 262

Excludes loss or damage caused by “nuclear reaction or radiation, or radioactive contamination, however caused.”

However, if loss or damage by fire results from the excluded events, the insurer agrees to pay for the resulting loss or damage.

Front 263

Utility Services exclusion (basic and broad causes of loss forms)

Back 263

Eliminates coverage for loss caused by the failure of power, communication, water, or other utility service supplied to the described location, in either of these circumstances:
* The failure originates away from the described location
* The failure originates at the described location, but only if the failure involves equipment used to supply the utility service to the described location from a source off the described location.

Front 264

Water exclusion (basic and broad causes of loss forms)

Back 264

Precludes coverage for flood-type losses and is therefore commonly referred to as the flood exclusion. The exclusion also applies to mudslide or mudflow; underground water that seeps into a basement; and water that backs up from sewers, drains, or sumps.

Front 265

Fungus, Wet Rot, Dry Rot, and Bacteria exclusion (basic and broad causes of loss forms)

Back 265

Exclude loss or damage resulting from fungus, wet rot, dry rot, or bacteria. Fungus is defined to include mold, mildew, and any by-products produced or released by fungi.

(However, the exclusion does not apply if the fungus, wet rot, dry rot, or bacteria results from fire or lightning.)

Front 266

Four Additional Basic and Broad Form Exclusions

Back 266

- Artificially generated electrical energy
- Explosion of steam boilers
- Mechanical breakdown
- Neglect

Front 267

Artificially Generated Electrical Energy

Back 267

Artificially generated electrical, magnetic, or electromagnetic energy that damages, disturbs, disrupts or otherwise interferes with any:

(1) Electrical or electronic wire, device, appliance, system or network; or
(2) Device, appliance, system or network utilizing cellular or satellite technology

Front 268

T or F: Lightning is naturally, not artificially, generated.

Back 268

TRUE, of course.

Front 269

Explosion of Steam Boilers exclusion (basic and broad causes of loss)

Back 269

Excludes damage caused by or resulting from explosion of “steam boilers, steam pipes, steam engines or steam turbines owned or leased by you, or operated under your control.

The exclusion does not apply to combustion explosion or resulting loss by fire. An important nuance of this exclusion is that it does not apply to steam boiler explosions when the boiler or other steam equipment is not owned or leased by the insured or operated under the insured's control.

Front 270

Mechanical breakdown exclusion (basic and broad causes of loss)

Back 270

Excludes loss or damage caused by or resulting from mechanical breakdown, including rupture or bursting caused by centrifugal force.

Front 271

Neglect exclusion (basic and broad causes of loss)

Back 271

Excludes loss or damage caused by or resulting from an insured's neglect to use all reasonable means to save and preserve the property from further damage at and after the time of loss.

Front 272

Other Exclusions in the Basic Form

Back 272

The Basic Form contains two additional exclusions, which reinforce the fact that the Basic Form does not cover the types of damage covered by the Broad Form's water damage peril.

Front 273

Limitation on Loss of Animals (basic and broad causes of loss)

Back 273

A limitation provision in both the Basic and Broad Forms states that the insurer will pay for loss of animals only if they are killed or their destruction is made necessary. This limited coverage applies only to animals that the BPP includes as covered property – that is, animals boarded or held as stock for sale.

Front 274

Fortuitous loss

Back 274

One that occurs by chance (from the insured's perspective) and that the insured neither expects nor intends.

The Special Form is generally regarded as covering only fortuitous loss.

Front 275

Special Form and Exclusions

Back 275

Basic and Broad Form Exclusions Contained in the Special Form
* Ordinance or Law
* Earth Movement
* Governmental Action
* Nuclear Hazard
* Utility Services
* War and Military Action
* Water
* “Fungus”, Wet Rot, Dry Rot and Bacteria
* Artificially Generated Electrical Energy
* Steam Boiler Explosion
* Mechanical Breakdown
* Neglect

Additional Exclusions and Limitations Contained in the Special Form
* Dishonest or Criminal Acts
* Voluntary Parting
* Unauthorized Instructions
* Inventory Shortages
* Unexplained Disappearance
* Theft of Building Materials
* Special Theft Limits
* Exclusions to Match Broad Form Condtions
* “Maintenance” Perils
* Pollution
* Concurrent Causation
* Production Errors

Front 276

Basic and Broad Form Exclusions Contained in the Special Form

Back 276

* Ordinance or Law
* Earth Movement
* Governmental Action
* Nuclear Hazard
* Utility Services
* War and Military Action
* Water
* “Fungus”, Wet Rot, Dry Rot and Bacteria
* Artificially Generated Electrical Energy
* Steam Boiler Explosion
* Mechanical Breakdown
* Neglect

Front 277

Additional Exclusions and Limitations Contained in the Special Form

Back 277

* Dishonest or Criminal Acts
* Voluntary Parting
* Unauthorized Instructions
* Inventory Shortages
* Unexplained Disappearance
* Theft of Building Materials
* Special Theft Limits
* Exclusions to Match Broad Form Condtions
* “Maintenance” Perils
* Pollution
* Concurrent Causation
* Production Errors

Front 278

Advantage of Special Form over Basic and Broad Form – General

Back 278

Open perils coverage (coverage is provided unless it is excluded and coverage may be limited)

Front 279

Advantage of Special Form over Basic and Broad Form – Theft

Back 279

Most theft loss is covered, except for some excluded thefts, such as theft committed by the insured's employees

Front 280

Advantage of Special Form over Basic and Broad Form – Water damage

Back 280

Water damage that occurs when melting snow penetrates the building because of “ice damming” on the roof is covered.

Front 281

Advantage of Special Form over Basic and Broad Form – Fire

Back 281

Damage caused by friendly fire is covered.

Front 282

For most insureds, the Special Form's most significant difference from the Broad Form is:

Back 282

It covers theft losses unless they are excluded or limited.

Front 283

Special Form exclusion – Dishonest or Criminal Acts by Certain Individuals

Back 283

Excludes the dishonest or criminal acts of the named insured; any of the named insured's partners, members, managers, (“members” and “managers” refer to members and managers of limited liability companies), officers, employees (including leased employees), directors, trustees, or authorized representatives; or anyone else (such as a bailee) to whom he named insured entrusts covered property for any purpose.

Front 284

Voluntary Parting exclusion (Special Form)

Back 284

Eliminates coverage if the insured or anyone else to whom the insured has entrusted covered property (such as an employee or a bailee) voluntarily hands the property over to another as the result of “any fraudulent scheme, trick, device or false pretense”.

Front 285

Unauthorized Instructions exclusion (Special Form)

Back 285

Eliminates coverage for property transferred to a person or place outside the described premises on the basis of unauthorized instructions.

Front 286

Inventory Shortages exclusion (Special Form)

Back 286

Excludes loss of property if the only evidence of the loss or damage is a shortage discovered on taking inventory.

Front 287

Unexplained Disappearance exclusion (Special Form)

Back 287

Excludes loss of property if no physical evidence is available to explain the loss.

Front 288

Theft of Building Materials limitation (Special Form)

Back 288

The BPP's description of covered building property includes building materials and supplies on or within 100 feet of the described premises, to be used for making additions, alterations, or repairs to the insured building or structure. A Special Form limitation excludes theft of such materials and supplies until they are attached to the building or structure.

Front 289

Special Theft Limits

Back 289

* $2,500 for furs, fur garments, and garments trimmed with fur
* $2,500 on patterns, dies, molds, and forms
* $2,500 on jewelry, watches, watch movements, precious and semi-precious stones, bullion, gold, silver, platinum and other precious alloys or metals. Jewelry and watches with a value of less than $100 are not subject to this $2,500 limit.
* $250 for stamps; tickets, including lottery tickets held for sale; and letters of credit.

Front 290

Special Theft Limit for furs, fur garments, and garments trimmed with fur

Back 290

$2,500.00

Front 291

Special Theft Limit for patterns, dies, molds, and forms

Back 291

$2,500.00

Front 292

Special Theft Limit for jewelry, watches, watch movements, precious and semi-precious stones, bullion, gold, silver, platinum and other precious alloys or metals.

Back 292

$2,500.00

Front 293

T or F: Jewelry and watches with a value of less than $150 are not subject to the standard $2,500 limit.

Back 293

FALSE. Jewelry and watches with a value of less than $100 are not subject to the standard $2,500 limit.

Front 294

Special Theft Limit for stamps; tickets, including lottery tickets held for sale; and letters of credit.

Back 294

$250.00

Front 295

Exclusions in Special Form that match Broad Form Conditions (6)

Back 295

* Windstorm or Hail
* Smoke, Vapor, or Gas
* Rain, Snow, Ice or Sleet
* Continuous Seepage or Leakage
* Leakage Resulting from Freezing
* Collapse

Front 296

Property Covered Only for Specified Causes of Loss – Special Form (3)

Back 296

* Animals
* Fragile Articles
* Contractors' Tools & Equipment

Front 297

Maintenance exclusion (Special Form)

Back 297

Eliminates coverage for loss or damage from these causes:
* Wear and tear
* Rust, corrosion, decay, deterioration, and hidn or latent defect
* Smog
* Settling, cracking, shrinking, or expansion
* Nesting or infestation, or discharge or release of waste products or secretions, by insects, birds, rodents, or other animals
* Mechanical breakdown
* Dampness or dryness of atmosphere, changes in or extremes of temperature, and marring or scratching (applicable to personal property only)

Front 298

Pollution exclusion (Special Form)

Back 298

Excludes coverage for loss resulting from “discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge...is itself caused by any of the 'specified causes of loss'.”

Front 299

T or F: The Special Form contains an additional concurrent causation exclusion not found in the Basic or Broad Form.

Back 299

TRUE. The Special Form DOES contain an additional concurrent causation exclusion not found in the Basic or Broad Form. It provides that the insurer will not pay for loss or damage cause by or resulting from weather conditions, acts or decisions, or other third-party negligence with respect to planning, maintenance, quality of construction materials.

Front 300

In its 2008 revision of commercial property forms, ISO added this to the Special Form

Back 300

A “Loss or Damage to Products” exclusion, which eliminates coverage for damage to merchandise, goods, or other products resulting form production errors, such as adding wrong ingredients or measuring ingredients incorrectly.

Front 301

Property in Transit extension (Special Form)

Back 301

Provides up to $5,000 of additional insurance for damage to the insured's personal property in or on a motor vehicle that is more than 100 feet from the described premises.

The extension applies only to “your personal property” that is in or on a motor vehicle that the named insured owns, leases, or operates, while between points in the coverage territory.

Front 302

Property in Transit (Special Form extension) is covered only against these named perils:

Back 302

* Fire, lightning, explosion, windstorm or hail, riot or civil commotion, and vandalism
* Theft, but only when an entire bale, case, or package is stolen from a securely locked body or compartment of the vehicle by a thief who leaves visible marks of the forced entry
* Collision and upset

Front 303

Water Damage, Other Liquids, Powder or Molten Material Damage (Special Form extension)

Back 303

Clarifies that the Special Form will pay the cost of tearing out and replacing any part of the building to repair damage ot a system or an appliance from which water or other liquid, powder, or molten material has escaped and caused damage.

Front 304

To determine whether one or more of the Basic, Broad, and Special causes of loss forms would cover a particular loss, insurance professionals need to do four things:

Back 304

* Understand the coverage provided under each insuring agreement
* Determine whether any exclusions apply that would preclude coverage
* Ascertain whether other policy provisions eliminate or limit the coverage provided
* Determine whether any optional coverages (endorsements) affect coverage

Front 305

Manufacturer's Selling Price (Finished “Stock” Only) endorsement

Back 305

A commercial property endorsement that values finished stock manufactured by the insured at selling price, less any discounts and expenses that the insured otherwise would have had.

Front 306

By endorsement, other valuation methods can be applied to property covered by the BPP or other commercial property coverage forms. These include (3):

Back 306

* Manufacturer's Selling Price
* Functional Building Valuation
* Functional Personal Property Valuation

Front 307

Functional Building Valuation endorsement

Back 307

A commercial property endorsement that provides modified replacement cost coverage on buildings; may be appropriate when insuring a building with a replacement cost far in excess of its market value.

For a total loss, the endorsement covers the cost to repair or replace the building with a less costly building that is functionally equivalent to the original one.

Front 308

If the insured fails to contract for repairs within 180 days after the loss occurs or otherwise choose not to make a claim based on the cost to repair or replace, the Functional Building Valuation endorsement sets the maximum that the insured can collect at the lowest of these amounts:

Back 308

* The limit of insurance shown in the endorsement
* The market value of the damaged building, exclusive of the land value, at the time of the loss
* The cost to repair or replace the building on the same site with less costly material in the same architectural style, less an allowance for physical deterioration and depreciation

Front 309

The Functional Building Valuation endorsement defines “market value” as:

Back 309

The price which the property might be expected to realize if offered for sale in a fair market.

Front 310

T or F: The Functional Building Valuation endorsement automatically includes ordinance or law coverage, subject to the regular limit of insurance on the building.

Back 310

TRUE. The Functional Building Valuation endorsement DOES automatically include ordinance or law coverage, subject to the regular limit of insurance on the building.

Front 311

Functional Personal Property Valuation (Other Than Stock) endorsement

Back 311

Provides functional valuation on personal property other than stock.

This endorsement might be useful when insuring older machinery or equipment that is no longer available, such as a machine that has been superseded by a newer, more efficient, less-expensive model.

Front 312

As long as the insured contracts for repair or replacement of covered property within 180 days of loss by a covered peril, the Functional Personal Property Valuation (Other Than Stock) endorsement will pay the smallest of these amounts:

Back 312

* The applicable limit of insurance
* The cost to replace, on the same site, the damaged item with the most closely equivalent property available
* The amount necessarily spent to repair or replace the property

Front 313

Specific insurance

Back 313

Insurance that covers each building for a specific limit of insurance and personal property at each building for a specific limit of insurance.

Contrasted to “blanket insurance”

Front 314

Blanket insurance

Back 314

Insurance that covers either of the following with one limit of insurance: (1) one type of property in one or more separately rated buildings or (2) two or more types of property in one or more separately rated buildings.

(Blanket rates are calculated as a weighted average using the rates and amounts of insurance at each location.)

Front 315

Coinsurance requirement for blanket insurance

Back 315

The insured with blanket insurance must insure to 90 percent of value to avoid a coinsurance penalty, but does not receive the 5 percent discount that applies to specific insurance with a 90 percent coinsurance requirement.

Thus, to meet coinsurance requirements, the insured with blanket insurance must buy more insurance than otherwise would be required.

Front 316

T or F: Most risk management professional recommend against combining the Agreed Value option with blanket insurance.

Back 316

FALSE. Most risk management professionals regard the combination of the Agreed Value option with blanket insurance as the preferred method to provide property insurance.

The agreed value option avoids any coinsurance penalty, and if separate locations are involved that are not subject to the same loss, the damage of underinsurance is greatly reduced.

Front 317

Margin clause (blanket insurance)

Back 317

A margin clause provides that the insured's recovery is limited, in any event, to not more than a specified percentage above the values filed with the insurer. The percentage is typically between 15 and 50 percent.

Thus, if the sum of the building and contents listed in the statement of values is $2 million and the policies specifies a margin of 20 percent, the most that the insured could collect for any one loss at that location is $2.4 million. Without a margin clause, an insured could theoretically collect the entire blanket limit for a los at one location.

Front 318

Peak Season Limit of Insurance endorsement

Back 318

Endorsement that covers the fluctuating values of business personal property by providing differing amounts of insurance for certain time periods during the policy period.

Front 319

Value Reporting Form

Back 319

A commercial property form that bases the insured's premium for business personal property on the values that the insured reports to the insurer periodically during the policy period.

Front 320

Major features of the Value Reporting Form (5):

Back 320

* Reporting requirement
* Limit of insurance
* Penalties
* Provisional premium
* Treatment of specific (nonreporting) insurance

Front 321

Reporting requirement options and code letters (for Value Reporting Form)

Back 321

DR = daily values reported monthly
WR = values as of the last day of the week reported monthly
MR = values as of the last day of the week reported monthly (most commonly used option)
QR = values as of the last day of the month reported quarterly
PR = values as of the last day of the month reported at the end of the policy year

Front 322

DR (Value Reporting Form)

Back 322

Code letters for “daily values reported monthly”

Front 323

WR (Value Reporting Form)

Back 323

Code letters for “values as of the last day of the week reported monthly”

Front 324

MR (Value Reporting Form)

Back 324

Code letters for “values as of the last day of the week reported monthly” – is the most commonly used of the reporting requirement options

Front 325

QR (Value Reporting Form)

Back 325

Code letters for “values as of the last day of the month reported quarterly”

Front 326

PR (Value Reporting Form)

Back 326

Code letters for “values as of the last day of the month reported at the end of the policy year”

Front 327

The insured using a Value Reporting Form must file the required report within how many days after the end of each reporting period?

Back 327

30 days

(However, for coverage that was not previously written with a reporting form by the insurer, the insured has 60 days from the end of the reporting period to file the first report on all except the quarterly report basis.)

Front 328

Report of Values form (Value Reporting Form)

Back 328

Used to report property values to the insurer.

The form notes that “The values you report do not change your limits of insurance. If values exceed or come close to your limits of insurance, contact your agent or broker. You may need additional insurance.”

Front 329

If at the time of loss the first required Report of Values is due, but has not been received, the insurer will pay no more than this amount:

Back 329

75% of the amount that would otherwise have been paid.

Front 330

If at the time a loss occurs the insured has failed to submit any required Report of Values (for an insured using Value Reporting) after the first required report has been made, the insurer will pay no more than this amount:

Back 330

the values last reported for the location at which the loss occurred.

Front 331

The Value Reporting Form replaces the Coinsurance condition of the BPP with a Full Reporting provision, which stipulates that if the last report showed less than the full value of covered property at the affected location on the report date, then the insurer would pay claims according to this formula:

Back 331

Insurer's payment (not to exceed limit) = ((Value reported / actual value) x Loss) – Deductible

Front 332

Provisional premium

Back 332

The initial premium in a Value Reporting program. It is not based on the full limit of insurance, but instead is typically 75 percent of the annual premium that would be required to purchase nonreporting coverage with the same limit. Ordinarily, the provisional premium must be paid at the beginning of the policy period.

Front 333

Specific Insurance (in this context, separate of the opposite of blanket insurance)

Back 333

The Value Reporting Form defines specific insurance as “other insurance that covers the same Covered Property to which the Value Reporting Form endorsement applies, and is not subject to the same plan, terms, conditions and provisions as this insurance.”

Coverage on property subject to the Value Reporting Form is excess over the total of (1) the amount due from specific insurance plus (2) the amount of any deductible applying to the specific insurance.

If the specific insurance is written with no coinsurance, the specific coverage pays the loss up to its policy limit, and the reporting insurance pays the balance, less any applicable deductible.

Front 334

Business Personal Property – Limited International Coverage endorsement

Back 334

Provides a partial solution to the problem that, once an insured's property is outside the coverage territory, the commercial property policy will not cover it.

This endorsement extends the insured's business personal property coverage to include certain property in, or en route to or from, a foreign coverage territory. The endorsement schedule provides a blank space to list a specific foreign territory or a box to select all foreign territories.

Front 335

For coverage under the BPP – Limited International Coverage endorsement to apply, the property must meet these three criteria:

Back 335

* Temporarily in the foreign coverage territory specified in the schedule
* Used in the insured's business in the foreign coverage territory
* Located at a business location the insured owns, operates, or leases; or in the care, custody, or control of the insured or its authorized representatives

The endorsement excludes property exported to or held for sale in the foreign coverage territory.

Front 336

Property in Process of Manufacture by Others – Limited International Coverage endorsement

Back 336

Extends the insured's business personal property coverage to include raw materials and in-process goods while being manufactured in a foreign coverage territory at a location not owned, operated, or leased to the insured.

Coverage continues while those goods are temporarily stored awaiting transport at any location in the foreign coverage territory other than a location owned, operated, or leased by the insured.

Front 337

Foreign Master Policy

Back 337

A type of policy issued in the U.S., that provides nonadmitted property coverage for the insured's foreign exposures. It can be written on an excess basis (“difference in limits”) over the limits of any foreign-issued local policies. It can also be written covering exposures not written in the foreign-issued local policies (“difference in conditions”)

Front 338

Additional Covered Property endorsement

Back 338

Provides a blank space for inserting the additional property to be covered.

Examples of types of property that can be covered under this endorsement include the cost of excavation, grading, backfilling or filling; foundations of buildings; underground pipes, flues, and drains; bridges; fences; roadawys; animals; vehicles or self-propelled machines

Front 339

Manufacturers' Consequential Loss Assumption endorsement

Back 339

If a front, or any other part of an unassembled garment, is destroyed or damaged, the remaining parts will have little more than scrap value unless the missing part can be replaced. This endorsement provides coverage for this type of situation.

Front 340

Brands and Labels endorsement

Back 340

To help protect the reputation of the insured's goods when the insurer takes any part of the property as salvage, the Brands and Labels endorsement permits the insured to take these actions:

* Stamp “salvage” on the merchandise or its containers, if the stamp will not physically damage the merchandise; or
* Remove the brands or labels, if doing so will not physically damage the merchandise. The insured must relabel the merchandise or its containers to comply with the law.

This endorsement also states that the insurer will cover, within the limit of insurance, the costs incurred by the insured in taking the measures just described.

Front 341

Increased Cost of Loss and Related Expenses for Green Upgrades endorsement

Back 341

Allows the insured to replace damaged property with more environmentally friendly materials following a covered loss.

There are 3 coverages available under this endorsement:
1) Provides an additional limit of insurance to cover the increased cost of replacing damaged property with more environmentally sound materials or methods
2) Provides an additional amount for expenses related to green updates
3) (If Business Income or Extra Expense is included) Extends the period of restoration by up to thirty days for any increased construction time due to the use of green upgrades

Front 342

Endorsements available for covering losses that would otherwise be excluded under the commercial property causes of loss forms:

Back 342

* Ordinance or Law Coverage
* Utility Services – Direct Damage
* Spoilage Coverage
* Radioactive Contamination

Front 343

Ordinance or Law Coverage endorsement

Back 343

Endorsement that covers three types of losses resulting from the enforcement of building ordinances or laws: (1) the value of the undamaged portion of a building that must be demolished, (2) the cost to demolish the building's undamaged portion and remove its debris, and (3) the increased cost to rebuild the property

Front 344

Utility Services – Direct Damage endorsement

Back 344

A commercial property endorsement that covers damage to covered property caused by the interruption of utility services (water, communications, or power) to the insured premises

Front 345

Spoilage Coverage endorsement

Back 345

Endorsement that covers damage to perishable stock due to power outages; on-premises breakdown; or contamination of the insured's refrigerating, cooling, or humidity control equipment

Front 346

Radioactive Contamination endorsement

Back 346

A commercial property endorsement for organizations that have a radioactive contamination exposure on their premises, othe rthan a nuclear reactor or fuel for a nuclear reactor; covers physical loss to covered property caused by sudden and accidental radioactive contamination.

Front 347

Condominium

Back 347

A real estate development consisting of a group of units, in which the air space within the boundaries of each unit is owned by the unit owner, and all remaining real and personal property is owned jointly by all the unit owners.

Front 348

Condominium unit

Back 348

The portion of a condominium owned solely by a unit owner.

Front 349

Condominium association

Back 349

An entity composed of the unit owners in a condominium to manage the condominium and to own the common elements

Front 350

Common elements

Back 350

Areas of a condominium that are jointly owned by all unit owners, including the land on which the buildings are located.

Front 351

Condominium association agreement

Back 351

A document that describes what each condominium unit owner has purchased and clarifies the rights and responsibilities of the unit owners and the association.

The agreement describes the land, the building, and the common elements and identifies each individual unit. It establishes a method of collecting and paying for such common expenses as maintenance, upkeep of common areas, and insurance.

Front 352

T or F: Under condominium statutes or agreements, the condominium association is usually obligated to maintain insurance for the unit owners' benefit.

Back 352

TRUE. Under condominium statutes or agreements, the condominium association IS usually obligated to maintain insurance for the unit owners' benefit.

Unit owners are also permitted to purchase insurance at their own expense for their own benefit. Such insurance is usually excess over the association's insurance.

Front 353

Bare-walls concept

Back 353

A concept of condominium ownership in which the association has no ownership interest within the bare walls of each unit.

Front 354

Single-entity concept (original specifications coverage)

Back 354

A concept of condominium ownership in which the association is considered to be the owner of all property contained in the unit as sold to the original purchaser or replacements of such property if the replacements are of like kind and quality.

Front 355

Three general approaches appearing in condominium statutes and agreements are these:

Back 355

* The bare-walls concept
* The single-entity concept
* The all-in concept

Front 356

All-in concept (additional installations coverage)

Back 356

A concept of condominium ownership that is similar to the single-entity concept except that the all-in concept includes improvements made by the unit owner, not just the original installations or replacements of like kind and quality.

Front 357

T or F: A commonly ideal condominium arrangement is for the association to agree with insurer on the extent of coverage provided under the association's policy and to communicate that information to the unit owners so that they can tailor their insurance accordingly.

Back 357

TRUE. That is a recommended arrangement.

Front 358

Cooperative corporation

Back 358

A form of real property ownership in which the real property is owned by a corporation whose shareholders are the tenants of the property.

Front 359

Comparison of Condominiums, Cooperatives, and Planned Unit Developments: Own an identifiable portion of the property?

Back 359

Condominium Unit Owners: YES
Cooperative Shareholders: NO
Planned Unit Development Homeowners: YES

Front 360

Comparison of Condominiums, Cooperatives, and Planned Unit Developments: Own common elements jointly with others?

Back 360

Condominium Unit Owners: YES
Cooperative Shareholders: NO*
Planned Unit Development Homeowners: YES

*Because shareholders in a co-op do not directly own corporate property.

Front 361

Comparison of Condominiums, Cooperatives, and Planned Unit Developments: Own stock in the corporation that owns the property?

Back 361

Condominium Unit Owners: NO
Cooperative Shareholders: YES
Planned Unit Development Homeowners: NO

Front 362

Comparison of Condominiums, Cooperatives, and Planned Unit Developments: Have “fee simple” title to their unit?

Back 362

Condominium Unit Owners: NO
Cooperative Shareholders: NO
Planned Unit Development Homeowners: YES

Front 363

Comparison of Condominiums, Cooperatives, and Planned Unit Developments: Insurance requirements are usually spelled out in the governing agreements or bylaws?

Back 363

Condominium Unit Owners: YES
Cooperative Shareholders: YES
Planned Unit Development Homeowners: YES

Front 364

T or F: Shareholders in a co-op do not directly own corporate property.

Back 364

TRUE. Shareholders in a co-op do not directly own corporate property.

Front 365

Planned unit development (homeowners association)

Back 365

A.k.a., a homeowner's association

A real estate development in which each occupant has exclusive ownership of its own unit and the land that the structure occupies and a homeowners' association composed of all the unit owners jointly owns the surrounding land and structures.

No standard insurance requirements exist for PUDs. In some cases, each unit owner is required to insure his or her own unit, and the association is responsible only for the insurance on the commonly owned property. In other cases, the homeowner's association has the duty to insure all real property, whether owned by the association or by an individual unit owner. As with condominiums and cooperatives, only examination of the pertinent documents can indicate how the insurance should be arranged.

Front 366

T or F: The insurance needs of a condominium association are opposite of those of the building insurance needs of a building owner/landlord.

Back 366

FALSE. The insurance needs of a condominium association are similar to the building insurance needs of a building owner/landlord. Similarly, the needs of a condominium unit owner are similar to the personal property insurance needs of a tenant.

Front 367

Condominium Association Coverage Form

Back 367

Designed to insure the building and business personal property loss exposures of condominium associations.

Like the BPP, the Condominium Association Coverage Form can cover property in 3 categories:
* Building
* Your Business Personal Property
* Personal Property of Others

Each category is covered only if a limit of insurance for that category is shown in the declarations.

Front 368

Difference in building coverage between the Condominium Association Coverage Form and the building coverage of the BPP

Back 368

Treatment of fixtures, improvements and alterations, and of appliances including (but not limited to) those used for refrigerating, ventilating, cooking, dishwashing, laundering, and housekeeping contained within the individual units.

In the CACF, building coverage applies to these items only if the condominium association agreement requires the association to insure them. Otherwise, such property items are not included in the association's building coverage.

Front 369

The Condominium Association Form clarifies the distinction between personal property insured by the association and that insured by individual unit owners:

Back 369

* The CACF covers business personal property that is owned by the association or that is indivisibly owned by all unit owners.
* The CACF does NOT cover business personal property that is individually owned by a unit owner.

Front 370

T or F: If 80 percent or higher coinsurance is in effect for the Condominium Association Coverage Form, the form automatically includes a coverage extension for property of others.

Back 370

TRUE. The coverage extension covers property of others up to $2,500 at each described location. If this extension is not adequate, the insured can buy an additional amount of insurance under the Personal Property of Others coverage agreement.

Front 371

Loss Payment condition – how it differs for the Condominium Association Coverage Form

Back 371

If the association has designated an insurance trustee, the insurer may pay covered claims to the designated insurance trustee. (The condo's board of trustees generally serves in this capacity.)

Front 372

Unit-Owner's Insurance condition – how it differs for the Condominium Association Coverage Form

Back 372

If a unit owner has coverage applying to the same property covered by the association's policy, the association's policy is primary.

Front 373

Waiver of Rights of Recover condition – how it differs for the Condominium Association Coverage Form

Back 373

In the Waiver of Rights of Recovery condition, the insurer agrees not to subrogate against any unit owner.

Front 374

Condominium Commercial Unit-Owners Coverage Form

Back 374

Designed for insuring business personal property and building improvements and betterments of unit owners in commercial condominiums.

A condominium unit owner generally has no need for full building insurance in its own name, so the form includes coverage only for Your Business Personal Property and Personal Property of Others

Front 375

Condominium Additional Provisions Endorsement – four parts

Back 375

* Act or Omission
* Expanded Waiver of Right of Recovery
* Notice of Cancellation or Nonrenewal
* Additional Protection for Mortgageholders

Front 376

Condominium Additional Provisions Endorsement – Act or Omission

Back 376

States that no act or omission by any unit owner will void the policy or bar recovery unless the unit owner acts on behalf of the association

Front 377

Condominium Additional Provisions Endorsement – Expanded Waiver of Right of Recovery

Back 377

States that rights of recovery are waived, beyond the condition in the coverage form, to include members of unit owners' households and members of the board of directors when acting within the scope of their duties.

Front 378

Condominium Additional Provisions Endorsement – Notice of Cancellation or Nonrenewal

Back 378

States that the insurer will provide at least 30 days' written notice to the first named insured of policy cancellation or nonrenewal

Front 379

Condominium Additional Provisions Endorsement – Additional Protection for Mortgageholders

Back 379

States that the insurer will give 30 days' advance notice of cancellation or nonrenewal to each of the mortgageholders. If the condominium is terminated, the insurer will pay covered loss to buildings or structures to each mortgageholder shown in the declarations in their order of precedence.

Front 380

T or F: Fixtures, improvements, alterations, and appliances (such as those used for refrigerating, cooking, and so on) are covered by the unit owner's policy even if the condo association agreement requires the association to insure such property.

Back 380

FALSE. Fixtures, improvements, alterations, and appliances (such as those used for refrigerating, cooking, and so on) are NOT covered by the unit owner's policy if the condo association agreement requires the association to insure such property.

If the agreement requires the association to insure such property but the association fails to do so, the unit owner's form still does not apply.

Front 381

T or F: The BPP includes improvements and alterations only to the extent of a tenant's use interest in them.

Back 381

TRUE. By contrast, the Condominium Commercial Unit-Owner's Coverage Form includes fixtures, improvements, and alterations that are part of the building and owned by the unit owner.

Front 382

Optional Loss Assessment Coverage (available by endorsement to the Condominium Commercial Unit-Owner's Coverage Form)

Back 382

The insurer agrees to pay the unit owner's share of any assessment charged to all unit owners by the condominium association when the assessment is made as a result of direct physical loss or damage caused by an insured peril to property in which each unit owner has an undivided interest.

If the assessment is a result of a deductible in the insurance purchased by the condominium association, the insurer's payment is limited to $1,000.

Front 383

Optional Miscellaneous Real Property Coverage (available by endorsement to the Condominium Commercial Unit-Owner's Coverage Form)

Back 383

Extends the form to include condominium property not included under Your Business Personal Property under either of these situations:

* The condominium property pertains to the named insured's condominium unit only
* The named insured has a duty to insure the condominium property according to the condominium association agreement.

Front 384

T or F: If the condo association has other insurance covering the same property, the unit owner's insurance is excess coverage.

Back 384

T RUE. If the condo association has other insurance covering the same property, the unit owner's insurance IS excess coverage.

Front 385

Builders Risk Coverage Form

Back 385

A form that covers buildings in the course of construction, including additions or alterations to existing buildings.

The Builders Risk Coverage Form may be used to insure any building in the course of construction, including buildings such as farm buildings and dwellings that will not be eligible for coverage under the BPP when construction is completed.

May be used to insure the interests of several parties, including the building owner, contractor, or the owner and the contractor jointly.

Front 386

T or F: The Builders Risk Coverage Form may also be used for insuring additions or alterations to existing buildings.

Back 386

TRUE. The Builders Risk Coverage Form MAY also be used for insuring additions or alterations to existing buildings. The Builders Risk Renovations endorsement excludes the value of the existing property, covering only the renovations under construction.

Front 387

Covered Property under the Builders Risk Coverage Form

Back 387

Building or structure being built, building materials, and supplies intended to become a permanent part of the building, and temporary structures such as scaffolding and forms.

In contrast to the BPP, there is coverage for underground pipes, flues, and drains if they are intended to be part of the described building or structure.

Coverage also applies to personal property (for example, uninstalled windows, doors, sinks, and furnaces) if they are intended to be permanently located in or on the building or structure described in the declarations or within 100 feet of its premises.

Front 388

When the Causes of Loss – Special Form is attached to the Builders Risk Coverage Form, what additional coverage results?

Back 388

The insured receives $5,000 coverage for property in transit on the insured's own vehicles. (This is otherwise excluded)

Front 389

Excluded types of property under the Builders Risk Coverage Form (4)

Back 389

* Land or water
* Lawns, trees, shrubs, or plants
* Antennas
* Signs not attached to the building

Front 390

Builders Risk Coverage Form contains these four of the six BPP additional coverages

Back 390

* Debris removal
* Preservation of property
* Fire department service charges
* Pollutant cleanup and removal

Front 391

Two coverage extensions for Builders Risk Coverage Form:

Back 391

* Building Materials and Supplies of Others
* Sod, Trees, Shrubs, and Plants

Front 392

Building Materials and Supplies of Others coverage extension (Builders Risk Coverage Form)

Back 392

Provides up to $5,000 to cover building materials and supplies owned by others, such as building materials brought by a subcontractor onto the work site.

The insured may be required to insure materials and supplies owned by others. When the value of such property exceeds the limit of the extension, a higher limit can be specified in the declarations if the insured is required to provide coverage.

Front 393

Sod, Trees, Shrubs, and Plants coverage extension (Builders Risk Coverage Form)

Back 393

Covers landscaping outside of buildings on the described premises. This extension, similar to the coverage extension of the BPP, is offered for only five causes of loss (fire, lightning, aircraft, riot/civil, and explosion). Coverage is limited to $1,000 in any one loss and to $250 for any one tree, shrub, or plant.

Front 394

T or F: Collapse of a building insured under the Builders Risk Coverage Form can only be covered by endorsement.

Back 394

TRUE. Collapse of a building insured under the Builders Risk Coverage Form can only be covered by adding the Builders Risk – Collapse During Construction endorsement. (True even of Special Form.)

Front 395

T or F: Even when it includes the Special Form, the Builders Risk Coverage Form does not cover theft of uninstalled building materials.

Back 395

TRUE. Even when it includes the Special Form, the Builders Risk Coverage Form does not cover theft of uninstalled building materials.

Front 396

Completed Value Approach

Back 396

The Builders Risk Coverage Form is designed to be issued, at policy inception, for an amount of insurance equal to the building's full completed value. This method of providing builders risk coverage is referred to as the completed value approach.

Front 397

T or F: The inception date of a builders risk policy is required to be no later than the date construction starts above the level of the lowest basement floor, or, if there is no basement, the date construction starts.

Back 397

TRUE. The inception date of a builders risk policy is required to be no later than the date construction starts above the level of the lowest basement floor, or, if there is no basement, the date construction starts. This rule helps the insurer earn an adequate premium for the risk assumed. In the absence of this rule, insureds who are willing to retain the risk themselves for the first few weeks or months of a building project (when covered property's value is low) could select a later inception date to reduce the earned policy's premium. To earn an adequate premium, the insurer must earn premium over the project's duration.

Front 398

T or F: Although completed value builders risk policies are issued for a minimum term of one year, the insured receives a half refund of the unearned premium if the project is completed in less than a year.

Back 398

FALSE. Although completed value builders risk policies are issued for a minimum term of one year, the insured receives a FULL refund of the unearned premium if the project is completed in less than a year.

Front 399

Need for Adequate Insurance conditon (Builders Risk Coverage Form)

Back 399

Is, in effect, a 100 percent coinsurance clause in which the amount of insurance that should be carried is based ont eh value of the building on the date it will be completed. The formula is:

Amount payable = ((Limit of insurance / Completed value) x Loss) – Deductible

Front 400

Builders Risk Coverage Form valuation

Back 400

Contains a standard valuation condition that provides coverage on the basis of actual cash value.

Because the actual cash value and the replacement cost of a building under construction are typically the same, the Builders Risk Coverage Form does not contain optional replacement cost coverage provisions.

Front 401

Builders Risk Reporting Form

Back 401

Another method, less commonly used, is to write builders' risk coverage on a value reporting basis. By adding the Builders Risk Reporting Form endorsement, the Builders Risk Coverage Form can be changed to a value reporting basis.

Front 402

T or F: Builders Risk coverage ceases 30 days after an insured building is occupied, in whole or in part, or is put to its intended use.

Back 402

FALSE. Builders Risk coverage ceases 60 days after an insured building is occupied, in whole or in part, or is put to its intended use.

Even if the building is not occupied or put to use – for example, if the building remains vacant whle the owner tries to sell it – coverage ceases 90 days after the construction is completed.

Coverage ceases immediately when any of these events occur:
* The named insured's interest in the property ceases
* The property is accepted by the purchaser
* The named insured abandons the project with no intention to complete it
The policy expires or is canceled

Front 403

Alternatives to the Builders Risk Coverage Form (4):

Back 403

* The BPP
* Inland marine builders risk policies
* Highly protected risk (HPR) policies
* Owner Controlled Insurance Program (OCIP)

Front 404

Standard Property Policy (SPP)

Back 404

A commercial property policy form for covering buildings and business personal property on restricted items.

The SPP is designed for insuring “distressed risks,” properties with unfavorable attributes that have made them unacceptable in the standard insurance market. Thus, the SPP could be used by FAIR plans.

The SPP is a self-contained monoline policy containing all necessary policy provisions in a single document. Only a completed dec page is needed to complete the contract. As a result, the SPP cannot be part of a package policy. Any additional coverages, such as general liability coverage, must be obtained separately.

Front 405

For smaller renovation or addition projects, which Builders Risk alternative is often the most effective?

Back 405

The BPP. It provides coverage for additions or renovations to an insured building, provided no other insurance is in effect. The amount of insurance must be increased to reflect the added value. The limit can be increased at the start of the project based on estimated completed value or periodically as work progresses.

A coverage extension provides up to $250,000 (can be increased by endorsement) for new buildings under construction at the described premises for up to 30 days after the start of construction.

Front 406

Inland marine builders risk policy – characteristics

Back 406

(Alternative to Builders Risk coverage form)

* Rating is more flexible than commercial property forms
* Forms can be tailored to create specialized contracts for large or complex projects
* Usually provide coverage for flood, earthquake, transit, and theft for property not attached to the building

Front 407

HPR policies - characteristics

Back 407

Highly protected risk policies (an alternative to the Builders Risk coverage form)

* May include automatic coverage for new construction during the policy period with no limit other than policy expiration and no required premium adjustment (values adjusted at renewal)

* Typically written for blanket limits of insurance with no coinsurance. If coverage is on a blanket basis and if the total values exposed to any one loss do not exceed the limit of insurance, no increase in limit and no additional premium are required.

Front 408

Owner Controlled Insurance Program (OCIP)

Back 408

(alternative to Builders Risk)

Also referred to as “wrap-ups,” they provide coverage for contractors and subcontractors in addition to the owner (contractors usually reduce their prices in exchange for the insurance coverage).

These programs usually include general liability workers compensation, and other coverages, such as umbrella, in addition to property coverage. They are used on large construction projects.

Front 409

T or F: SPP coverage extensions apply only to property located in the same state at the described premises.

Back 409

TRUE. SPP coverage extensions DO apply only to property located in the same state at the described premises.

Front 410

SPP Covered perils

Back 410

All the perils covered by the Basic Form are available in the SPP, but the insurer can restrict the covered perils to these combinations:

* Fire, lightning, and explosion (all are mandatory)
* Windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, sinkhole collapse, and volcanic action can be added by making an appropriate entry in the declarations (and windstorm and hail can be omitted from this combination)
* Vandalism and sprinkler leakage can also be triggered by marking the declarations page accordingly

Front 411

SPP contains 3 conditions that result in more restrictive coverage than under the BPP:

Back 411

- Vacancy and occupancy (the insurer will not pay for loss or damage by an peril if the building has been vacant or unoccupied for more than 60 days; coverage for vandalism ceases after 30 days)
- Increase in hazard (coverage is suspended during any period in which the hazard has been increased by means within the named insured's knowledge and control)
- Cancellation (the insurer may cancel the policy by providing only 5 days' advance notice)

Front 412

Legal Liability Coverage Form

Back 412

A commercial property coverage form that provides legal liability coverage on buildings or personal property of others in the insured's care, custody, or control.

The reason a liability form is included in the commercial property division is that fire is the major cause of property loss for which the insured could be held liable.

Because the Legal Liability Coverage Form covers losses only if the insured is legally liable, the rate charged for that form is lower than the usual commercial property contents or building rate.

Front 413

T or F: The Legal Liability Coverage Form will pay for time element losses that the owner of the property incurs as a result of the physical damage.

Back 413

TRUE. The Legal Liability Coverage Form WILL pay for time element losses that the owner of the property incurs as a result of the physical damage.

Such time element losses include loss of income or extra expenses incurred for rental of replacement property. Coverage for loss of use is an important advantage of the Legal Liability Coverage Form. The BPP does not cover this.

Front 414

Legal Liability Coverage Form – Exclusions

Back 414

Eliminates coverage for damages that the insured is legally liable to pay solely by reason of the insured's assumption of liability in a contract or agreement.

All of the other exclusions of the causes of loss forms apply to the Legal Liability Coverage Form except:

* Ordinance or law
* Governmental action
* Nuclear hazard
* Utility services
* War and military action

Front 415

A major advantage of the Legal Liability Coverage Form (as compared with the Commercial General Liability (CGL) Coverage Form)

Back 415

The broader range of perils that can be insured when the property is rented for longer than seven consecutive days.

Also, fire legal liability coverage (the CGL's version) applies only to real property, whereas the Legal Liability Coverage Form can apply to both real and personal property.

Front 416

T or F: The rate for the Legal Liability Coverage Form is lower than the rate for direct property insurance.

Back 416

TRUE. The rate for the Legal Liability Coverage Form IS lower than the rate for direct property insurance, because the insurer is obligated to pay only when the insured is liable for the damage.

The legal liability rate that an insurer charges for real property is generally 25 percent of the 8 percent coinsurance building rate that would otherwise apply, and the legal liability rate for personal property is generally 50 percent of the 80 percent coinsurance contents rate.

Front 417

T or F: A tenant, lessee, concessionaire, exhibitor, contractor, or subcontractor can be added as an additional insured to the Legal Liability Coverage Form

Back 417

FALSE. A tenant, lessee, concessionaire, exhibitor, contractor, or subcontractor CANNOT be added as an additional insured to the Legal Liability Coverage Form

However, all other additional insureds may be added without charge, except for general lessees, managers, or operators of the premises, and employees other than executive officers and partners. An additional premium charge of 25 percent applies when anyone in those classifications is named as an additional insured.

Front 418

Leasehold Interest Coverage Form

Back 418

A commercial property coverage form for insuring a tenant's financial losses resulting from the cancellation of the tenant's lease because of damage to the premises by a covered cause of loss.

The amount of insurance is automatically reduced each month during the life of the lease.

Many leases of premises allow the lessor (landlord) to terminate the lease if (1) the building or premises are damaged by fire or other perils to a stipulated percentage of the value of the building or premises (for example, 25 percent) or (2) the amount of time required to repair or replace the damaged property exceeds a stipulated period.

Front 419

T or F: Leasehold Interest Coverage Form coverage is provided even if the lease is canceled because a local ordinance prevents the owner from rebuilding.

Back 419

TRUE. Leasehold Interest Coverage Form coverage is provided even if the lease is canceled because a local ordinance prevents the owner from rebuilding.

Front 420

T or F: Leasehold Interest insurance is commonly purchased.

Back 420

FALSE. Such insurance is seldom bought, perhaps because many risk managers and producers are unaware it exists. For some organizations, it fills a valuable need. However, lesees find it difficult to conceptualize the exposure even when it is brought to their attention.

Front 421

Write Your Own (WYO)

Back 421

A program allowing private insurers to write flood insurance under the National Flood Insurance Program (NFIP)

Front 422

NFIP eligibility

Back 422

To participate, communities are required to regulate new construction and substantial alterations and improvements of existing structures by adopting and enforcing community floodplain management ordinances.

Front 423

SFHA

Back 423

Special flood hazard area

Front 424

FIRM

Back 424

Flood Insurance Rate Maps (FIRMs) show boundaries of special flood hazard areas (SFHA), the various flood zones, and base flood elevations (BFEs)

Front 425

BFE

Back 425

Base flood elevation; the BFE is the regulatory requirement for the elevation or floodproofing of structures, and the relationship between the BFE and a structure's elevation determines the flood insurance premium. The zone in which a property is located flood insurance rates.

Front 426

NFIP Regular Program

Back 426

Second phase of the National Flood Insurance Program in which the community agrees to adopt flood-control and land-use restrictions and in which property owners purchase higher amounts of flood insurance than under the emergency program

Front 427

NFIP Emergency Program

Back 427

Initial phase of a community's participation in the National Flood Insurance Program in which property owners in flood areas can purchase limited amounts of insurance at subsidized rates.

Front 428

Maximum amount of insurance available for nonresidential properties in the NFIP Regular Program

Back 428

$500,000 for building coverage and $500,000 for personal property

Front 429

Maximum amount of insurance available for nonresidential properties in the NFIP Emergency Program

Back 429

$100,000 on buildings and $100,000 on contents.

$150,00 is available for buildings in Alaska, Hawaii, Guam and the U.S. Virgin Islands. Maximum limits apply per building.

Front 430

T or F: At the time of a flood loss, any unused coverage from one insured building can be used to increase limits available to another building.

Back 430

FALSE. Not blanket coverage. At the time of a flood loss, any unused coverage from one insured building CANNOT be used to increase limits available to another building.

Front 431

With the NFIP, residential condominium associations can purchase building coverage up to how much?

Back 431

$250,000.00

Front 432

General Property Form

Back 432

The version of the NFIP Standard Flood Insurance Policy that is used for insuring commercial buildings and contents.

Covers direct physical loss caused by flood at the described premises.

Front 433

Residential Condominium Building Association Policy (RCBAP)

Back 433

A version of the National Flood Insurance Program Standard Insurance Policy that is used for insuring residential condominium buildings, as well as contents that are owned either by the unit owners in common or by the condominium association solely.

Front 434

Coinsurance

Back 434

An insurance-to-value provision in many property insurance policies providing that if the property is underinsured, the amount that an insurer will pay for a covered loss is reduced.

Front 435

Flood

Back 435

A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which your property), from overflow of inland or tidal waters or unusual and rapid accumulation or runoff of surface waters from any source.

Front 436

T or F: The NFIP General Property Form covers building and contents on an ACV basis with no option for Replacement Cost.

Back 436

TRUE. The NFIP General Property Form covers building and contents on an ACV basis with no option for Replacement Cost.

Front 437

T or F: The NFIP General Property Form includes a coinsurance provision.

Back 437

FALSE. The NFIP General Property Form does NOT include a coinsurance provision

Front 438

T or F: The NFIP General Property Form excludes loss of use and loss of income.

Back 438

TRUE. The NFIP General Property Form excludes loss of use and loss of income.

Front 439

4 coverages for the NFIP General Property Form

Back 439

A: Building Property
B: Personal Property
C: Other Coverages
D: Increased Cost of Compliance

Front 440

T or F: NFIP definition of a covered building says it must include two or more outside rigid walls and a secured roof

Back 440

TRUE. NFIP definition of a covered building says it must include two or more outside rigid walls and a secured roof

Front 441

Increase Cost of Compliance (ICC)

Back 441

National Flood Insurance coverage that pays for compliance costs related to floodplain management for qualifying structures.

Front 442

NFIP General Property Form - Coverage B – Personal Property

Back 442

Covers either household personal property or other than household personal property, but not both.

“Household personal property” = “property usual to a living quarters”
“Other than household personal property” = furniture, fixtures, machinery, equipment, stock, other owned personal property used in the insured's business

Front 443

NFIP General Property Form – Coverage A – Building

Back 443

Covers the described building; additions and extensions; listed fixtures, machinery, and equipment; materials and supplies to be used for construction at the described location; and a building under construction

Front 444

NFIP General Property Form – Coverage C – Other Coverages

Back 444

* Debris removal
* Loss avoidance measures (pays for measures to protect property from imminent flood damage up to $1,000)
* Pollution damage (up to $1,000)

Front 445

T or F: The NFIP General Property Form offers coverage for property owned by others.

Back 445

FALSE. There is no coverage in this policy for property owned by others.

Front 446

NFIP General Property Form – Coverage D – Increased Cost of Compliance

Back 446

Pays up to $30,000 for activities necessary to comply with state or local floodplain management laws or ordinances that meet NFIP minimum standards. Such activities might include elevation, floodproofing, relocation, or demolition.

Front 447

Repetitive Loss Structure

Back 447

A building that meets specific damage that lowers its market value; is the only type of building for which Coverage D – Increased Cost of Compliance coverage is available under the NFIP General Property Form

Front 448

Residential Building (as defined for the purposes of the RCBAP)

Back 448

Has at least 75 percent of its floor area occupied for residential purposes. Non-residential condominiums can be insured under the General Property Form (as opposed to the RCBAP)

Front 449

T or F: RCBAP is commonly referred to as REBAP

Back 449

True dat.

Front 450

3 differences b/w RCBAP and the General Property Form:

Back 450

- A higher limit of insurance may be purchased.
- The NFIP offers replacement cost coverage on building property insured under a RCBAP (REBAP)
- The REBAP includes an 80 percent coinsurance requirement on building property coverage.

Front 451

ISO Flood Coverage Endorsement

Back 451

Part of the commercial property policy to which it is attached. It differs from NFIP coverage in 3 ways:

* Can provide coverage for a greater variety of property
* Can be attached to a commercial property coverage part providing the full range of commercial property coverages
* Can be written subject to the replacement cost or functional valuation options available under commercial property forms

Front 452

T or F: The ISO Flood Coverage Endorsement, when attached, is often subject to a separate limit of insurance that may be substantially lower than the regular policy limit(s).

Back 452

TRUE. The ISO Flood Coverage Endorsement, when attached, is often subject to a separate limit of insurance that may be substantially lower than the regular policy limit(s).

Front 453

Aggregate flood limit

Back 453

The most the insurer will pay for all floods within a 12-month period starting with the beginning of the policy's present annual period.

Front 454

Ensuing loss – ISO Flood Coverage Endorsement

Back 454

The endorsement states that, in the event of an ensuing covered loss, the most that the insurer will pay is the limit applicable to fire.

Front 455

Other Insurance – ISO Flood Coverage Endorsement

Back 455

States the insurer will pay that proportion of the loss that the insurer's limit bears to the total limits of all applicable flood insurance. Also states that the endorsement's coverage is excess over the maximum limit that could have been insured under an NFIP policy.

Front 456

Exclusions and exceptions to common exclusions – ISO Flood Coverage Endorsement

Back 456

* Covers tsunami loss
* Does not cover damage to property in the open unless specified in the decs
* Does not cover flood damage unless the flood begins more than 72 hours after the inception of the endorsement
* Does not cover loss caused by sewer backup or overflow unless it meets the flood damage requirement above
* Covers foundations below the lowest basement floor
* Covers underground pipes, flues, and drains

Front 457

T or F: The flood endorsement does not cover all of the causes of loss excluded by the Water exclusion found in the commercial property causes of loss forms.

Back 457

TRUE. The flood endorsement does not cover all of the causes of loss excluded by the Water exclusion found in the commercial property causes of loss forms. The Water exclusion is often referred to as a flood exclusion, but it excludes more than flood, surface water, and mudslide.

Front 458

ISO Flood Coverage Endorsement – Debris Removal

Back 458

The flood endorsement covers the insured's expense to remove debris of covered property and other debris resulting from a flood.

The coverage extends to the cost of removing debris from the premises (including both the building and the grounds), not just from covered property as is the case with NFIP policies

However, the cost of removing deposits of earth or mud from the grounds is not covered. By implication, the cost of removing mud from within the building is covered.

Front 459

ISO Flood Coverage Endorsement – Newly Acquired or Constructed Property

Back 459

Limits the coverage extension in two respects:
* It does not apply to any building or structure that is not fully enclosed by walls or roof
* The limit is changed to 10 percent of the total of all limits of insurance for flood coverage provided by the endorsement, but this additional coverage does not increase the total limit for flood insurance.

Front 460

Two ISO endorsements available for addition earthquake and volcanic eruption as covered perils under a commercial property coverage part:

Back 460

* CP 10 40, Earthquake and Volcanic Eruption Endorsement
* CP 10 45, Earthquake and Volcanic Eruption Endorsement (Sub-Limit Form)

Front 461

T or F: All earthquake shocks or volcanic eruptions occurring within a 168-hour (7-day) period are considered a single earthquake or volcanic eruption.

Back 461

TRUE. All earthquake shocks or volcanic eruptions occurring within a 168-hour (7-day) period are considered a single earthquake or volcanic eruption.

Front 462

Difference between CP 10 40 and CP 10 45 (the two earthquake / volcanic eruption endorsements)

Back 462

CP 10 45, by contrast to CP 10 40, is not subject to coinsurance and thus permits earthquake and volcanic eruption coverage to be written subject to a sublimit that is lower than the policy limit that applies to other covered perils.

Front 463

T or F: Underground foundations, underground pipes, flues, drains, and similar types of property excluded by the BPP are automatically included in Earthquake & Volcanic Eruption Coverage Endorsement

Back 463

FALSE. These must be added using the Additional Covered Property endorsement.

Front 464

T or F: The earthquake endorsements exclude coverage for loss to masonry veneer unless the veneer is limited to 50 percent or less of the exterior wall area.

Back 464

FALSE. The earthquake endorsements exclude coverage for loss to masonry veneer unless the veneer is limited to a mere 10 percent or less of the exterior wall area.

Front 465

T or F: The earthquake deductible is calculated for, and applied separately to, each item insured.

Back 465

TRUE. The earthquake deductible IS calculated for, and applied separately to, each item insured.

Front 466

Ensuing Loss – Earthquake and Volcanic Eruption Forms

Back 466

On the sublimit form (CP 10 45) only – states that in the event of ensuing loss caused by another peril that is covered by the policy (such as fire), the most that the policy will pay for the entire loss (for example, all loss caused by earthquake and fire) is the limit for the other covered peril (fire, in this case)

Front 467

Difference in conditions (DIC) policy, or DIC insurance

Back 467

Policy that covers on an “all-risks” basis to fill gaps in the insured's commercial property coverage, especially gaps in flood and earthquake coverage.

Because DIC policies are often written by nonadmitted insurers or as nonfiled inland marine policies, policy provisions and rates are open to negotiation between the insurer and the insured.

Front 468

Earthquake Sprinkler Leakage Coverage Option – Earthquake and Volcanic Eruption Forms

Back 468

Under both of the earthquake endorsements, the insured can elect to restrict coverage to loss due to sprinkler leakage resulting from earthquake or volcanic eruption.

Because sprinkler systems are susceptible to earthquake damage, insureds that do not want or cannot obtain full earthquake coverage might elect this less expensive coverage.

Front 469

Property Covered by a DIC policy

Back 469

Generally the same as the insured's other policies: buildings and business personal property. Most of the exclusions are the same, too. However, the list of property not covered in DIC policies is generally shorter than in standard commercial property policies. (For example, DIC policies often do not exclude foundations and underground piping.)

Front 470

Perils Covered by a DIC policy

Back 470

Mostly equivalent to the Causes of Loss – Special Form but with certain basic perils excluded. Still often called “all-risks”.

An insured that needs a DIC policy only to cover an unusual or a catastrophic loss exposure can obtain a DIC policy that covers on a named peril(s) basis.

Front 471

T or F: Earthquake coverage may be provided under an “all-risks” DIC policy simply by omitting any exclusion of earthquake or other earth movement, subject perhaps to an exclusion of earth movement loss to masonry veneer.

Back 471

TRUE. Earthquake coverage may be provided under an “all-risks” DIC policy simply by omitting any exclusion of earthquake or other earth movement, subject perhaps to an exclusion of earth movement loss to masonry veneer.

Front 472

T or F: A DIC policy that provides flood coverage in excess of a commercial property endorsement or an NFIP policy will “drop down” to cover water damage losses encompassed by the DIC policy's definition of flood but not by the definition of flood in the underlying coverage.

Back 472

FALSE. A DIC policy that provides flood coverage in excess of a commercial property endorsement or an NFIP policy will NOT “drop down” to cover water damage losses encompassed by the DIC policy's definition of flood but not by the definition of flood in the underlying coverage.

Front 473

T or F: A DIC policy can be classified as an inland marine policy.

Back 473

TRUE. Doing so can, in those states that treat DIC policies as a nonfiled class of business, exempt them from rate- and form-filing requirements, allowing greater flexibility.

An additional benefit to insurers of classifying their DIC policies as inland marine is the avoidance of increased residual market participation in states that have residual property or windstorm plans based on property, but not inland marine, premiums written.

Front 474

The Nationwide Marine Definition states that a DIC policy, to be considered inland marine, must exclude these perils:

Back 474

Fire, windstorm, hail, smoke, explosion, riot, riot attending a strike or civil commotion, aircraft, and vehicles.

Front 475

T or F: DIC policies commonly exclude loss caused by steam boiler explosion or mechanical or electrical breakdown.

Back 475

TRUE. DIC policies commonly exclude loss caused by steam boiler explosion or mechanical or electrical breakdown.

Thus, the DIC exclusion of these exposures should be coordinated with any equipment breakdown (boiler and machinery) coverage the insured has.

Front 476

T or F: For some insureds, a principal reason for choosing a DIC policy is to cover small theft exposures.

Back 476

FALSE. For some insureds, a principal reason for choosing a DIC policy is to cover significant theft exposures that are not covered under the insured's commercial property policy. To fill the gap, the insured can obtain a DIC policy that specifically covers theft or provides open perils coverage without a theft exclusion.

Front 477

T or F: DIC is excess over any other insurance.

Back 477

TRUE. A DIC policy IS excess over any other insurance.

Front 478

Advantages of a DIC policy

Back 478

* Cost-effective method of obtaining flood and earthquake coverage.
* Usually do not require coinsurance
* Are often easier to modify to meet the insured's particular needs (because they're nonfiled)
* May offer broader coverage for some perils

Front 479

Disadvantages of a DIC policy

Back 479

* The market is limited, and the terms that insurers are willing to provide can vary over time
* Insured and the insurer cannot be as certain of how the provisions will be interpreted by courts as when standard provisions are used (because DIC provisions are not standardized)
* Policy language not evaluated by regulators
* Minimum premium requirements may make the coverage disproportionately expensive for smaller insureds
* May take more time negotiate and prepare

Front 480

DIC-type endorsements provide two advantages as compared to separate DIC policies:

Back 480

* The convenience of one policy
* The avoidance of minimum premiums for the DIC coverage

Front 481

Output Policy

Back 481

Combines all or most of the property coverages a commercial organization needs.

Output policies provide broader property coverage than standard commercial property forms but do not provide liability coverage. Coverage is typically written to cover risks of direct physical loss other than those specifically excluded, These policies are generally judgment rated rather than manual rated, which provides flexibility in pricing. Almost all output policies either omit or suspend coinsurance.

Front 482

T or F: Under output policies, building coverage often extends to materials and equipment within 1,000 feet of the described premises rather than 100 feet.

Back 482

TRUE. Under output policies, building coverage often extends to materials and equipment within 1,000 feet of the described premises rather than 100 feet.

Other than this coverage enhancement and a few additional items, output building coverage is not much different from that provided by standard commercial property policies.

Front 483

T or F: One important feature of an output policy is that personal property can be covered anywhere within the policy territory without listing the location in the policy.

Back 483

TRUE. One important feature of an output policy is that personal property CAN be covered anywhere within the policy territory without listing the location in the policy.

This feature is important for insureds that have multiple locations that frequently change during the policy year. With a few exceptions, standard commercial property policies cover only personal property at listed locations.

Front 484

Highly protected risk (HPR)

Back 484

A large property whose construction meets high standards of risk mitigation and control characteristics and whose management maintains best practices loss control and risk mitigation techniques for the specific occupancy.

Front 485

T or F: Many output policies cover property for which the insured is responsible under an installation agreement, until the buyer accepts the installation.

Back 485

TRUE. Many output policies DO cover property for which the insured is responsible under an installation agreement, until the buyer accepts the installation.

This feature can eliminate the need for purchasing a separate installation floater.

Front 486

Additional output policy coverage options that are not ordinarily included in standard commercial property policies are these (3):

Back 486

* Auto Physical Damage Coverage – A good option for those insureds with large fleets of automobiles who are at risk of a loss involving several vehicles at one time.
* Equipment breakdown coverage
* Flood and earthquake coverage

Front 487

Basic attributes needed for HPR insurance:

Back 487

* An insured whose managers are determined to control property losses
* An insurer that is able to provide the loss prevention engineering needed to implement a complete protection plan for the insured's property

Front 488

Properties insured under HPR insurance generally have these characteristics:

Back 488

* Fire-resistive, masonry noncombustible, or heavy timber (mill) construction
* Automatic sprinkler systems and other loss prevention equipment
* Adequate water supply and water pressure
* Adequate public or private fire protection

Front 489

Most HPR define covered property as, essentially, this:

Back 489

All property except that which is excluded.

The standard ISO commercial property wording encompasses only the property that meets the policy definitions of “building” and “business personal property”

For example, virtually all HPR policies cover foundations; excavations; and underground pipes, flues, and drains. Many HPR policies also cover items such as bridges, roadways, walks, fences, retaining walls, signs, and radio or television antennas and towers. Another common feature of HPR policies is that they extend coverage to property located within 1,000 feet, rather than 100 feet, of the described locations.

Front 490

T or F: Most HPR policies limit coverage for collapse to the same named-perils approach used in the ISO Broad and Special causes of loss forms

Back 490

FALSE. HPR policies usually do NOT limit coverage for collapse to the named-perils approach used in the ISO Broad and Special causes of loss forms.

In contrast, most HPR policies cover such collapse even if it occurs after construction, remodeling, or renovation is completed.

Front 491

Unintentional errors clause – HPR policies

Back 491

Provides coverage for properties that have been unintentionally omitted or erroneously described in the listing of covered locations.

Front 492

Standard ISO endorsements are available to match some of the coverages provided by typical HPR policies. Examples of such endorsements include:

Back 492

* Ordinance or Law Coverage endorsement
* Debris Removal Increased Limit of Insurance endorsement
* Additional Covered Property endorsement

Front 493

Layered property coverage

Back 493

Two or more property policies arranged in levels of coverage; the policies in the second or higher levels provide coverage only when the loss exceeds the coverage afforded by the lower-level policies.

Front 494

“Layer” in layered property coverage

Back 494

Each separate policy, providing $1 million or more of coverage

Front 495

Attachment point

Back 495

The dollar amount above which the reinsurer responds to losses

Front 496

Four main advantages of layered property insurance

Back 496

* Obtaining adequate and flexible limits
* Pricing considerations
* Availability of broader coverages
* Accessing additional markets

Front 497

Four disadvantages of layered property insurance

Back 497

* Conflicts in wording and interpretation among layers can result in coverage disputes
* Insurers may not want to participate
* The market for layered property coverage can shrink rapidly, making it difficult and expensive to find coverage
* Minimum premium requirements for each layer can be costly

Front 498

Business income insurance

Back 498

Insurance that covers the reduction in an organization's income when operations are interrupted by damage to property caused by a covered peril.

Business income insurance covers the reduction in a firm's net income caused by accidental property damage.

Front 499

Net income

Back 499

(In the context of business income insurance)

Net income = revenues – expenses

The difference between revenues (such as money received for goods and services) and expenses (such as money paid for merchandise, rent, and insurance)

Front 500

Why is business income coverage considered a “time element” coverage?

Back 500

Because the severity of a business income loss is directly related to the length of time required to restore the property.

Front 501

Profit

Back 501

Net income that results when revenues exceed expenses

Front 502

Net loss

Back 502

Net income that results when expenses exceed revenues

Front 503

Continuing expenses

Back 503

Expenses that continue to be incurred during a business interruption.

(If business is interrupted for only a short time, payroll of key employees, debt repayments, taxes, insurance, and many other expenses will continue during the interruption. If a longer interruption of business occurs, many expenses can be reduced or eliminated. Workers can be laid off, taxes are reduced (because of reduced income), and insurance premiums are smaller.)

Front 504

Noncontinuing expenses

Back 504

Expenses that will not continue during a business interruption.

Front 505

Extra expenses

Back 505

Expenses, in addition to ordinary expenses, that an organization incurs to mitigate the effects of a business interruption.

More specifically, these are necessary expenses the insured incurs during the period of restoration that would not have been incurred if there had been no physical loss caused by a covered peril.

Front 506

T or F: A business income loss can result when there has been no physical damage to buildings or personal property.

Back 506

TRUE. A business income loss can result when there has been no physical damage to buildings or personal property. For example, the closing of a road or a labor strike can cause a business income loss. (However such risks are GENERALLY NOT INSURABLE.)

Front 507

In order for business income insurance to apply, the following 4 things MUST occur:

Back 507

* An interruption of operations...
* caused by property damage from a covered peril...
* to property at locations or situations described in the policy...
* resulting in a loss of business income and/or extra expense

Front 508

In the context of commercial property insurance, business income loss refers to loss of net income resulting NOT from poor business management, market conditions, competitive forces, or other general business risks, but instead from:

Back 508

Accidental loss of or damage to property

Front 509

Dependent property exposure

Back 509

The possibility of incurring business income loss because of physical loss occurring on the premises of an organization that the insured depends on for materials, products, or sales.

An organization can depend on other firms in this way. This exposure is sometimes referred to as a “contingent business income” exposure.

Front 510

An organization can also suffer a business income loss because of physical damage to property at locations not owned or controlled by the organization. This type of loss can result from any of these exposures (5):

Back 510

* Loss or damage to the organization's own property off premises
* Dependent property exposures
* Interruption of utility services
* Acts of civil authorities
* Adverse weather

Front 511

Leader property/magnet store

Back 511

A major department or discount store on which other (nearby) businesses depend to drawn customers to the mall

Front 512

Civil Authority additional coverage (Business income)

Back 512

Provides payment for loss of business income and extra expense if access to the insured's premises is prohibited by civil authority because of damage to property at another premises. Damage must be caused by a covered peril.

Front 513

T or F: Adverse weather may also impede a business's operations even when no damage occurs to property.

Back 513

TRUE. For example, heavy rain can cause cancellation or poor attendance at outdoor events that were expected to attract large crowds and generate substantial income.

Front 514

The answer to the question “How much could a business interruption cost?” depends on:

Back 514

* Anticipated revenue and expense figures
* How long business income is reduced (or extra expenses are incurred)
* Seasonal fluctuations in business income

Front 515

The ___________ of a business interruption is directly related to the time required to replace damaged property plus the time required to restore the normal level of operations.

Back 515

Duration

Front 516

T or F: The extra cost of complying with building/zoning laws/codes is considered part of the business income and extra expense loss exposure.

Back 516

FALSE. The extra cost of complying with these laws is not considered part of the business income and extra expense loss exposure; however, the delay caused by having to meet these requirements must be taken into account when estimating maximum business income and extra expense losses.

Front 517

Bottleneck

Back 517

Often applied to situations in which work from several assembly lines or processes must flow through (or depend on continued operation at) a single job site or position.

Bottlenecks in a business operation can cause the business process to slow down or stop. Physical damage confined to the bottleneck position could shut down several undamaged assembly lines. Production bottlenecks are easiest to imagine, but bottlenecks can also exist in purchasing and selling.

Front 518

The safest approach to estimating the potential severity fo business income losses

Back 518

Assume a worst-case scenario – that is, a shutdown at the worst possible time of the year, lasting for the maximum amount of time it would take to replace a destroyed building and equipment, restore inventory and personnel to their pre-loss status, and regain lost customers. (This is referred to as the Estimated Maximum Loss.)

Front 519

Estimated Maximum Loss (EML)

Back 519

Assumes a worst-case scenario – that is, a shutdown at the worst possible time of the year, lasting for the maximum amount of time it would take to replace a destroyed building and equipment, restore inventory and personnel to their pre-loss status, and regain lost customers.

The objective of calculating the EML is to estimate the largest loss that could occur in the future.

Front 520

T or F: Exposure analysis for setting insurance limits for business income insurance is done on a post-tax basis.

Back 520

FALSE. Exposure analysis for setting insurance limits for business income insurance is done on a pre-tax basis because business income loss payments will be subject to income tax.

Front 521

Coinsurance basis (business income)

Back 521

The sum of the insured's estimated net income and operating expenses for the 12 months following policy inception, minus only those expenses listed in the business income worksheet

Front 522

Other than the coinsurance basis, what factors should also be considered in estimating an Estimated Maximum Loss (EML)?

Back 522

* Business income worksheet
* Noncontinuing expenses
* Time required to restore property
* Peak periods
* Extended business income loss
* Anticipated changes in expenses and profits during restoration period
* Extra expense
* Compensating for possible errors
* Coinsurance percentage

Front 523

Business income worksheet

Back 523

A worksheet for calculating the amount of insurance necessary to comply with the Coinsurance condition of business income insurance forms, for reporting business income values to the insurer, or for providing underwriters with information they need to evaluate an organization's business income loss exposure.

Front 524

Coinsurance condition (business income) requires the insured to carry an amount of insurance equal to this:

Back 524

The chosen coinsurance percentage times a dollar amount called the coinsurance basis.

The coinsurance basis is the sum of the insured's estimated net income and operating expenses for the 12 months following policy inception, minus only those expenses listed in the form as deductions.

Front 525

T or F: The coinsurance basis (business income) is just about always a reasonable approximation of EML.

Back 525

FALSE. The coinsurance basis, referred as the “business income exposure for 12 months” in the worksheet, is NOT necessarily a reasonable approximation of EML. The maximum interruption period is almost never precisely 12 months.

Front 526

T or F: Noncontinuing expenses are deducted from the EML estimate.

Back 526

TRUE. Noncontinuing expenses ARE deducted from the EML estimate.

Front 527

T or F: The EML should be adjusted to correspond to the maximum period of restoration anticipated.

Back 527

TRUE. The EML SHOULD be adjusted to correspond to the maximum period of restoration anticipated.

Front 528

T or F: Even losses that insurance will not cover should be included in the EML.

Back 528

FALSE. Only losses that insurance will cover should be included in the EML for insurance purposes.

Front 529

Extended Business Income (EB)

Back 529

An additional coverage to business income insurance. It insures income loss for up to 30 days after the damaged property is restored to use. (The 30 day period can be extended.) The EML, for purposes of estimating exposure and arranging business income insurance, should include the EBI exposure only to the extent that it is insured.

Front 530

A firm that estimates (for its EML), for example, only a six-month period of restoration must consider the six months beginning on this date:

Back 530

The last day of the policy period.

This may yield a significantly different EML if the firm's operations are rapidly changing.

Front 531

T or F: It makes sense to increase the EML by a selected percentage (such as a 10 percent buffer) to allow for possible underestimates.

Back 531

TRUE. It DOES make sense to increase the EML by a selected percentage (such as a 10 percent buffer) to allow for possible underestimates.

Front 532

T or F: The business income limit of insurance should equal the EML or the amount necessary to satisfy the coinsurance requirement, whichever is higher.

Back 532

TRUE. The business income limit of insurance SHOULD equal the EML or the amount necessary to satisfy the coinsurance requirement, whichever is higher.

Front 533

Example:
ABR Company has an EML of $3,370,000 and a coinsurance basis of $5,000,000.

What is its coinsurance percentage, and what limit of insurance should be purchased?

Back 533

To determine the coinsurance percentage, divide the EML by the coinsurance basis:

$3,370,000 / $5,000,000 = 0.67, which is rounded up to 70 percent coinsurance.

Then, determine the limit of insurance by multiplying the coinsurance percent by the coinsurance basis:

0.70 x $5,000,000 = $3,500,000. Comparing that result with the EML of $3,370,000, you choose the higher amount of $3.5 million and THAT is the limit of insurance you should purchase.

Front 534

Most insureds select the Business Income (and Extra Expense) Coverage Form as opposed to the Business Income (Without Extra Expense) Coverage Form because:

Back 534

Because proving that an extra expense has reduced a business income loss can be difficult.

Front 535

Key requirements in the Business Income (and Extra Expense) Coverage Form:

Back 535

* Actual loss of business income you sustain
* Due to the necessary suspension of your operations
* During the period of restoration
* Caused by direct physical loss of or damage to property at the described premises
* Loss or damage caused by a covered cause of loss

Front 536

T or F: The actual-loss-sustained approach of business income insurance requires the insured to have been earning a net profit before the loss occurred in order to receive any benefit.

Back 536

FALSE. The actual-loss-sustained approach of business income insurance does NOT require the insured to have been earning a net profit before the loss occurred in order to receive any benefit.

A business already operating at a net loss can sustain a business income loss if a partial or total shutdown increases the net loss beyond what was expected.

Front 537

Gross Earnings Form – an alternate approach (to the actual-loss-sustained approach) in the Business Income form

Back 537

Covers business interruption as measured by gross earnings less noncontinuing expense, rather than by net income plus continuing expenses

Front 538

Valued Business Income Form – an alternate approach (to the acutal-loss-sustained approach) in the Business Income form

Back 538

The insurer pays an agreed amount for each day, week, or month that the insured business is shut down (instead of the actual loss sustained)

Front 539

T or F: Insurance adjusters have generally interpreted the phrase “suspension of your operations” to encompass business income coverage for either partial or total interruption of operations.

Back 539

TRUE. Insurance adjusters HAVE generally interpreted the phrase “suspension of your operations” to encompass business income coverage for either partial or total interruption of operations.

Front 540

If rental value coverage is included in a Business Income policy, “suspension of operations” means this:

Back 540

That either a part of all of the described premises is rendered untenantable

Front 541

Period of restoration

Back 541

The period during which business income loss is covered under the BIC forms; it begins 72 hours after the physical loss occurs and ends when the property is (or should have been) restored to use with reasonable speed. (With regard to extra expense coverage, it begins immediately after the physical loss occurs.)

Front 542

Elimination period

Back 542

Just another name for the 72-hour waiting period before the 'period of restoration' begins; also known as the “time deductible”

Front 543

T or F: The 72-hour waiting period of BIC coverage does not apply to extra expense coverage.

Back 543

TRUE. Extra expense coverage begins immediately after the physical loss occurs.

Front 544

Business iNcome Changes – Beginning of the Period of Restoration endorsement

Back 544

Eliminates or reduces to 24 hours the 72-hour waiting period for business income coverage

Front 545

The period of restoration (business income) ends on the earlier of these dates:

Back 545

(1) When the property should, with “reasonable speed and similar quality” be repaired or replaced, or
(2) When business is resumed at a new permanent location

Front 546

T or F: Courts have held that time consumed by delays resulting from acts of persons other than the insured, or even by reasonable disputes between the insured and others, is includable in the period of restoration.

Back 546

TRUE. Courts HAVE held that time consumed by delays resulting from acts of persons other than the insured, or even by reasonable disputes between the insured and others, is includable in the period of restoration. Moreover, delays resulting from conditions beyond the insured's control are also includable in the period of restoration.

Front 547

T or F: ISO business income forms require that the suspension of operations must be caused by loss of or damage to property at premises which are described in the declarations.

Back 547

TRUE. ISO business income forms require that the suspension of operations must be caused by loss of or damage to property at premises which are described in the declarations.

Front 548

3 categories of extra expenses

Back 548

* Extra expenses incurred to avoid or minimize the suspension of business and to continue operations
* Extra expenses incurred to minimize the suspension of business if the insured cannot continue operations
* Extra expenses incurred to repair or replace any property (but only to the extent that it reduces the amount of loss that would otherwise have been payable)

Front 549

Exclusions applicable to Business Income and Extra Expense forms

Back 549

* Finished stock
* Labor strikes
* Loss of license, lease, or contract
* Antennas
* Consequential loss

Front 550

Civil Authority additional coverage

Back 550

An additional coverage in a business income form, covering loss of business income and/or extra expenses that result when access to the insured's premises is prohibited by a civil authority because of damage by a covered cause of loss to property other than the insured's.

Front 551

Four criteria that must be met in order for the Civil Authority additional coverage to apply to a Business Income policy

Back 551

* A covered cause of loss must have caused damage to property other than property at the described premises.
* Access to the area immediately surrounding the damaged property must be prohibited by action of civil authority as a result of the damage.
* The described premises must be within the area just described and not more than one mile from the damaged property.
* The action of civil authority must have been taken either in response to dangerous physical conditions resulting from the damage or continuation of the covered cause of loss that caused the damage; or to enable a civil authority to have unimpeded access to the damaged property

Front 552

4 additional coverages and a coverage extension that apply to the Business Income (and Extra Expense) Coverage Form:

Back 552

* Civil Authority
* Alterations and New Buildings
* Extended Business Income
* Interruption of Computer Operations

coverage extension:
*Newly Acquired Locations coverage extension

Front 553

T or F: The elimination deductible applies to Civil Authority additional coverage (Business Income)

Back 553

TRUE. The 72-hour waiting period also applies to this additional coverage.

Front 554

Alterations and New Buildings additional coverage (Business Income)

Back 554

Insures loss of business income sustained because of physical damage to (1) new buildings or structures at the described premises or (2) alterations or additions to existing buildings or structures at the described premises.

Also applies to business income losses resulting from damage to machinery, equipment, supplies, or building materials located on or within 100 feet of the described premises and used in the construction or incidental to the occupancy of new buildings.

Front 555

Ingress/egress coverage

Back 555

To cover losses in situations where civil authorities ban access to the insured's premises because of a loss by a covered cause at another location. (Ingress means “entrance”, and egress means “exit”).

Front 556

T or F: The period of restoration for Alterations and New Buildings additional coverage is subject to the same elimination deductible (72-hour waiting period) as regular Business Income coverage.

Back 556

FALSE. The period of restoration for Alterations and New Buildings additional coverage is NOT subject to the same elimination deductible (72-hour waiting period) as regular Business Income coverage.

Front 557

Extended Business Income (EBI) additional coverage

Back 557

Coverage for business income losses that continue after the period of restoration ends; the coverage begins when the damaged property has been restored and ends when the insured's business returns to normal, subject to a maximum of 30 days.

Front 558

T or F: Business income coverage ends when the property has been repaired, rebuilt, or replaced with reasonable speed.

Back 558

FALSE. Business income coverage ends when the property SHOULD have been repaired, rebuilt, or replaced with reasonable speed. Thus, there can be a gap between it and EBI, which does not begin until the property is actually restored and operations are resumed.

Front 559

Extended Period of Indemnity

Back 559

An optional coverage that lengthens the duration of the extended business income (EBI) additional coverage for up to two years

Front 560

Interruption of Computer Operations additional coverage

Back 560

Coverage for loss of business income or extra expense due to a suspension of operations resulting from an interruption of computer operations caused by destruction or corruption of electronic data as a result of a covered cause of loss.

Pays up to $2500 per policy year. (Aggregate limit.) Causes of loss are also very limited, but include: virus, harmful code, or similar instruction designed to damage or destroy any part of a computer system.

Front 561

Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria additional coverage (business income)

Back 561

Includes 30 days of coverage for business income and extra expense due to fungus, wet rot, dry rot, and bacteria damage. The 30 days need not be consecutive.

When the covered peril that causes fungus, wet rot, dry rot, or bacteria damage results in a suspension of operations, the 30 day limit applies to the time that the period of restoration is increased by the fungus, wet rot, dry rot, or bacteria damage.

Front 562

Newly Acquired Locations coverage extension (business income)

Back 562

Applies only when 50 percent or greater coinsurance is shown in the declarations.

Provides up to 30 days' temporary coverage at a new location, which gives the insured time to report the added exposure to the insurer.

Limit of $100,000 at each location. Applies in addition to the overall limit of insurance for the coverage form.

Front 563

T or F: If the insured does not resume operations as quickly as possible, the insurer will calculate the business income loss based on the length of time it would have taken to resume operations as quickly as possible.

Back 563

TRUE. If the insured does not resume operations as quickly as possible, the insurer will calculate the business income loss based on the length of time it would have taken to resume operations as quickly as possible.

Front 564

4 factors taken into account in determining the amount of business income loss:

Back 564

* The insured's net income before the loss occurred
* The likely net income if no loss had occurred
* Operating expenses, including payroll, necessary to resume operations at the same level of service that existed just before the loss occurred
* Other relevant sources of information, including (but not limited to) the insured's financial records, bills, and invoices

Front 565

T or F: The insurer reserves the right to reduce its payment for business income loss to the extent that the insured can resume operations in whole or in part using damaged or undamaged property at the described premises or elsewhere.

Back 565

TRUE. The insurer reserves the right to reduce its payment for business income loss to the extent that the insured can resume operations in whole or in part using damaged or undamaged property at the described premises or elsewhere.

Front 566

T or F: The coinsurance condition applies to both business income and extra expense coverages.

Back 566

FALSE. The Coinsurance condition applies only to business income coverage, not to extra expense.

Front 567

T or F: The business income insured is limited to 80 percent, 90 percent, and 100 percent as its only coinsurance percentage options.

Back 567

FALSE. The insured may choose business income coinsurance percentages of 50, 60, 70, 80, 90, 100 or 125 percent.

Front 568

Expenses excluded from the coinsurance calculation

Back 568

* Prepaid freight – outgoing
* Returns and allowances
* Discounts
* Bad debts
* Collection expenses
* Cost of raw stock and factory supplies consumed (including transportation charges)
* Cost of merchandise sold (including transportation charges)
* Cost of other supplies consumed (including transportation charges)
* Cost of services purchased from outsiders (not employees) to resell that do not continue under contract
* Power, heat, and refrigeration expenses that do not continue under contract (if they have been excluded by endorsement)
* Ordinary payroll expenses excluded by endorsement
* Special deductions for mining properties

Front 569

Maximum Period of Indemnity (business income optional coverage)

Back 569

Optional coverage that deletes the coinsurance clause while limiting loss payment to the lesser of (1) the amount of loss sustained during the 120 days following the beginning of the period of restoration, or (2) the policy limit.

The chief advantage of this optional coverage is that it is uncomplicated. It is a reasonable alternative for organizations that are unlikely to sustain a business interruption of more than four months.

Front 570

Monthly Limit of Indemnity (business income optional coverage)

Back 570

Optional coverage that deletes the coinsurance clause while limiting the amount recoverable during any month of business interruption to a stipulated fraction (1/6, 1/4, or 1/3) of the insurance amount.

The most the insurer will pay for each period of 30 consecutive days is the actual business income loss sustained, not to exceed the limit of insurance times the fraction shown in the declarations.

A simple, rule-of-thumb method can be used to select the fraction and the amount of insurance. In this method, the fraction is selected by using the estimated number of months needed for restoration in a worst-case scenario as the denominator, with 1 as the numerator.

Front 571

Agreed Value (business income option for modifying coinsurance)

Back 571

Suspends the coinsurance condition, and the insured and the insurer agree to a set of values reported in a written statement, so it is not necessary to include any increased percentage buffer amount after doing a maximum loss of business income calculation.

Front 572

T or F: Insurers typically charge a 10 percent premium surcharge for the business income Agreed Value option.

Back 572

TRUE. By contrast, the surcharge for the BPP Agreed Value option is typically 5 percent.

Front 573

No Coinsurance option (business income option for modifying coinsurance)

Back 573

Eliminates the coinsurance condition. Costs an increased rate (in some cases, up to 2.5x the rate for 50 percent coinsurance!). Does not require business income worksheets. Does not impose a 120-day restriction on the length of the period of restoration; does not impose a fractional limit of recovery in any one month.

Front 574

Extra Expense Coverage Form

Back 574

Covers extra expense only; is intended for organizations that must continue their operations “at any cost” and do not want to cover loss of business income.

Front 575

Difference between Extra Expense Coverage Form and extra expense coverage in the Business Income (and Extra Expense) Coverage Form:

Back 575

Limits on Loss Payment condition is found only in the Extra Expense Coverage Form. This condition encourages insurance to value by limiting recovery for certain time periods to stipulated percentages of the overall limit of insurance.

Front 576

Limits of Loss Payment Condition (Extra Expense Coverage Form)

Back 576

Limits recovery for certain time periods to stipulated percentages of the overall limit of insurance.

The usual combination of percentages is 40%-80%-100%. With this combination, and a policy with a $100,000 limit of insurance, loss payments would be limited in these ways:

* If the period of restoration is 30 days or less, extra expenses up to $40,000 would be covered.
* If the period of restoration is between 30 and 60 days, extra expenses up to $80,000 would be covered.
* If the period of restoration is longer than 60 days, extra expenses up to $100,000 would be covered.

Front 577

Blanket Business Income Insurance

Back 577

With blanket coverage, one limit of insurance applies to all of the insured's locations, and a blanket rate can be used. (A blanket business income rate can be computed on a weighted average based on floor areas at the various locations.)

To be eligible for blanket business income insurance, all premises must be substantially owned, managed, or controlled by the insured.

Unlike blanket building and contents insurance, which requires at least 90 percent coinsurance, blanket business income coverage may be written with any coinsurance percentage. Insureds do not pay a surcharge for blanket coverage.

Front 578

Ordinary payroll

Back 578

The entire payroll expense (including employee benefits, FICA payments, union dues paid by the employer, and workers compensation premiums) for all employees of the insured except officers, executives, department managers, and employees under contract.

Front 579

Ordinary Payroll Limitation or Exclusion endorsement (business income)

Back 579

Endorsement that limits coverage for ordinary payroll expenses to a specified number of days or excludes such expenses altogether, allowing the insured to satisfy the coinsurance requirement with a lower amount of insurance.

Front 580

Discretionary Payroll Expense endorsement (business income)

Back 580

An endorsement that extends business income forms to cover payroll expenses for specified job classifications or employees regardless of whether such expenses are necessary to resume operations.

Front 581

Power, Heat and Refrigeration Deduction endorsement (business income)

Back 581

Endorsement that eliminates power, heat, and refrigeration expenses from coverage and from the coinsurance calculation, allowing the insured to satisfy the coinsurance requirement with a lower limit of insurance. (Available only for manufacturing and mining firms.)

Front 582

Business Income Premium Adjustment endorsement

Back 582

An endorsement that bases the final policy premium earned by the insurer on the actual exposure as reported by the insured at 12-month intervals.

When the endorsement becomes effective, the insured must submit a business income worksheet to the insurer showing business income values for the insured's latest available 12 months' operating experience.

Within 120 days following each successive period of 12 months, the insured must submit a report of actual business income values for that period. Based on the reports, the premium is adjusted to reflect actual business income values. The endorsement does not suspend the Coinsurance condition.

Front 583

T or F: An unmodified business income policy provides no coverage for dependent property exposures.

Back 583

TRUE. This is because it covers only business income loss that results from physical loss to property at the insured's premises.

There are 3 basic endorsements available for insuring dependent property exposures:
* Business Income from Dependent Properties – Broad Form
* Business Income from Dependent Properties – Limited Form
* Extra Expense from Dependent Properties

Front 584

Contributing locations

Back 584

A type of dependent property; refers to locations that deliver materials or services to the insured or to others for the account of the insured. (These do not include water, power, or communication supply services, which can be covered by another endorsement.)

Front 585

Recipient locations

Back 585

A type of dependent property; refers to locations that receive products or services from the insured.

Front 586

Manufacturing locations

Back 586

A type of dependent property; refers to locations that manufacture products for delivery to the insured's customers under contract of sale.

Front 587

Leader locations

Back 587

A type of dependent property; refers to locations that attract customers to the insured's business.

Front 588

Business Income From Dependent Properties – Broad Form endorsement

Back 588

This endorsement is used when the insured wants the same limit that applies to business income loss resulting form damage at its own premises to apply to business income loss resulting from damage to other properties as well

Front 589

Business Income From Dependent Properties – Limited Form endorsement

Back 589

This endorsement is used when separate limits are preferred or when the insured wishes to insure only business income from dependent properties

Front 590

Extra Expense From Dependent Properties endorsement

Back 590

This endorsement, combined with the Extra Expense Coverage Form, covers extra expenses because of direct loss or damage at other properties.

For example, a manufacturer that depends heavily on one supplier may be able to obtain needed materials from other suppliers while the regular supplier's business is interrupted. However, the new suppliers may charge a higher price, which would be an extra expense loss for the manufacturer.

Front 591

T or F: The dependent properties endorsements (business income) require that operations at the specified location be shut down.

Back 591

FALSE. The dependent properties endorsements (business income) do NOT require that operations at the specified location be shut down.

Front 592

T or F: Dependent property coverage does not apply when the only loss to the dependent property is loss or damage to electronic data (including corruption or destruction).

Back 592

TRUE. Dependent property coverage does NOT apply when the only loss to the dependent property is loss or damage to electronic data (including corruption or destruction).

Front 593

Business Income Changes – Educational Institutions endorsement

Back 593

An endorsement that modifies business income coverage forms to make them more appropriate for covering the business income loss exposures of schools.

The endorsement includes an Extended Business Income (EBI) provision that replaces the regular EBI provision of the business income coverage forms. The modified EBI provision states that if damaged property is actually repaired, rebuilt, or replaced within 60 days or less before the scheduled opening of the next school term, the policy will cover the actual loss of business income sustained during that entire school term.

Front 594

Utility Services – Time Element endorsement

Back 594

An endorsement that covers loss of business income or extra expense at the insured premises caused by the interruption of utility services (water, communications, or power) to the insured premises.

The interruption of service must be caused by direct physical loss or damage by a covered cause of loss to a type of supply property that has been checked off in the endorsement's schedule.

The categories of supply properties that can be checked off are water supply, communication supply, and power supply.

Front 595

Ordinance or Law – Increased Period of Restoration endorsement

Back 595

Endorsement that covers business income loss during the additional time required to comply with building ordinances or laws.

The endorsement extends business income and/or extra expense coverage to encompass the increased period of suspension of operations brought about by the enforcement of building laws. Moreover, the period of restoration is redefined to include the added time necessary to replace damaged property with replacement property that complies with the minimum standards of the law.

Front 596

Marine insurance

Back 596

Insurance on vessels and their cargoes. (The international meaning of marine insurance.)

In the U.S., marine insurance has a broader definition and consists of two distinct lines: ocean marine and inland marine. Ocean marine corresponds to the international meaning of marine insurance.

Front 597

Inland marine insurance

Back 597

Covers a wide range of usually land-based risks that have some link to transportation or communication

Front 598

Nationwide Marine Definition

Back 598

Statement of the types of property that may be insured on inland marine and ocean marine insurance forms.

Summary: imports; exports; domestic shipments; instrumentalities of transportation and communication (bridges, tunnels, power & telephone lines, etc.), various types of property owned or used by individuals (jewelry, furs, etc.); and various types of property pertaining to a business, profession, or occupation (live animals, builders’ risks, property at exhibitions, etc.)

Beginning in the 1950s, the Nationwide Marine Definition was no longer used as a definition of what types of loss exposures an insurer could underwrite. However, the Definition remained useful in determining which types of insurance were exempt from the filing requirements.

Front 599

T or F: Today, very few classes of inland marine insurance remain exempt from filing requirements.

Back 599

FALSE. Today, many classes of inland marine insurance remain exempt from filing requirements.

Front 600

Nonfiled classes (uncontrolled classes)

Back 600

The classes of inland marine business for which neither policy forms nor rates must be filed with the state insurance department.

Front 601

Filed classes (controlled classes)

Back 601

The classes of inland marine business for which policy forms and/or rates must be filed with the state insurance department.

Front 602

Consent-to-rate rules

Back 602

State laws/regulations that allow insurers to charge higher rates for riskier exposures as long as the insured’s written consent is filed with the appropriate insurance department.

Front 603

Classes of Commercial Inland Marine Insurance Filed by ISO and AAIS

Back 603

* Accounts receivable
* Camera and musical instrument dealers
* Film
* Floor plan merchandise
* Equipment dealers (implement dealers)
* Jewelers block (jewelry dealers)
* Mail (ISO only)
* Music instruments
* Photographic equipment
* Physicians, surgeons, and dentists equipment
* Signs
* Theatrical property
* Valuable papers and records

Front 604

Largest classes of commercial inland marine business (6)

Back 604

* Contractors’ equipment
* Builders’ Risk
* Motor Truck Cargo
* Electronic Data Processing Equipment
* Property in Domestic Transit
* “Difference in Conditions”

Front 605

What is the main purpose of several inland marine forms?

Back 605

To cover property in the course of transit. Inland marine policies almost always provide an element of coverage for property in transit or at locations other than the insured’s premises.

Front 606

Floater

Back 606

A policy designed to cover property that floats, or moves, from location to location.

Examples of floaters are the contractors equipment floater, the commercial articles floater, and the fine arts floater.

Front 607

Motor truck cargo liability insurance (a type of inland marine liability insurance)

Back 607

Covers a trucking company’s liability for damage to property of others being transported by the trucking company

Front 608

Warehouse legal liability insurance (a type of inland marine liability insurance)

Back 608

Covers a warehouse operator’s legal liability for damage to property of others being stored in the warehouse

Front 609

T or F: Inland marine offers open perils coverage.

Back 609

TRUE. Open perils is also known as ‘all-risks’ coverage (though that title is not quite accurate in most situations)

Front 610

T or F: Many inland marine policies exclude (and therefore do not cover) flood and earthquake.

Back 610

FALSE. Many inland marine policies do NOT exclude (and therefore cover) flood and earthquake.

Front 611

T or F: Coverage for mechanical breakdown utility services failure is readily provided in most inland marine electronic data processing equipment policies (subject to an additional premium charge).

Back 611

TRUE. Coverage for mechanical breakdown utility services failure IS readily provided in most inland marine electronic data processing equipment policies (subject to an additional premium charge).

Front 612

Invoice value

Back 612

A valuation basis that values covered property at its invoice value, including freight. (Inland marine concept)

Invoice value is frequently used in policies covering property in transit between buyers and sellers. An advantage of valuation at invoice is that the amount of loss can be determined quickly and without dispute.

Another advantage of valuation at invoice is that it covers whatever profit the seller has in that price.

Front 613

Agreed value method

Back 613

A method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss.

Front 614

Transportation loss exposures (inland marine)

Back 614

The possibility of loss to property being transported (does not refer to the conveyances on which that property is carried.)

Front 615

Issues one should consider when analyzing transportation loss exposures (3):

Back 615

* Parties involved in transportation
* Ownership of goods
* Carrier responsibility for loss

Front 616

Shipper

Back 616

The person or organization shipping goods, often the seller of the goods.

Front 617

Consignee

Back 617

The person or organization that receives property being transported by a carrier.

Front 618

Generally, this party bears the loss for property loss while in transit.

Back 618

Generally, the part that owns the goods at the time they are damaged bears the loss.

If a shipment is damaged in transit after title (ownership) has passed to the buyer, the buyer will suffer the loss.

Front 619

Ex Point of Origin

Back 619

(Inland marine – terms of sale)

The buyer takes delivery of the goods at the point of origin specified in the terms, such as “Ex Warehouse, Philadelphia.” The buyer is responsible for any loss that occurs after taking delivery of the goods.

Front 620

FOB (Free on Board) Vessel

Back 620

(Inland marine – terms of sale)

The buyer assumes responsibility for loss as soon as the goods are placed aboard the vessel at the port named in the terms, sucha s “FOB Vessel, Port of San Diego.”

Front 621

FAS (Free Along Side) Vessel

Back 621

(Inland marine – terms of sale)

The buyer assumes responsibility for loss as soon as the goods are placed alongside the vessel at the port named in the terms, such as “FAS Vessel, Port of Los Angeles.”

Front 622

CIF (Cost, Insurance, Freight)

Back 622

(Inland marine – terms of sale)

The seller quotes a price that includes the cost of insurance and all transportation charges (freight) incurred to the named destination. The buyer assumes responsibility for loss or damage as soon as the goods are placed into the custody of the ocean carrier or delivered on board the vessel.

Front 623

4 types of terms of sale used in international commerce

Back 623

* Ex Point of Origin
* FOB (Free on Board) Vessel
* FAS (Free Along Side) Vessel
* CIF (Cost, Insurance, Freight)

Front 624

Common carriers

Back 624

Airlines, railroads, or trucking companies that furnish transportation to any member of the public seeking their offered services.

Front 625

Contract carriers

Back 625

Carriers that furnish transportation services to shippers with whom they have contracts

Front 626

T or F: There are multiple types of 'Free on Board' terms of sale designations available.

Back 626

TRUE. Could be FOB Point of Origin, FOB Destination, FOB Vessel, etc.

Front 627

T or F: When a carrier transports goods, the carrier may be held responsible for any damage or loss that occurs to the goods.

Back 627

TRUE. When a carrier transports goods, the carrier MAY be held responsible for any damage or loss that occurs to the goods, thus providing a source of recovery for the owner.

Carrier responsibility for loss does not eliminate the owner's loss exposure; it merely provides a possible source of recovery.

Front 628

Act of God

Back 628

A natural and unavoidable catastrophe that interrupts the expected course of events

Front 629

Inherent vice

Back 629

A quality of or condition within a particular type of property that tends to make the property destroy itself.

(For example, perishables such as eggs and lettuce will spoil quickly if they are shipped without refrigeration.)

Front 630

Bill of lading

Back 630

A document acknowledging receipt of goods from the shipper, given by the carrier which includes the terms of the contract of carriage for the goods.

When a carrier wants to limit its amount of cargo liability, such limitations are usually expressed in the bill of lading, which is the contract of carriage between the carrier and the shipper. (In a so-called 'released bill of lading', the carrier charges a lower freight rate if, in return, the shipper agrees to accept a limitation on how much the shipper can recover from the carrier if the carrier becomes liable for cargo loss.

Front 631

T or F: A common carrier ordinarily has a lower degree of responsibility for customers' property than a contract carrier.

Back 631

FALSE. A common carrier ordinarily has a higher degree of responsibility for customers' property than a contract carrier. Common carriers, regardless of whether they have acted negligently, are usually liable to the shipper for any cargo losses except those that occur in narrowly defined circumstances.

There are 5 exceptions to common carrier liability:
* Acts of God
* Acts of a public enemy
* Exercise of public authority
* Shipper's fault or neglect
* Inherent vice

Front 632

5 exceptions to common carrier liability

Back 632

* Acts of God
* Acts of a public enemy
* Exercise of public authority
* Shipper's fault or neglect
* Inherent vice

(context: inland marine)

Front 633

T or F: A contract carrier's liability depends on the contract terms agreed to by the carrier and the shipper

Back 633

TRUE. A contract carrier's liability DOES depend on the contract terms agreed to by the carrier and the shipper.

Front 634

Charter

Back 634

A travel contract in which transportation is temporarily hired for a specific trip.

Front 635

U.S. Carriage of Goods by Sea Act (COGSA)

Back 635

Specifies a common carrier's liability for goods shipped in foreign trade to or from the U.S. By sea. COGSA excuses the carrier from liability for loss caused by any “act, neglect, or default” of the master or crew in navigation or management of the vessel; perils of the seas; and several other occurrences.

COGSA is far less strict than the rules that apply to common carriers of goods in surface transit. It contains a much longer list of exceptions that relieve the carrier of liability.

COGSA also provides that the carrier will not be held liable for cargo loss arising from unseaworthiness of the vessel unless the loss is caused by “want of due diligence on the part of the carrier” to make the vessel seaworthy. (The Harter Act imposes a similar standard.)

COGSA provides for a package limitation, which limits the carrier's liability to $500 for loss to a single package or customary freight unit (such as a metric ton of grain.)

Front 636

The Harter Act

Back 636

The U.S. Law that domestic shipments over either inland waterways or the coastwise sea lanes by common carrier are subject to.

If the carrier and shipper agree to be subject to COGSA instead, they can be.

As compared to COGSA, the Harter Act does not include a package limitation.

Front 637

Rules of the International Warsaw Convention

Back 637

Govern the liability of air carriers engaged in international service. Under these rules, an air carrier is not liable for loss to property (for example, baggage, or cargo) if it can prove that it took all of the necessary steps to avoid the loss or that the loss was caused by pilot error.

Front 638

Annual transit policy

Back 638

Policy that covers all shipments made or received by the insured throughout a one-year policy period.

Also known simply as “transportation insurance”; purchased by frequent shippers to cover all shipments made or received during the annual policy period.

Front 639

Open cargo policy

Back 639

Policy that covers all goods shipped or received by the insured during the policy's term; comparable to an inland marine annual trip transit policy, but without a set policy expiration date.

It covers all waterborne shipments (and, often, international air shipments) in which the insured has an insurable interest.

Front 640

Common types of inland and ocean marine policies used for covering transportation loss exposures:

Back 640

* Annual transit insurance
* Open cargo insurance
* Trip transit insurance
* Mail insurance
* Motor truck cargo insurance

With the exception of mail insurance, all of these are nonfiled classes of business in most states.

Front 641

A frequent shipper would want to purchase this type of inland/ocean marine policy

Back 641

Annual transit insurance (aka transportation insurance)

Front 642

Trip transit insurance

Back 642

Purchased by infrequent shippers, trip transit insurance covers the particular shipment of goods specified in the policy.

Front 643

An infrequent shipper would want to purchase this type of marine policy

Back 643

Trip transit insurance. It covers the particular shipment of goods specified in the policy.

Front 644

Mail insurance

Back 644

Insures property being transported by the United States Postal Service or another country's postal service.

Front 645

Motor truck cargo insurance

Back 645

Contains two basic variations. The “carrier's form” covers the insured's legal liability as a motor carrier for loss to customers' property. The “owner's form” provides transit coverage for organizations that use their own trucks to transport their own goods.

Front 646

T or F: In addition to covering property transported by carriers, many transit policies also cover property shipped by any land vehicle owned or operated by the insured.

Back 646

TRUE. In addition to covering property transported by carriers, many transit policies DO also cover property shipped by any land vehicle owned or operated by the insured.

Front 647

Items typically covered by an annual transit policy (but which can be insured for an additional premium)

Back 647

Precious metals, furs, jewelry, money, and securities.

Contraband is also excluded but is not insurable.

Front 648

Warehouse to warehouse coverage

Back 648

Clause in open cargo policies that covers the insured cargo during the ordinary course of transit (including land transit) from the time the cargo laves the point of shipment until it is delivered to its final destination.

Combined with the marine extension, these clauses provide an extremely broad scope of coverage for deviations, delays, forced discharges, and trans-shipments (cargo moved from one ship or other conveyance to another)

Front 649

T or F: Most annual transit policies cover on a named perils basis.

Back 649

FALSE. Most annual transit policies cover on an open perils basis.

An annual transit policy does not contain as many exclusions as the Special Form and thus covers a broader scope of perils. For example, flood and earthquake are usually covered.

Front 650

T or F: Most annual transit policies cover the U.S. and its territories + Puerto Rico.

Back 650

FALSE. Many annual transit policies cover only within the continental U.S. And Canada, including airborne shipments between those places. This means they do not cover Hawaii, Puerto Rico, or any overseas possessions.

Front 651

Assured

Back 651

In ocean marine policies, the party named as the insured.

Front 652

General average

Back 652

Partial loss that must, according to maritime law, be shared by all parties to a voyage (cargo owners and vessel owner)

Front 653

Sue and labor clause

Back 653

Clause that covers the cost of reasonable measures that the insured is required to take to protect property from damage at the time of loss.

Front 654

“Or order”

Back 654

In addition to a clause that names the parties insured, open cargo policies contain a loss payable clause stating that losses will be paid to the assured “or order”. The phrase “or order” means that the assured can direct payment to the consignee, a bank, or some other party that has an insurable interest in the shipment.

Front 655

Average (in maritime law)

Back 655

In maritime law, “average” refers to a partial loss to a vessel or its cargo. General average is either an expenditure or a sacrifice of part of the vessel or cargo, made in a time of danger to save the voyage.

Front 656

Attachment clause – open cargo insurance

Back 656

States that the insurance will “attach and cover all shipments made on and after” the date and time shown in the policy.

A shipment made before the date of attachment is not covered even if it is still in transit after the date of attachment. Open cargo policies are so named because they do not specify an expiration date. The policy remains in force continuously until canceled by either the assured or the insurer.

Front 657

The principle exclusions of a cargo policy are called warranties, but they are equivalent to exclusions in a non marine policy. The 3 principal warranties are:

Back 657

Free of capture and seizure (FC&S) warranty
Strikes, riots, and civil commotion (SR&CC warranty
Delay clause

Front 658

Free of capture and seizure (FC&S warranty)

Back 658

Warranty/exclusion in an open cargo policy

A warranty that excludes loss caused by war, piracy, virtually any lawful or unlawful taking of the vessel, a nuclear weapon, a mine, or a torpedo.

Front 659

Strikes, riots, and civil commotion (SR&CC warranty)

Back 659

Warranty/exclusion in an open cargo policy

A warranty that excludes loss caused by strikes, labor disturbances, riots, vandalism, sabotage, or malicious acts

Front 660

Delay clause

Back 660

Warranty/exclusion in an open cargo policy

A clause that excludes coverage for loss caused by delay, such as loss of market, spoilage, and business interruption.

Front 661

Perils of the seas

Back 661

Fortuitous causes of loss peculiar to the sea and other bodies of water such as rivers, lakes, and seaports. Abnormally high winds or waves. Accidents in navigation.

One of the perils included in the Ocean Cargo Perils Clause

Front 662

Ocean Cargo Perils Clause – common perils (6)

Back 662

Perils of the seas
Fire
Jettison
Assailing thieves
Barratry of the masters and mariners
All other like perils

Front 663

Jettison

Back 663

The voluntary throwing overboard of cargo (or other property) in an emergency, usually to lighten the vessel's load or to eliminate a hazard.

Front 664

Assailing thieves

Back 664

Theft of cargo by force (does not include clandestine theft, pilferage, or theft by the passengers or crew)

Front 665

Barratry of the masters and mariners

Back 665

Any wrongful act willfully committed by the master or crew with criminal intent, to the detriment of the shipowner or charterer. Mutiny and malicious destruction of cargo are examples of barratry.

Front 666

Inchmaree clause

Back 666

A clause that adds coverage to an ocean marine cargo policy for loss resulting from bursting of boilers, breakage of shafts, latent defects in the vessel, or faults or errors in the navigation or management of the vessel

Front 667

FPA/AC (free of particular average/American conditions) warranty

Back 667

An exceptive warranty that excludes particular average unless the loss is actually caused by the stranding, sinking, or burning of the vessel or its collision with another vessel

Front 668

Particular average

Back 668

Partial loss that is borne by only one party to a voyage (such as a cargo owner)

Front 669

T or F: Cargo policy limits apply on a per-shipment basis.

Back 669

FALSE. Cargo policy limits apply on a per-conveyance basis. Because several shipments could be stowed on the same vessel, the assured must exercise care to select adequate limits. The accumulation clause contained in most open cargo policies provides some relief to the assured in this matter.

Front 670

Accumulation clause

Back 670

A clause in open cargo policies that doubles the policy limit when, for reasons beyond the control of the assured, shipments accumulate at some point in transit.

Front 671

Trip transit policy

Back 671

Policy that covers a particular shipment of goods specified in the policy. Depending on where the shipment is going, the policy may be inland marine or ocean marine. A trip transit policy is commonly used to cover property such as a valuable piece of machinery being moved from its place of manufacture to its place of use.

Front 672

T or F: Open cargo policies typically require the insured to report the full value of all shipments to the insurer.

Back 672

TRUE. Open cargo policies typically DO require the insured to report the full value of all shipments to the insurer.

Front 673

Mail Coverage Form

Back 673

Form that covers a financial institution against loss of securities and other negotiable instruments while in transit through specified types of mail.

Examples of the types of property covered include bonds, stock certificates, certificates of deposit, money orders, checks, bills of lading, and other commercial papers.

Mail insurance is also available through commercial insurers (instead of just the USPS). Many organizations find it useful because the cost is frequently lower than that of government insurance, the amount of insurance available from the USPS is limited, and commercial insurance may provide faster claim settlements.

Front 674

Parcel post policy

Back 674

Inland marine policy that provides broad coverage on parcel post shipments. A parcel post policy provides coverage against loss due to nondelivery (failure of the package to arrive at its destination).

Front 675

Motor truck cargo liability policy

Back 675

Policy that covers a trucker's liability for damage to cargo of others being transported by the trucker.

The carrier transporting the property from one place to another may be held legally liable for loss of or damage to the property in its custody. Motor truck carriers can insure this liability loss exposure by purchasing a motor truck cargo liability policy.

Front 676

Owners' goods on owners' trucks policy

Back 676

A type of motor truck cargo policy that covers any type of organization (not just a trucking company) for damage to its own cargo while being transported on its own trucks.

Front 677

T or F: As in transit policies, certain types of valuable property likely to be targeted by thieves are commonly excluded in motor truck cargo liability policies, such as precious metals, jewelry, and fine arts.

Back 677

TRUE. As in transit policies, certain types of valuable property likely to be targeted by thieves are commonly excluded in motor truck cargo liability policies, such as precious metals, jewelry, and fine arts.

Front 678

T or F: Property covered by a motor truck cargo liability policy is covered only while in or on a land vehicle operated by the insured (including connecting carriers) or while located at the insured's terminal.

Back 678

TRUE. Property covered by a motor truck cargo liability policy is covered only while in or on a land vehicle operated by the insured (including connecting carriers) or while located at the insured's terminal.

Terminal coverage is usually limited to a certain time period, such as 72 hours.

Front 679

BMC 32 – Endorsement for Motor Common Carrier Policies of Insurance for Cargo Liability

Back 679

An endorsement that insurers must attach to motor truck cargo liability policies of interstate carriers stating that the insurer will pay cargo claims for which the insured is liable, up to the limits required by the U.S. Department of Transportation, even if such claims are not covered under the policy.

Front 680

Equipment floaters

Back 680

A category of inland marine policies covering various types of equipment, wherever it may be located in the policy period.

In many cases, the main exposure covered by such policies is equipment normally used away from the insured's premises, such as a building contractor's tools and mechanized equipment.

Two of the most important types of equipment floaters cover these types of property:
- Contractors equipment
- Electronic data processing equipment

Front 681

Contractors equipment floater

Back 681

A policy that covers mobile equipment or tools while located anywhere in the coverage territory.

A contractors equipment floater normally contains a schedule that lists each piece of equipment and its corresponding limit of insurance. Coverage may be on an open perils basis or for named perils. These floaters frequently include rental reimbursement coverage, which pays the cost of renting substitute equipment when covered property has been put out of service by a covered cause of loss.

Contractors equipment is the largest class of commercial inland marine insurance.

Front 682

Upgraded value

Back 682

The cost to replace covered equipment with the latest comparable state-of-the-art equipment available; can be used as a valuation basis in an EDP floater.

Front 683

Electronic Data Processing (EDP) equipment floater

Back 683

Typically covers equipment, data, and media owned by the insured, as well as similar property of others in the insured's care, custody, or control. Extra expense coverage is also usually included. (BIC can be added.)

Many EDP floaters cover special perils such as mechanical or electrical breakdown to computer equipment, which otherwise can only be covered in an equipment breakdown policy. They also typically insure covered property while in transit.

Front 684

Definition of “equipment” for EDP floater

Back 684

Defined broadly. Is “your electronic data processing equipment, word processing equipment, and telecommunications equipment, including their component parts”.

Front 685

Breakdown coverage

Back 685

Coverage, in an EDP equipment floater, for perils such as mechanical failure, electrical disturbance, and damage to electronic data when covered equipment breaks down.

Optional for the insured to purchase.

Front 686

T or F: EDP policies typically do not cover computer virus losses.

Back 686

FALSE. EDP policies typically cover computer virus losses if they can be attributed to a covered cause of loss. If, for example, the virus was planted in the system by an outsider with malicious intent, the loss will be covered if the policy covers vandalism (and does not exclude computer virus losses).

Front 687

Fundamental differences b/w a builders risk policy and an installation floater

Back 687

A builders risk policy covers an entire building or other structure during the course of construction, including the building supplies and material that will become part of the covered structure. The entity insured is usually the owner, the builder, or perhaps both.

An installation floater usually covers property installed at a work site by a particular contractor or subcontractor. The coverage normally applies while the property is in transit or in temporary storage and during the installation and testing process. The entity insured is usually the contractor or subcontractor installing the property.

Front 688

T or F: Inland marine builders risk policies usually provide weaker coverage than the commercial property version of builders risk coverage and allow for rating flexibility.

Back 688

FALSE. Inland marine builders risk policies usually provide broader coverage than the commercial property version of builders risk coverage and allow for rating flexibility.

Inland marine builders risk policies typically cover the structure under construction, temporary structures at the building site, and building materials that have not yet become part of the building. Building materials are covered while on the insured location, in transit, or in storage at another location. BIC may be provided as part of the policy.

Front 689

T or F: Inland marine builders risk policies typically cover losses that are usually excluded under standard commercial property forms, such as flood, earthquake, theft of building materials that have not been installed, and boiler explosion.

Back 689

TRUE. Inland marine builders risk policies typically cover losses that are usually excluded under standard commercial property forms, such as flood, earthquake, theft of building materials that have not been installed, and boiler explosion.

Front 690

Installation floater

Back 690

Policy that covers a contractor's interest in building supplies or fixtures that the contractor has been hired to install.

Carpeting, tile, windows, elevators, and machinery are examples of property that can be covered.

A typical installation floater covers the property during the course of transit and while being installed and tested at the work site. The point at which coverage ends is usually the earliest of these times: * when the insured's financial interest ceases, when the purchaser accepts the property as complete, or when the policy expires or is canceled

Front 691

Bailee

Back 691

The party temporarily possessing the personal property in a bailment

Front 692

Bailor

Back 692

The owner of the personal property in a bailment

Front 693

Warehouse operators legal liability policy

Back 693

Policy that covers warehouse operators against liability for damage to the property of others being stored in operators' warehouses.

This is a type of bailee liability policy, which covers loss by an insured peril to property in the bailee's care, custody, or control only if the bailee is legally liable for the loss.

Front 694

Bailees' customers policy

Back 694

A policy that covers damage to customers' good while in the possession of the insured, regardless of whether the insrued is legally liable for the damage.

Front 695

Pattern and die floater

Back 695

A policy that covers the insured's patterns and dies while located at the premises of others and also while in transit to and from those premises.

Front 696

Processing floater

Back 696

A policy that covers the insured's goods while being worked on at a subcontractor's or processor's premises and while in transit to and from those premises.

Front 697

Dealers policy

Back 697

A policy that covers the inventory and other property of any of the types of dealers that qualify for inland marine coverage (such as jewelers, equipment dealers, fine arts dealers, and furriers).

Front 698

T or F: In practice, many dealers are insured under BOPs rather than under inland marine Dealers policies

Back 698

TRUE. In practice, many dealers ARE insured under BOPs rather than under inland marine Dealers policies

Front 699

Types of dealers eligible for inland marine dealers policies

Back 699

Jewelers
Equipment (farm or construction) dealers
Fine arts dealers
Furriers
Camera dealers
Musical instrument dealers
Stamp and coin dealers
Dealers of any other property that, when sold to the ultimate purchaser, mayb e covered, by the owner, under an inland marine policy

Front 700

Block policy

Back 700

A dealers policy, particularly one written for a jeweler or furrier

Front 701

Signs Coverage Form

Back 701

Form that covers neon, florescent, automatic, or mechanical signs

Front 702

Accounts receivable insurance

Back 702

Insurance that covers the sums the insured is unable to collect when records of accounts receivable are destroyed by a covered cause of loss.

Front 703

Valuable papers and records insurance

Back 703

Insurance that covers direct physical loss to valuable papers and records, such as architects' blueprints and plans

Front 704

Covered equipment types

Back 704

- Boilers and pressure vessels
- Electrical equipment
- Mechanical equipment
- Air conditioning and refrigeration equipment
- Office equipment and systems

More specifically, “covered equipment” includes:

• Equipment built to operate under internal pressure or vacuum other than weight of contents
• Electrical or mechanical equipment that is used in the generation, transmission, or utilization of energy
• Communication equipment, and “Computer Equipment”, and
Equipment in the above categories that is owned by a public or private utility and used solely to supply utility services to your premises

Front 705

• Excluded types of equipment

Back 705

“Media”
• Part of pressure or vacuum equipment that is not under internal pressure of its contents or internal vacuum
• Insulating or refractory materials, but not excluding the glass lining of any “Covered Equipment”
• Non-metallic pressure or vacuum equipment
• Catalyst
• Vessels, piping, and other equipment that is buried below ground
• Structure, foundation, cabinet or compartment support covered equipment
• Vehicle, aircraft, self-propelled equipment or floating vessel including any covered equipment
• Dragline, excavation, or construction equipment including any covered equipment
• Felt, wire, screen, die, extrusion plate, swing hammer, grinding disc, cutting blade, non-electrical cable, chain, belt, rope, clutch plate, brake pad, non-metal part or any part or tool subject to periodic replacement

Front 706

Apparent causes of equipment breakdown losses

Back 706

- Heat
- Pressure
- Electrical energy
- Centrifugal force
- Reciprocating motion

Front 707

Characteristics of Equipment Breakdown Insurance

Back 707

- Small, specialized field (an insufficient volume for some carriers)
- Role of reinsurance
- Importance of risk control

Front 708

Common perils affecting equipment which are covered by the Equipment Breakdown policy

Back 708

- Boiler explosion
- Electrical breakdown
- Mechanical breakdown
- Rupture or bursting from centrifugal force

Front 709

Common perils affecting equipment which are NOT covered by the Equipment Breakdown policy (and are instead covered by Commercial Property Policy)

Back 709

- Explosion of unfired pressure vessels
- Furnace explosion
- Fire

Front 710

• Insuring agreements

Back 710

Property Damage
• Expediting Expense
• Business Income and Extra Expense – Or Extra Expense Only
• Spoilage Damage
• Utility Interruption
• Newly Acquired Premises
• Ordinance or Law Coverage
• Errors and Omissions
• Brands and Labels
Contingent Business Income and Extra Expense – Or Extra Expense Only

Front 711

Covered cause of loss for all of the insuring agreements

Back 711

“Breakdown” to “covered equipment”

Front 712

Insuring agreement: Property Damage

Back 712

Pays for direct damage to these types of “Covered Property”:
• Property that the named insured owns
• Property that is in the named insured's care, custody, or control and for which the named insured is legally liable. In either case, the property must be situated at a location described in the declarations.

Condition: “Defense”: Gives the insurer the right, but not the duty, to defend the insured against suits arising from claims of property owners (such as the owner of property in the insured's care, custody, or control). If the insurer chooses to defend against a claim or suit, it will pay the resulting expenses.

Front 713

Insuring agreement: Expediting Expenses

Back 713

The insurer agrees to pay such expenses that the insured necessarily incurs.

Front 714

Insuring agreement: Spoilage Damage

Back 714

Covers spoilage damage to raw materials, property in process, or finished products while in storage or in the course of being manufactured.

Spoilage must result from the lack or excess of power, light, heat, steam, or refrigeration, and the insured must own or be legally liable for the property.

The insurer also agrees to pay expenses the insured incurs to reduce the amount of spoilage loss, not to exceed the amount that would otherwise have been payable.

Front 715

Insuring agreement: Business Income

Back 715

Can provide business income and extra expense coverage or only extra expense coverage

Pays actual loss of business income during the period of restoration resulting from breakdown to covered equipment.

Front 716

Insuring agreement: Utility Interruption

Back 716

Extends any business income, extra expense, or spoilage damage coverage provided by the policy to include loss resulting from breakdown of covered equipment owned, operated, or controlled by the local private or public utility or distributor from whom the insured receives utilities.

Front 717

Insuring agreement: Contingent Business Income

Back 717

Covers business income and extra expense (or only extra expense) arising from breakdown to covered equipment at the location, shown in the declarations, that is NOT owned or operated by the insured.

Front 718

Insuring agreement: Newly Acquired Premises

Back 718

Extends the other coverages provided by the policy to apply at newly acquired premises the insured buys or leases. Continues for the number of days (starting with the acquisition date) shown in the declarations.

Front 719

Insuring agreement: Ordinance or Law Coverage

Back 719

Covers losses brought about by ordinances or laws that regulate the repair or construction of buildings resulting after a breakdown loss.

Front 720

Insuring agreement: Errors and Omissions

Back 720

Commits the insurer to pay for loss or damage not otherwise covered under this form solely because of any of these reasons:
• Any error or unintentional omission in the description or location of insured property
• Any failure through error to include any premises owned or occupied by the insured on the policy's inception date
Any error or unintentional omission by the insured that results in cancellation of any premises insured under the policy

Front 721

Insuring agreement: Brands and Labels

Back 721

Pays reasonable costs the insured incurs in stamping merchandise with the word “Salvage” or removing brands and labels

Front 722

Exclusions

Back 722

In addition to the exclusions within the policy definitions, equipment breakdown policies contain these exclusions:

- Exclusions similar to exclusions contained in commercial property policies
- Exclusions that eliminate coverage for perils usually insured in other policies
- Other exclusions

Front 723

• Exclusions similar to commercial property exclusions

Back 723

Ordinance or law
• Earth movement
• Water
• Nuclear hazard
• War or military action
• Wear and tear or gradual deterioration (unless a breakdown occurs)
• Neglect to use all reasonable means to save covered property from further damage at and after the time of a loss
Fungus, wet rot, and dry rot

Front 724

• Exclusions for perils usually insured in other policies

Back 724

Fire or combustion explosion that results in a breakdown, that occurs at the same time as a breakdown, or that ensues from a breakdown
• Water or other means of extinguishing a fire
• Breakdown caused by any of the following perils if coverage for that peril is provided by another policy of the insured's, whether collectible or not: aircraft or vehicles; freezing caused by cold weather; lightning; sinkhole collapse; smoke; riot; civil commotion; or vandalism; or weight of snow, ice, or sleet
• Breakdown caused by windstorm or hail
• Business income, extra expense, or utility interruption coverage for:
◦ Business that would not or could not have been conducted if the breakdown had not occurred
◦ The insured's failure to use due diligence and dispatch in operating the business
The suspension, lapse, or cancellation of a contract

Front 725

Other exclusions

Back 725

Certain types of testing that place above-normal stresses on equipment, such as a pressure or electrical test

Front 726

• Limits

Back 726

One overall limit, which is the most that the insurer will pay for loss or damage from any one breakdown (“limit per breakdown”) - typically equal to the covered property's value (if one location) or maximum possible loss at highest valued location
• Additionally, separate limits may be shown for some of the insuring agreements, such as equipment breakdown business income coverage.
• Sublimits of $25,000 are common for the following:
◦ Spoilage damage to covered property resulting from ammonia contamination
◦ Reduction in value of undamaged parts of a product that becomes unmarketable
◦ Cost to research, replace, or restore, damaged computer data or media, including the cost to reprogram instructions used in any computer equipment
◦ Additional expenses the insure dincurs to clean up, repair, replace, or dispose of covered property that is damaged or contaminated by a hazardous substance
◦ Damage to covered property by water (no coverage applies when it results from leakage of a sprinkler system or domestic water piping)
Fungus, Wet Rot, Dry Rot: $15,000 aggregate limit (unless shown otherwise in decs)

Front 727

Deductibles

Back 727

Deductibles apply separately for each applicable coverage (and so insuring agreements can have different deductibles); only the highest applicable deductible will apply if multiple are involved in one breakdown

Front 728

• Conditions

Back 728

Valuation
• Coinsurance
• Policy Period, Coverage Territory
• Premium and Adjustments
• Suspension
• Joint or Disputed Loss Agreement
Jurisdictional Inspections

Front 729

• Valuation

Back 729

Replacement Cost basis
• If not repaired or replaced w/in 24 months after the time of loss, the insurer will pay no more than (1) what it would have cost to repair the property at the time of loss, or (2) the property's ACV at th etime of loss, whichever amount is less
• Property held for sale is valued at selling price, less discounts & expenses
• The policy provides that the insurer will pay the additional cost to replace covered equipment with equipment that is better for the environment, safer, or more efficient than the equipment being replaced (the most the insurer will pay is an additional 25 percent)
Spoilage = replacement cost

Front 730

• Coinsurance

Back 730

Generally applies only to time element coverages
• Must complete an annual report of values if you have equipment breakdown business income/extra expense coverage
Operates as a 100% coinsurance clause

Front 731

• Policy Period, Coverage Territory

Back 731

Policy period shown in decs
Loss or damage must occur w/in coverage territory of U.S. Et al.

Front 732

Premium and Adjustments

Back 732

Requires the insured to report to the insurer annually the total insurable property values at each insured location as of the policy's anniversary date (if the insured has business income and extra expense coverage)

Front 733

Suspension

Back 733

Allows the insurer or any of its representatives to immediately suspend equipment breakdown insurance on an item of equipment that the insurer determines to be in a dangerous condition

Front 734

Joint or Disputed Loss Agreement

Back 734

Condition that addresses claim situations in which the insured's equipment breakdown insurer and the insured's commercial property insurer disagree on which insurer covers a loss; each insurer pays half the loss to quickly indemnify the insured; insurers then resolve their differences

Front 735

Jurisdictional Inspections

Back 735

A condition in equipment breakdown policies that provides that the insurer will perform required inspections of boilers and other equipment on the insured's behalf

Front 736

BOP

Back 736

A package policy that includes most of the property and liability coverages needed by small and midsize businesses. Businessowners policies typically provide building and business personal property coverage, business income and extra expense coverage, and the equivalent of commercial general liability coverage.

Front 737

Packaging several coverages (as in a BOP) has the following benefits:

Back 737

- Reduces adverse selection
- (Due to simplified rating) reduces insurers' handling costs
- Can often use automated rating instead of an underwriter, leading to more favorable premiums

Front 738

Eligibility rule changes with the 2010 ISO BOP revision

Back 738

- Maximum gross sales at each of the insured's locations raised from $3 million to $6 million
- Maximum size of an eligible building has been increased from 25,000 to 35,000 square feet
Stores selling gasoline are eligible as long as they have at least 3,000 square feet and do not repair vehicles or fill propane or kerosene tanks
- More types of restaurants are eligible

Front 739

BOP: Additional Coverages: Business Income and Extra Expense – three ways they differ from the separate ISO business income and extra expense forms:

Back 739

- BOP coverages are subject to a one-year limit instead of the dollar limits in other forms
The BOP coverages are not subject to coinsurance; therefore, coverage is simplified and any possibility of a coinsurance penalty is eliminated.
The BOP coverages limit ordinary payroll coverage to 60 days following the date of the physical loss unless a greater number of days is shown in the declarations

Front 740

Business Income From Dependent Properties (BOP)

Back 740

Insures the actual loss of business income resulting from damage at the premises of a dependent property caused by any covered cause of loss up to $5,000, or a higher limit shown in the declarations.

Front 741

Glass Expenses

Back 741

Additional coverage unique to BOP – pays the cost to install temporary plates or to board up openings if repair or replacement is delayed.

Front 742

Fire Extinguisher Systems Recharge Expense

Back 742

Additional coverage unique to BOP – pays up to $5,000 per occurrence to cover the cost of recharging or replacing (whichever is less) the insured's fire extinguishers and fire extinguisher systems if they are discharged on or within 100 feet of the insured premises. The coverage includes hydrostatic testing, if necessary

Front 743

Building Limit – Automatic Increase

Back 743

Increases the stated limit for buildings by an annual percentage shown in the declarations. (The annual percentage is applied on a pro rata basis throughout the policy year.)

Front 744

Seasonal increase provision

Back 744

A provision commonly included in BOPs that addresses fluctuating personal property values by automatically increasing the amount of insurance for certain time periods. Limit for business personal property is automatically increased by 25 percent, but only if the limit for personal property in the declarations is 100 percent or more of the insured's average monthly personal property value for the twelve months preceding the date of the loss.

Front 745

Farm Liability Coverage Form

Back 745

Covers both personal and farm business liability exposures. Combines elements of homeowners liability coverage and commercial general liability coverage and contains special provisions that address liability loss exposures unique to farms

Front 746

Farm Umbrella Liability Policy / Farm Excess Liability Policy

Back 746

Can be used to provide limits of liability in excess of underlying policies for farm liability, auto liability, farm employers liability, recreational motor vehicle liability, and watercraft liability.

Front 747

Crop hail insurance

Back 747

Insurance offered by private insurers that covers crops against loss caused by hail and often other perils (fire, windstorm, damage caused by livestock, and vehicles)

Front 748

Multiple peril crop insurance (MPCI)

Back 748

Insurance offered by the federal government that covers unexpected crop production losses due to natural causes such as drought, excessive moisture, hail, windstorm, and flood. Does NOT cover losses resulting from neglect, poor farming practices, or theft

Front 749

Animal mortality insurance

Back 749

Insurance that covers loss of valuable animals by (1) death resulting from accident, injury, sickness, or disease, or (2) theft, subject to exclusions. Can be written for whatever limit is appropriate

Front 750

T or F: Most animal mortality policies cover the intentional destruction of an insured animal that is suffering from an irreversible or incurable condition, as long as the condition results from a cause that is not excluded and the intentional destruction is necessary for humane reasons.

Back 750

TRUE, but, before destroying the animal, the insured must have either the insurer's consent or a veterinarian's certification that destruction was immediately required

Front 751

Feedlot insurance

Back 751

A specialized type of livestock coverage that covers animals while in the custody of a commercial feedlot operator; this coverage is purchased by the feedlot operator. Limit to named perils such as fire, explosion, windstorm, electrocution, drowning, and attack by dogs or wild animals. Loss by smothering (commonly occurs during blizzards) may or may not be covered. Exposure to the elements is also often not covered.

Front 752

Financial institution bond

Back 752

A policy that covers the crime loss exposures of financial institutions such as banks, savings and loan institutions, and insurance companies.

Front 753

Financial Institution Bond Form 24

Back 753

Used to insure commercial banks and savings and loan associations; one of the most widely used SFAA financial institution bonds. Used to be called the “Bankers Blanket Bond”.

Front 754

Rider

Back 754

Essentially the same thing as an endorsement

Front 755

Bond Form 24 – Insuring Agreement A – Fidelity

Back 755

Covers losses resulting directly from dishonest or fraudulent acts committed by an employee acting alone or in collusion with others.

Requires the employee's acts to have been committed with “the active and conscious purpose to cause the Insured to sustain such loss.”

“Employee” here includes (1) attorneys and their employees retained by the insured while performing legal services for the insured and (2) corporations or partnerships and their employees performing data processing of checks or other records for the insured.

Because employee dishonesty accounts for the vast majority of financial institution losses, fidelity, the historical name for employee dishonesty coverage, is the most important element of the bond

Front 756

Bond Form 24 – Insuring Agreement B – On Premises

Back 756

Covers “property” located at any office or premises anywhere in the world against a broad range of named perils.

Covered property includes money, securities, gems, jewelry, precious metals, and all other tangible personal property.

Covered losses include robbery, burglary, misplacement, and mysterious unexplained disappearance, as well as damage to or destruction of the property, while the property is “lodged or deposited within offices or premises located anywhere”. The act that causes the loss must be committed on the insured's premises.

Front 757

Bond Form 24 – Insuring Agreement C – In Transit

Back 757

Insures property in transit anywhere in the custody of certain types of individuals or organizations.

Covered perils are “robbery, common-law or statutory larceny, theft, misplacement, mysterious unexplainable disappearance, and damage thereto or destruction thereof”.

Property in transit must be (1) in the custody of a “messenger” or (2) in the custody of a transportation company and being transported in an armored vehicle.

Front 758

Bond Form 24 – Insuring Agreement D – Forgery or Alteration

Back 758

Covers loss resulting from forgery of a signature or alteration involving most types of negotiable instruments and certain other listed instruments.

Losses resulting from written instructions directed towards the insured that have been altered or that bear a forged signature are also covered.

Front 759

Forgery, in the context of Bond Form 24

Back 759

The signing of the name of another with the intent to deceive. (It does NOT include the genuine but unauthorized signature of the signer.)

Front 760

Bond Form 24 – Insuring Agreement E – Securities

Back 760

Covers loss sustained by the insured because of the insured's reliance on certain listed instruments that bear a forged signature, that are altered, or that are counterfeit or stolen.

Front 761

Bond Form 24 – Insuring Agreement F – Counterfeit Money

Back 761

Covers loss when the bank, acting in good faith, receives any counterfeit or altered paper securities, money, or coins of the U.S., Canada, or another country in which the insured maintains a branch office

Front 762

Bond Form 24 – Insuring Agreement G – Fraudulent Mortgages

Back 762

Covers loss resulting from the insured's good-faith acceptance of a mortgage or deed of trust that proves to be defective because the signature on the mortgage or deed was obtained through fraud or false pretenses

Front 763

Loan exclusion (Bond Form 24)

Back 763

If the insured advances funds to a borrower with the expectation of repayment in the normal course of business, but such repayment is not made, the bond excludes coverage for the resulting loss

Front 764

Exclusion of property contained in customers' safe deposit boxes (Bond Form 24)

Back 764

Form 24 does not cover loss resulting from a burglary or robbery of customers' property from a safe deposit box unless the loss is caused by dishonesty on the part of a bank employee

Front 765

Trading exclusion (Bond Form 24)

Back 765

Losses related to unauthorized securities trading, often referred to as “rogue trading”, are excluded.

Front 766

Uncollected funds exclusion (Bond Form 24)

Back 766

Eliminates coverage for loss involving items of deposit that “are not finally paid for any reason”

Front 767

Extortion exclusion (Bond Form 24)

Back 767

Excludes loss by extortion. SFAA riders can be added to the bond to cover, for an additional premium, threats against persons or property

Front 768

Excess Bank Employee Dishonesty Bond (Form 28)

Back 768

A method of covering severe employee dishonesty exposures of banks. Applies only to the Fidelity coverage agreement and is usually written for amounts of $1 million or more, applying in excess of other applicable bonds and insurance.

Front 769

Computer Crime – Insuring Agreement – Computer Systems Fraud

Back 769

Covers loss caused by someone who has managed to enter or change electronic data or computer programs in the insured's computer system

Front 770

Computer Crime – Insuring Agreement – Data Processing Service Operations

Back 770

Designed for insureds that perform data processing services for others under contract. It covers loss sustained by the insured's clients caused by fraudulent entries or changes in the insured's computer system if the insured is legally liable to its client.

Front 771

Computer Crime – Insuring Agreement – Voice Initiated Transfer Fraud

Back 771

Covers the fraudulent transfer of funds based on telephone instructions given by someone pretending to be either a customer or an employee in another office. Security measures are required, and – when the transfer exceeds the amount specified in the policy – the transaction must be confirmed by a call-back to verify the instructions.

Front 772

Computer Crime – Insuring Agreement – Telefacsimile Transfer Fraud

Back 772

Covers the fraudulent transfer of funds based on faxed instructions given by someone pretending to be either a customer or an employee in another office

Front 773

Computer Crime – Insuring Agreement – Destruction of Data or Programs by Hacker

Back 773

Covers destruction of, or damage to, electronic data or computer programs by a hacker

Front 774

Computer Crime – Insuring Agreement – Destruction of Data or Programs by Virus

Back 774

Covers destruction of, or damage to, electronic data or computer programs resulting from a computer virus

Front 775

Computer Crime – Insuring Agreement – Voice Computer System Fraud

Back 775

Covers loss resulting from unauthorized telephone long-distance toll charges. The charges can be caused by fraudulent use of codes or passwords to obtain access to parts of the insured's voice communications network.

Front 776

Combination Safe Depository Policy

Back 776

A policy that enables a financial institution to cover loss of or damage to its customers' property in the insured's safe-depository facilities and damage to the insured's premises

Front 777

Mortgage impairment insurance

Back 777

Insurance that protects a lending institution or mortgage servicing agency against losses arising out of the insured's failure to maintain insurance protecting mortgaged property, as well as other exposures connected with servicing mortgages

Front 778

Mortgage impairment insurance – Coverage A – Mortgageholders Interest

Back 778

Covers loss to the insured's interest as mortgageholder in covered property resulting from the insured's (or its representative's) error or accidental omission when following its customary procedure to require, procure, and maintain insurance on the mortgaged property.

Front 779

Mortgage impairment insurance – Coverage B – Property Owned or Held in Trust

Back 779

Covers loss to property owned (such as a house on which a bank has foreclosed) or held in trust by the insured.

Front 780

Mortgage impairment insurance – Coverage C – Mortgageholders Liability

Back 780

Covers the insured's liability for damages arising form the insured's duties as a mortgage fiduciary or servicing agent

Front 781

Mortgage impairment insurance – Coverage D – Real Estate Tax Liability

Back 781

Covers damages for which the insured becomes liable because it failed to pay a mortgagor's real estate taxes

Front 782

Mortgage guarantee insurance

Back 782

Insurance that protects a mortgageholder from loss if the borrower fails to repay the mortgage loan

Front 783

Title insurance

Back 783

Insurance that protects against loss resulting from defects in a title to real property

Front 784

ISO's Market Segments Program

Back 784

A series of endorsements to expand commercial property and general liability coverages to meet the insurance needs of specific types of businesses.

Front 785

Types of provisions added by ISO's Market Segments Program endorsements

Back 785

- Provisions that add higher limits for coverage extensions or additional coverages
- Provisions that add coverages available in other ISO forms
- Provisions that add coverages not found in any other ISO forms

Front 786

Ordinance or Law – Equipment

Back 786

ISO Market Segments Program endorsement

Covers the increased cost required by law to repair or replace covered equipment lost or damaged by a covered peril

Front 787

Tenant Move Back Expenses

Back 787

ISO Market Segments Program endorsement

Indemnifies the insured for up to $15000 for expenses it incurs to move tenants back to the insured premises when the tenants must temporarily vacate because of untenantability from loss or damage by a covered cause of loss.

Front 788

Sale and Disposal Liability

Back 788

ISO Market Segments Program endorsement

Covers the insured's liability for acts or omissions arising out of the lock-out, sale, removal or disposal of tenants' property when the tenant is evicted for failure to pay rent.

Front 789

Merchandise Withdrawal Expenses

Back 789

ISO Market Segments Program endorsement

Covers expenses associated with the recall or withdrawal of items sold or held for sale because of a known or suspected defect or a known or suspected tampering with the items, which has caused or is reasonably expected to cause bodily injury or damage to tangible property.

Front 790

Delivery Errors and Omissions coverage

Back 790

ISO Market Segments Program endorsement

Covers the failure to deliver, or the misdelivery of, customers' goods. The annual aggregate limit is $5,000, subject a $250 deductible per loss.

Front 791

Home Improvement Design Errors & Omissions

Back 791

ISO Market Segments Program endorsement

Covers the insured's legal liability for damages caused by a home improvement design error or omission by the insured. Annual aggregate limit of $10000 applies, subject to a $250 deductible per loss

Front 792

Guests' Evacuation Expense

Back 792

ISO Market Segments Program endorsement

Pays up to $25000 limit to reimburse expenses the insured incurs to evacuate the premises because of imminent danger to the life or safety of the guests

Front 793

Guests' Relocation Expense

Back 793

ISO Market Segments Program endorsement

Provides up to $500 per guest / $50,000 per occurrence for reimbursement of expenses incurred when guests are lodged at another facility when the insured location is rendered uninhabitable because of loss or damage by a covered cause of loss.

Front 794

Customers' Property Legal Liability

Back 794

ISO Market Segments Program endorsement

Covers the insured's liability for property damage to a customer's property while at the insured's self-storage facility. The annual aggregate limit is $100,000 subject to a $250 deductible per loss

Front 795

Surety bond

Back 795

A written contract that expresses one party’s promise to answer for another party’s failure to do something as promised.

Front 796

Principal

Back 796

The party to a surety bond whose obligation or performance the surety guarantees.

Front 797

Obligee

Back 797

The party to a surety bond that receives the surety’s guarantee that the principal will fulfill an obligation or perform as promised.

Front 798

Surety

Back 798

The party (usually an insurer) to a surety bond that guarantees to the oblige that the principal will fulfill an obligation or perform as required by the underlying contract, permit, or law.

Front 799

- Four qualities that distinguish a surety bond from most property and liability policies

Back 799

There are three parties to the contract
- The principal is liable to the surety for losses paid by the surety
- In theory, the surety should not sustain any losses on any surety contracts
The coverage period is indefinite

Front 800

- A principal’s qualifications (in surety) are sometimes summed up as these 3 Cs

Back 800

Capital (does the principal have sufficient funds and credit to finance the project and all other ongoing work?)
- Capacity (does the principal have the skill, experience, staff, and equipment to execute the work successfully?)
Character (does the principal have a reputation for honoring agreements even when there are adverse developments?)

Front 801

T or F: some types of surety bonds may be cancelable

Back 801

TRUE. Some types of surety bonds are cancelable.

Typically, bonds allowing cancellation require the surety to give notice of cancellation to the obligee. Cancellation becomes effective a certain number of days thereafter as stipulated in the bond itself or provided by law or regulation.

Front 802

Statutory Nature of Bonds

Back 802

Many bonds are required by municipal ordinance or federal or state regulations or statutes

Front 803

Bond Limit

Back 803

A bond is written for a set limit, sometimes called the “penalty”. If the principal’s obligation exceeds the limit, the surety will be liable only for the amount of the limit.

Front 804

Forfeiture basis

Back 804

Some surety bonds are issued on a forfeiture basis, meaning that the entire amount of the bond is paid if the principal defaults

Front 805

Suretyship

Back 805

The obligation of one entity to answer for the debt, default, or miscarriage of performance of duties by another entity

Front 806

Contract bond

Back 806

A surety bond guaranteeing the fulfillment of obligations under construction contracts or other types of contracts

Four types of contract bonds:
- Performance bonds
- Payment bonds
- Bid bonds
Maintenance bonds

Front 807

Miller Act

Back 807

A federal statute that governs contracts for the construction, alteration, or repair of any public buildings or public work for the federal government. Requires that, when construction contracts exceed $100,000, a contractor must furnish a performance bond for the protection of the government and a payment bond for the protection of suppliers of labor and materials.

Front 808

Bid bond

Back 808

A contract bond guaranteeing that a contractor bidding on a construction or supply contract will enter into the contract and will provide a performance bond if the bid is accepted.

Front 809

Performance bond

Back 809

A contract bond guaranteeing that a contractor’s work will be completed according to plans and specifications

Front 810

Payment bond

Back 810

a.k.a. labor and materials bond

A contract bond guaranteeing that the project will be free of liens

Front 811

Mechanic’s lien

Back 811

A right granted by statute and is available to those who seek to secure the value of their work or services that have gone into the form of additions on real estate. When a lien is placed on such property, the owner does not have clear title to the property until all debts are settled.

Front 812

Maintenance bond

Back 812

A contract bond guaranteeing that the work will be free from defects in materials and workmanship for a specified period after the project is completed

Typically for one year after completion

Front 813

Subdivision bond

Back 813

A contract bond guaranteeing a local governmental authority that a subdivision developer will complete the subdivision in accordance with approved proposals and at the developer’s expense

Front 814

Supply contract bond

Back 814

A contract bond guaranteeing that a supplier will perform the designated supply contract according to specifications. Specifically, it is an agreement for furnishing and delivering materials/supplies at an agreed price.

Front 815

- Two primary reasons why licenses are required by the federal government, states, counties, cities, and political subdivisions:

Back 815

They are a source of revenue
They help regulate license holders through statutes, regulations, or ordinances that exist for the safety and general welfare of the community

Front 816

License and permit bonds

Back 816

Surety bonds that provide payment to the oblige (the state, city, or other public entity) for loss or damage resulting from violations of the duties and obligations imposed on the licensee or permit holder

Front 817

Surety Bond Guarantee Program

Back 817

Program provided by the Small Business Administration (SBA) to give small, less-experienced contracting firms the opportunity to be bonded so they can compete for bonded jobs and prove themselves by profitably performing work to specifications.

Under this program, the SBA does not issue surety bonds. It merely guarantees to reimburse a participating surety for a stipulated portion – such as 70, 80, or 90 percent – of any loss sustained.

Front 818

Compliance-only bond

Back 818

Classification of license and permit bond

Principal will comply with the laws that apply to the activity for which the principal is licensed

Front 819

Compliance bonds with third-party liability

Back 819

Classification of license and permit bond

Principal will comply with the laws that apply to the activity for which the principal is licensed and pay damages to any third party that suffers a loss because of the principal’s failure to comply

Front 820

Forfeiture bonds

Back 820

Classification of license and permit bond

Surety will pay (forfeit) the entire bond penalty if the principal fails to complete the bonded obligation

Front 821

Public official bond

Back 821

A commercial surety bond guaranteeing that a public official will perform his or her duties faithfully and honestly.

Available for administrative officials, officials who handle public funds, and officials with direct public involvement

Front 822

Payment of tax or fee bonds

Back 822

Classification of license and permit bond

Principal will properly account for an remit taxes or fees collected

Front 823

Merchandising and dealer bonds

Back 823

Classification of license and permit bond

Principal will conduct merchandising activities according to the law and, on many bonds, properly account for any funds held in trust and transfer them to the appropriate party

Front 824

Reclamation and environmental protection bonds

Back 824

Classification of license and permit bond

Principal will restore land to its original state after its operations are completed and clean up spills or runoff that pollute the land or water in the area of operation

Front 825

Court bonds

Back 825

A classification of surety bonds guaranteeing that a person or an organization will faithfully perform certain duties prescribed by law or by a court or will demonstrate financial responsibility for the benefit of another until the final outcome of a court’s decision

Two general categories: judicial bonds and fiduciary bonds.

Front 826

Attachment bond

Back 826

A judicial bond guaranteeing that, if the court decides against a plaintiff who has requested attachment of the defendant’s property, the defendant will be paid any damages that result from the property attachment

Front 827

Release of attachment bond

Back 827

A bond that guarantees that the insured will pay any damages and court costs if the court should decide in the claimant’s favor

Front 828

Appeal bond

Back 828

A judicial bond guaranteeing that a plaintiff who appeals an adverse decision to a higher court will pay all court costs of the appeal

Front 829

Defendant’s appeal bond (supersedeas bond)

Back 829

A judicial bond guaranteeing that a defendant who appeals an adverse decision to a higher court will pay the entire judgment, plus court costs and interest, should the higher court sustain the initial judgment for the plaintiff.

Front 830

Judicial bond

Back 830

Usually arise out of litigation. They are posted by a plaintiff or a defendant (the principal) in a court case to protect the opposing party in the event that the principal does not prevail in the court action.

Front 831

Plaintiff bond

Back 831

Guarantees that, if the court determines the plaintiff’s action was wrongfully taken, the plaintiff will pay any damages sustained by the defendant because of the action

Front 832

Defendant bond

Back 832

Guarantees that, if the court decides in the plaintiff’s favor, the defendant will refrain from the action, return the property, and/or pay damages sustained by the plaintiff

Front 833

Attach (in the context of property)

Back 833

Take (the property) by legal authority

Front 834

Fiduciary bond

Back 834

A court bond guaranteeing that a person appointed by a court to administer the property or interests of others will faithfully perform his or her duties

Front 835

Joint control

Back 835

When both the surety and the fiduciary control a ward’s assets

Front 836

Executor

Back 836

Fiduciary named in a will to administer an estate

Front 837

Miscellaneous bond

Back 837

Any bond that does not fit well under the other primary categories of surety bonds formulated by the Surety and Fidelity Association of America

Examples:
- Lost Securities Bonds
- Hazardous Waste Removal Bonds
Credit Enhancement Financial Guaranty Bonds

Front 838

Lost Securities Bonds

Back 838

Guarantee that the Principal will indemnify the obligee for any financial loss it suffers because of the duplicate securities it issues to the principal.

Parties protected: entity that issues replacement securities

Principal: Owner of the lost securities

Front 839

Hazardous Waste Removal Bonds

Back 839

Guarantee that the Principal will comply with the Environmental Protection Agency (EPA) and state laws for closure and post-closure care of hazardous waste facilities

Parties protected: Federal or State Government

Principal: Owner or operator of hazardous waste facility

Front 840

Credit Enhancement Financial Guaranty Bonds

Back 840

Guarantee that the Principal will pay interest to investors as promised and will return the principal at maturity of a debt instrument.

Parties protected: Investor

Principal: Government entities

Front 841

Commercial crime insurance is designed for:

Back 841

Insuring any type of nongovernment commercial or not-for-profit entity other than financial institutions.

Front 842

8 insuring agreements of commercial crime insurance:

Back 842

Employee Theft
Forgery or Alteration
Inside the Premises – Theft of Money & Securities
Inside the Premises – Robbery or Safe Burglary of Other Property
Outside the Premises
Computer Fraud
Funds Transfer Fraud
Money Orders and Counterfeit Money

*The phrase “Not Covered” is inserted on the dec page for those coverages that are not included.

Front 843

Forgery or Alteration insuring agreement of commercial crime insurance covers this cause of loss:

Back 843

Forgery or alteration of the insured’s checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum. (Not acceptance by the insured of forged checks, etc.)

Front 844

Employee Theft insuring agreement of commercial crime insurance covers what 'cause of loss'

Back 844

“Theft” committed by any “employee”

Front 845

Employee Theft insuring agreement of Commercial Crime Insurance covers what property?

Back 845

“Money”, “securities” and “other property”

Front 846

Employee Theft insuring agreement of commercial crime insurance coverage applies here:

Back 846

U.S. (& territories & possessions), Puerto Rico, & Canada. Also for employees temporarily outside the covered territory for <= 90 days.

Front 847

Conditions applying to the Employee Theft insuring agreement of the commercial crime insurance

Back 847

- Termination as to any employee
- Territory
- Employee benefit plans

Front 848

Inside the Premises – Theft of Money and Securities insuring agreement of commercial crime insurance

Back 848

Property covered: Money and securities
Causes of loss: Theft, disappearance, & destruction
Where coverage applies: Inside the “premises” or “banking premises” (The thief must be present inside the premises.)

Extension for damage to premises
Property covered: The “premises” or their exterior
Causes of loss: Actual or attempted “theft” of “money or securities”
Where coverage applies: at the premises

Extension for containers
Property covered: Locked safe, vault, cash register, cash box, or cash drawer
Causes of loss: Actual or attempted “theft” or “unlawful entry”
Where coverage applies: inside the premises

Front 849

Inside the Premises – Robbery or Safe Burglary of Other Property insuring agreement of commercial crime insurance

Back 849

Property covered: “Other property”
Causes of loss: Actual or attempted “robbery” of a “custodian” or “safe burglary”
Where coverage applies: Inside the premises

Extension for damage to premises
Property covered: The premises or their exterior
Causes of loss: Actual or attempted “robbery” or “safe burglary” of “other property”
Where coverage applies: At the premises

Extension for containers
Property covered: Locked safe or vault
Causes of loss: Actual or attempted “robbery” or “safe burglary”
Where coverage applies: Inside the premises

Special limit: $5000 per occurrence for these types of property: precious metals, precious or semiprecious stones, pearls, furs, or completed or partially completed articles made of or contained such materials that constitute the principal value of such articles.

Front 850

Outside the Premises insuring agreement of commercial crime insurance

Back 850

Property covered: Money & securities
Causes of loss: Theft, disappearance, or destruction
Where coverage applies: Outside the premises while in the care or custody of a “messenger” or an armored car company and inside the U.S. & et al.

Property covered: Other property
Causes of loss: Actual or attempted robbery
Where coverage applies: Outside the premises while in the care or custody of a “messenger” or an armored car company and inside the U.S. & et al.

Special limit: $5000 per occurrence for these types of property: precious metals, precious or semiprecious stones, pearls, furs, or completed or partially completed articles made of or contained such materials that constitute the principal value of such articles.

Front 851

Computer Fraud insuring agreement of commercial crime insurance

Back 851

Property covered: Money, securities, and other property
Causes of loss: Use of a computer to fraudulently cause a transfer of covered property
Where coverage applies: The property must be transferred from inside the “premises” or a “banking premises” to a person or place anywhere else in the world.

Exclusions: Computer-related theft committed by the insured’s own employees (because it’s covered under Employee Theft); Loss resulting from credit or debit card transactions or the information contained on such cards, and for loss due to funds transfer fraud

Sublimit: $5000 per occurrence for loss of or damage to manuscripts, drawings, or records of any kind, including the cost of reconstructing them.

Front 852

Funds Transfer Fraud insuring agreement of commercial crime insurance

Back 852

Property covered: “Funds” defined to mean money and securities
Causes of loss: “Fraudulent instruction” directing a financial institution to transfer, pay, or deliver funds
Where coverage applies: The financial institution must be located within the policy territory

Exclusions: Loss resulting from the use of a computer to fraudulently transfer money, securities, or other property.

Front 853

Money Orders and Counterfeit Money insuring agreement of commercial crime insurance

Back 853

Property covered: Money orders issued by any post office, express company, or bank; and “counterfeit money” paper currency acquired during the regular course of business.
Causes of loss: Good-faith acceptance of (1) money orders that are not paid upon presentation or (2) counterfeit money
Where coverage applies: U.S. & et al.

(Many firms retain this exposure believing it is better handled by loss control techniques)

Front 854

Additional Insuring Agreements of commercial crime insurance

Back 854

Lessees of Safe Deposit Boxes
Securities Deposited with Others
Guests’ Property
Destruction of Electronic Data or Computer Programs
Unauthorized Reproduction of Computer Software by Employees

Front 855

Lessees of Safe Deposit Boxes – additional insuring agreement of commercial crime insurance

Back 855

Property covered: Securities
Causes of loss: Theft, disappearance, or destruction
Where coverage applies: in a safe deposit box on the premises of a bank or other depository

Property covered: Property other than money and securities
Causes of loss: Burglary, robbery, and vandalism
Where coverage applies: in a safe deposit box on the premises of a bank or other depository

Front 856

Securities Deposited with Others – additional insuring agreement of commercial crime insurance

Back 856

Property covered: Securities
Causes of loss: Theft, disappearance, destruction
Where coverage applies: while in the custodian’s possession or on deposit by the custodian for safekeeping in a depository

Front 857

Guests’ Property – additional insuring agreement of commercial crime insurance

Back 857

Property covered: Guests’ property for which the insured is legally liable

Front 858

Destruction of Electronic Data or Computer Programs – additional insuring agreement of commercial crime insurance

Back 858

Covers the costs to restore or replace electronic data or computer programs stored in the insured’s computer system if such property is damaged or destroyed by a computer virus or by vandalism committed by a person who has gained unauthorized access to the insured’s computer system. Does not exclude acts of employees, mangers, directors, etc.

Front 859

Unauthorized Reproduction of Computer Software by Employees – additional insuring agreement of commercial crime insurance

Back 859

Can protect insureds against the cost of fines and penalties for the unauthorized reproduction of computer software by an employee in violation of a licensing agreement with a third-party vendor. (Must be without the knowledge of the insured, any of the insured’s partners, LLC members, etc.)

Front 860

Kidnap, Ransom, and Extortion coverage (additional option for commercial crime insurance)

Back 860

Typically contain a confidentiality condition requiring every insured not to divulge the existence of the insurance. Territory for this coverage is usually worldwide. Often this coverage pays for a variety of expenses beyond the ransom, including expenses associated with a kidnapped person’s release.

Front 861

Limit of Insurance - Commercial crime insurance

Back 861

A separate limit can be shown for each insuring agreement. If a loss is covered under more than one insuring agreement, the insurer will pay no more than the highest limit of the insurance agreements that apply.

Front 862

Exclusions – Commercial crime insurance

Back 862

* General exclusions
* Exclusion applicable only to employee theft
* Exclusions applicable to inside the premises and outside the premises
* Exclusions applicable to computer fraud
* Exclusion applicable to funds transfer fraud

Front 863

General exclusions for Commercial Crime

Back 863

* Acts Committed by You, Your Partners, or Your Members
* Acts of Employees Learned of by You Prior to the Policy Period
* Acts of Employees, Managers, Directors, Trustees, or Representatives
* (Unauthorized disclosure of ) Confidential Information
* Governmental Action (i.e., seizure or destruction by order of governmental authority)
* Indirect Loss (i.e., business income losses, legally liable damage payment, or expenses incurred in establishing the existence/amount of loss)
* Legal Fees, Costs, and Expenses
* Nuclear Hazard (i.e., loss or damage resulting from)
* Pollution
* War and Military Action

Front 864

Exclusions applicable only to employee theft insuring agreement (commercial crime insurance)

Back 864

* Inventory shortages
* Trading (i.e., loss resulting from an employee’s unauthorized trading in stocks, bonds, futures, commodities, etc.)
* Warehouse receipts (i.e., loss resulting from the fraudulent signing, issuing, canceling or failing to cancel, a warehouse receipt)

Front 865

Exclusions applicable to Inside the Premises and Outside the Premises insuring agreement (commercial crime insurance)

Back 865

* Accounting or Arithmetical Errors or Omissions
* Exchanges or Purchases (i.e., losses resulting from giving or surrendering property in an exchange/purchase)
* Fire
* Money Operated Devices (i.e. losses or property from vending machines, amusement devises, or change machines)
* Motor Vehicles or Equipment and Accessories
* Transfer or Surrender of Property
* Vandalism
* Voluntary Parting of Title To or Possession of Property (i.e., when the insured/agent of the insured is tricked into voluntarily handing over property to a thief)

Front 866

Exclusions applicable to Computer Fraud insuring agreement (commercial crime insurance)

Back 866

* Credit Card Transactions
* Funds Transfer Fraud
* Inventory Shortages

Front 867

Exclusion Applicable to Funds Transfer Fraud insuring agreement (commercial crime insurance)

Back 867

The Computer Fraud exclusion applies only to funds transfer fraud coverage, to avoid overlaps between the two coverages. This exclusion eliminates coverage under Funds Transfer Fraud for loss resulting from the use of a computer to fraudulently cause a transfer of money, securities, or other property.

Front 868

Two versions of the crime coverage forms/policies

Back 868

Loss sustained and discovery

Front 869

Policy Conditions (commercial crime insurance)

Back 869

* Extended Period to Discover Loss
* Loss Sustained During Prior Insurance Issued by Us or Any Affiliate
* Loss Sustained During Prior Insurance Not Issued by Us or Any Affiliate
* Policy Bridge

Front 870

Extended Period to Discover Loss condition (commercial crime insurance)

Back 870

Applies only if the policy is cancelled. The insurer agrees to pay for loss sustained before the effective date of cancellation, but only if the insured discovers the loss within a specified period following the cancellation date.

For most claims, the loss sustained forms provide a 1-year extended discovery period; discovery forms provide only a 60-day extended discovery period.

For benefit plans claims, both provide a 1-year EDP.

EDP ends immediately on the effective date of any other insurance that the insured obtains to replace, in whole or in part, the coverage provided by the cancelled. Policy.

Front 871

Loss Sustained During Prior Insurance Issued by Us or Any Affiliate (commercial crime insurance)

Back 871

Provides coverage under an in-force crime policy for a loss that would have been covered under a prior crime policy issued by the same insurer (or an affiliate) if the loss had been discovered during the term of the prior policy.

Most the insurer will pay is the highest limit of insurance applicable during the course of the loss. Deductible comes from the current policy.

Front 872

Loss Sustained During Prior Insurance Not Issued by Us or Any Affiliate (commercial crime insurance)

Back 872

A loss sustained during the prior insurance but discovered during the current policy period is covered under the current policy if (1) there is no ap between the current and preceding policies, and (2) the loss would have been covered under the current insurance if it had been in effect at the time of the occurrence.

Most the insurer will pay is the lowest of the limits of insurance applicable during the course of the loss. Deductible comes from the current policy.

Front 873

Two retroactive date endorsements that limit a discovery form (commercial crime insurance)

Back 873

* Provide Limited Coverage for Loss Occurring Before Retroactive Date
* Include Retroactive Date

Front 874

Policy Bridge condition (commercial crime insurance)

Back 874

Only discover forms contain this condition. It addresses coverage overlaps that might occur when a discovery policy replaces a loss sustained policy. If such a coverage overlap occurs, the Policy Bridge condition suspends the Other Insurance condition; it also provides that the replacement policy does not cover any loss discovered during the discovery period of the prior policy unless the loss exceeds the limit of insurance and deductible amount of the prior policy.

Front 875

Commercial Crime Conditions (commercial crime insurance)

Back 875

* Conditions Affecting Employee Theft
* Conditions Affecting Interests Insured
* Conditions Affecting Claim Handling

Front 876

Conditions Affecting Employee Theft (commercial crime insurance)

Back 876

* Territory
* Termination as to Any Employee
* Employee Benefit Plans

Front 877

Conditions Affecting Interests Insured (commercial crime insurance)

Back 877

* Ownership of Property; Interests Covered (applies to property owned, leased, or held for others by the named insured regardless of liability)
* Joint Insured (addresses situations in which more than one insured is named on a policy; first named insured acts not only for itself but also for all other insureds)
* Consolidation – Merger or Acquisition (extends coverage to newly acquired co. for 90 days)
* Additional Premises or Employees (automatically covers any of these additions throughout the policy period)

Front 878

Conditions Affecting Claim Handling (commercial crime insurance)

Back 878

* Concealment, Misrepresentation, or Fraud (void the insurance)
* Cooperation
* Deductible (no loss is payable unless it exceeds the deductible; on a loss of $50500 or more with a $50000 limit and $500 deductible, the insurer would pay the full $50000. The deductible is taken off the amount of the loss, not off the limit)
* Duties in the event of the loss
* Other insurance
* Records (required to keep them)
* Recoveries (any recovery is distributed first to cover any costs used in obtaining recovery, then to the insured, then to the insurer)
* Transfer of Your Rights of Recovery Against Others to Us
* Valuation – Settlement (Money is paid at face value, securities at market value at close of business on day of discovery, other property at replacement cost

Front 879

Duties in the event of loss (commercial crime insurance)

Back 879

* Notify the insurer as soon as possible
* Submit to examination under oath at the insurer’s request and give the insurer a signed statement of the insured’s answers
* Produce all pertinent records for the insurer to examine
* Give the insurer a detailed, sworn proof of loss within 120 days
* Cooperate with the insurer in the investigation and settlement of any claim

Front 880

Government Crime Form: Insuring agreement (commercial crime insurance)

Back 880

Each contains two Employee Theft insuring agreements instead of a single one; one provides “per loss coverage” and the other provides “per employee coverage” (for all loss caused by a single employee)

Front 881

Government Crime Form: Territory condition (commercial crime insurance)

Back 881

Does not include Canada (is limited instead to just U.S., its territories or possessions, and Puerto Rico); however, Forgery/Alteration and Computer Fraud are still worldwide

Front 882

Government Crime Form: Termination as to Any Employee Condition (commercial crime insurance)

Back 882

Encompasses a broader group of employees whose knowledge is imputed to the insured: terminates coverage when any dishonest act/theft is discovered by the named insured or any official or employee authorized to manage, govern, or control the insured’s employees (for example, a supervisor)

Front 883

Government Crime Form: Additional Exclusions (commercial crime insurance)

Back 883

Eliminate coverage for loss caused by (1) any employee required by law to be individually bonded or (2) any treasurer or tax collector

Front 884

Government Crime Form: Indemnification and Faithful Performance (commercial crime insurance)

Back 884

States that the insurer will indemnify any of the insured’s officials who are required by law to provide faithful performance bonds against loss resulting from theft committed by employees who serve under these officials.

Front 885

ISO general eligibility rules for BOP

Back 885

*May not exceed 25,000 square feet in total floor area
*May not exceed $3 million in annual gross sales at each location
*Generally ineligible businesses include automobile-related businesses, bars, buildings occupied in whole or in part for manufacturing, financial institutions, and general contractors
(not every insurer uses these same eligibility rules)

Front 886

Contents of an ISO BOP

Back 886

*Businessowners Policy Declarations
*Businessowners Coverage Form
*applicable endorsements

Front 887

Businessowners Coverage Form

Back 887

Three main sections of policy provisions:
- Section I – Property
- Section II – Liability
- Section III – Common Policy Conditions

Front 888

ISO BOP - Section I – Property: Covered Property – how it differs from the BPP

Back 888

Differs from the BPP in two ways:
*Named insured's personal property in apartments or rooms furnished by the named insured as landlord (not included in the BPP)
*Covers personal property of others in the insured's care, custody, or control under the same limit that applies to personal property owned by the named insured. (BPP divides this coverage into two sections.)

Front 889

ISO BOP - Section I – Property: Property Not Covered

Back 889

Excavations, foundations, and underground pipes and flues are covered by the BOP but excluded by the BPP (unless endorsed)

Front 890

ISO BOP - Section I – Property: Covered Causes of Loss

Back 890

Uses the same approach as the Causes of Loss – Special Form, with some variations in exclusions and limitations. Named perils coverage (equivalent to Basic Form) can be substituted by endorsement.

Important difference: coverage for computers. The BOP provides broader coverage than the BPP and the Causes of Loss – Special Form for computers and electronic data & media. (It does this via exceptions to policy exclusions:

* The Power Failure exclusion does not apply to loss or damage to computers and electronic data
* The Electrical Apparatus exclusion states that the insurer will pay for loss or damage to computers resulting from artificially generated electrical current if the loss or damage is caused by or results from (1) an occurrence taking place within 100 feet of the described premises or (2) interruption of electricity, power surge, blackout, or brownout if the cause of the occurrence takes place within 100 feet of the premises.
* The exclusion of mechanical breakdown does not apply to the breakdown of computers

BOP, however, does contain its own exclusions for computer coverage, eliminating coverages for these losses:
* E&O in programming, processing, or storing data or processing or copying valuable papers and records
* Errors or deficiencies in design, installation, testing, or repair of computer systems
* Electrical or magnetic injury, disturbance, or erasure of electronic data, except as provided for under the additional coverages

Front 891

ISO BOP - Section I – Property: Additional Coverages

Back 891

* Same as in BPP
* Same/similar to Causes of Loss – Special Form
* Same/similar to ISO business income form
* Unique to BOP
* Other

Front 892

ISO BOP - Additional Coverages that are the same/similar to BPP

Back 892

* Debris Removal
* Preservation of Property
* Fire Department Service Charge
* Pollutant Clean-up and Removal
* Increased Cost of Construction

Front 893

ISO BOP - Additional Coverages that are the same/similar to Causes of Loss – Special Form

Back 893

* Collapse (similar, but without the clarifications)
* Water Damage, Other Liquids, Powder, or Molten Materials Damage
* Limited Coverage for Fungi, Wet Rot, Dry Rot and Bacteria
* Interruption of Computer Operations (similar, but has an aggregate limit of $10,000 rather than $2500 in the business income forms)

Front 894

ISO BOP - Additional Coverages that are the same/similar to ISO business income form

Back 894

* Business Income (including Extended Business Income) (similar, except that a one-year limit applies instead of a specific dollar limit)
* Extra Expense (similar)
* Civil Authority (similar, but here only applies for 3 weeks, as compared with 4 weeks in ISO biz income form, and does not contain the one-mile radius limitation)
* Business Income From Dependent Properties (similar)

Front 895

ISO BOP - Other additional coverages

Back 895

* Money Orders and Counterfeit Money (similar to coverage in ISO commercial crime program, but subject to a $1,000 limit)
* Forgery or Alteration (similar to coverage in ISO commercial crime program, but subject to a $2,500 limit)
* Electronic Data (similar to additional coverage in BPP except broader perils and higher limit apply to BOP version – not restricted to specified causes of loss, and has an aggregate limit of $10,000 as opposed to the BPP's $2,500)

Front 896

ISO BOP - Additional coverages unique to BOP

Back 896

* Glass Expenses
* Fire Extinguisher Recharge Expenses

Front 897

ISO BOP - Coverage Extensions

Back 897

* Newly Acquired or Constructed Property
* Personal Property Off Premises
* Outdoor Property
* Personal Effects
* Valuable Papers and Records
* Accounts Receivable

Front 898

ISO BOP - Coverage Extension: Newly Acquired or Constructed Property

Back 898

* Essentially the same as in BPP

Front 899

ISO BOP - Coverage Extension: Personal Property Off Premises

Back 899

* Same $10,000 limit as BPP extension; BOP is broader however because it includes coverage for property while it is in the course of transit or temporarily at premises not owned, leased, or operated by the named insured

Front 900

ISO BOP - Coverage Extension: Outdoor Property

Back 900

* Same as BPP except the limit for outdoor property in BOP is $2500, subject to a sublimit of $500 for any one tree, shrub or plant (compared to $1000/$250 in BPP)

Front 901

ISO BOP - Coverage Extension: Personal Effects

Back 901

* Combines personal effects and property of others in a single extension, and the $2500 limit applies to the combination of both types of loss in a single occurrence
* BOP has no extension for property of others because it includes personal property of others under its definition of covered business personal property

Front 902

ISO BOP - Coverage Extension: Valuable Papers and Records

Back 902

* BOP is broader here in two ways. First, it specifies that only seven of the property exclusions apply to valuable papers and records.
* Second, the BOP extension has limits of $10,000 on premises and $5,000 off premises, whereas the BPP has a $2,500 limit.

Front 903

ISO BOP - Coverage Extension: Accounts Receivable

Back 903

* Coverage for loss or damage at the described premises is limited to $10,000 unless a higher amount is shown in the declarations, and off-premises coverage is limited to $5,000

Front 904

ISO BOP - Limits

Back 904

Differ from BPP in 2 ways:
* BOP automatically includes a provision titled Building Limit – Automatic Increase. The BPP just includes an optional Inflation Guard provision
* BOP includes a provision titled Business Personal Property Limit – Seasonal Increase, which has no BPP counterpart

Front 905

ISO BOP Deductible

Back 905

A basic deductible of $500 applies to all BOP property coverages other than Business Income, Extra Expense, Civil Authority, Fire Extinguisher Systems Recharge Expense, and Fire Department Service Charge.

Front 906

ISO BOP Property Loss Conditions

Back 906

BOP covers buildings and personal property on a replacement cost basis, except for used or secondhand merchandise and most types of household contents.

BOP has an insurance-to-value requirement that resembles that found in many homeowner's policies. Although less stringent than coinsurance, it encourages insureds to insure to at least 80 percent of the covered property's value. It differs from the BPP's coinsurance condition in several ways, including:
- It applies only to replacement cost (not to ACV)
- It does not apply if the insured elects an ACV settlement
For full replacement cost coverage to apply under the BOP, the amount of insurance at the time of loss must equal at least 80 percent of the full replacement cost of the covered property immediately before the loss. If the amount of insurance is less than 80 percent of the full replacement cost, the insurer will pay the greater of two amounts, not to exceed the limit of insurance:
- The ACV of the lost or damaged property
- A proportion of the cost to repair or replace, after applying the deductible but without a deduction for depreciation. The proportion is the applicable limit of insurance divided by 80 percent of the property's replacement cost.

Front 907

ISO BOP - Optional Coverages

Back 907

* Outdoor Signs ($1000 per attached-to-building sign any one occurrence)
* Employee Dishonesty
* Mechanical Breakdown
* Money and Securities

Front 908

ISO BOP Property Endorsements

Back 908

* Spoilage Coverage
* Food Contamination
* Water Back-up and Sump Overflow
* Utility Services – Direct Damage
* Utility Services – Time Element
* Computer Fraud and Funds Transfer Fraud
* Electronic Commerce (E-Commerce)
* Contractors' Installation, Tools and Equipment Coverage
* Earthquake
* Condominium Association Coverage
* Condominium Commercial Unit-Owners Coverage

Front 909

ISO BOP - Section II – Liability – Insuring Agreements

Back 909

* Business Liability (the equivalent of Coverage A – Bodily Injury and Property Damage Liability and Coverage B – Personal and Advertising Injury Liability of CGL coverage form)
* Medical Expenses (provides the equivalent of Coverage C – Medical Payments of the CGL coverage form)

Front 910

ISO BOP - Section II – Liability – Limits

Back 910

* The Products-Completed Operations Aggregate Limit in the BOP may be increased to three times the Liability and Medical Expenses Limit by endorsement. In contrast, the CGL's aggregate limits can be set at various multiples of the each occurrence limit.
* The BOP's Liability and Medical Expense Limit is the most the insurer will pay for the sum of all damages because of all bodily injury, property damage, and medical expenses arising out of any one occurrence; and all personal or advertising injury sustained by any one person or organization.

Front 911

ISO BOP - Section II – Liability – Professional Services Exclusion

Back 911

* Subject to an exclusion eliminating coverage for bodily injury, property damage, or personal and advertising injury resulting form the rendering of, or failure to render, any professional service.

Front 912

ISO BOP - Hired and Nonowned Auto Liability Coverage

Back 912

* Available via endorsement to BOP

Front 913

Insuring agreements in Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form (industry-specific policies)

Back 913

Coverage A – Dwellings
Coverage B – Other Private Structures Appurtenant to Dwellings
Coverage C – Household Personal Property
Coverage D – Loss of Use

Front 914

Insuring agreements in Farm Personal Property Coverage Form (industry-specific policies)

Back 914

Coverage E – Scheduled Farm Personal Property
Coverage F – Unscheduled Farm Personal Property

Front 915

Insuring agreements in Barns, Outbuildings, and Other Farm Structures Coverage Form (industry-specific policies)

Back 915

Coverage G (designed to insure all types of farm buildings and structures (other than dwellings and private garages) on either a scheduled or a blanket basis)

Front 916

Causes of Loss Form – Farm Property

Back 916

Basic, Broad, or Special

Front 917

Basic & Broad Causes of Loss (farm property)

Back 917

- Fire or lightning
- Windstorm or hail
- Explosion
- Riot or civil commotion
- Aircraft
- Vehicles
- Smoke
- Vandalism
- Theft
- Sinkhole collapse
- Volcanic action
- Collision (Coverages E & F only)
- Earthquake loss to covered livestock
- Flood loss to covered livestock

Front 918

Broad Causes of Loss (farm property) also include

Back 918

- Electrocution of covered livestock
- Attacks on covered livestock by dogs or wild animals
- Accidental shooting of covered livestock
- Drowning of covered livestock
- Loading/unloading accidents (livestock only)
- Breakage of glass or safety glazing materials
- Falling objects
- Weight of ice, snow, or sleet
- Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system,an air conditioning or automatic fire protective system, or an appliance for heating water
- Accidental discharge or leakage of water or steam from within a plumbing, heating, air conditioning, or other system or appliance
- Freezing of a plumbing, heating, air conditioning, or automatic fire protective system or a household appliance
- Sudden and accidental damage from artifically generated electrical current

Front 919

Special Causes of Loss – Farm Property

Back 919

Correspond to those of the homeowners special form and the commercial property Causes of Loss – Special Form

Front 920

Specialty Farm Coverages

Back 920

- Crop hail insurance
- Multiple peril crop insurance
- Animal mortality insurance
- Feedlot insurance
- Federal livestock insurance

Front 921

Financial Institution Bond Form 24

Back 921

Insuring agreements:

- A – Fidelity*
- B – On Premises*
- C – In Transit*
- D – Forgery or Alteration
- E – Securities
- F – Counterfeit Money*
- G – Fraudulent Mortgages

* Required

Front 922

Exclusions to Bond Form 24

Back 922

- Loan exclusion
- Exclusion of property contained in customers' safe deposit boxes
- Trading exclusion
- Uncollected funds exclusion
- Extortion exclusion

Front 923

Coverage Trigger for Bond Form 24

Back 923

Apply on a discovery basis, covering loss sustained by the insured at any time but discovered during the bond period

Front 924

Notice of Loss for Bond Form 24

Back 924

Report must be made within a period not to exceed 30 days after discovery of loss

Front 925

Limits of Liability for Bond Form 24

Back 925

An aggregate limit of liability applies to the entire bond. A single-loss limit applies to each of the basic insuring agreements.

Front 926

Bond Form 24 Deductible

Back 926

SFAA manual requires a minimum $1000 deductible, but actual deductibles are typically much larger than that

Front 927

Computer Crime Policy

Back 927

Seven insuring agreements

- Computer Systems Fraud
- Data Processing Service Operations
- Voice Initiated Transfer Fraud
- Telefacsimile Transfer Fraud
- Destruction of Data or Programs by Hacker
- Destruction of Data or Programs by Virus
- Voice Computer System Fraud

Front 928

Combination Safe Depository Policy

Back 928

Two insuring agreements

- Liability of Depository
- Loss of Customers' Property; Premises Damage

Front 929

Mortgage Impairment Insurance

Back 929

Four insuring agreements

- A – Mortgageholders Interest
- B – Property Owned or Held in Trust
- C – Mortgageholders Liability
- D – Real Estate Tax Liability