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121 Cards in this Set
- Front
- Back
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Commercial Insurance
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covers for-profit businesses or not-for-profit organizations agains the adverse financial effects of property and liability losses
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Loss exposure
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Any condition or situation that presents a possibilty of loss, regardless of whether the loss actually occurs
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Corporation
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an entity organized under state law and entitled to the same rights as a person, distict from its owners, who are called stockholders or shareholders.
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Partnership
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a for profit business entity jointly owned by 2 or more persons who share ownership and profits (or losses) although not necessarily on an equal basis
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Joint Venture
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a business association formed by an express or implied agreement of 2 or more persons (including corp) to accomplish a particular project, such as construction of a building
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Limited Liability Corporation (LLC)
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a from of business that provides its owners the limited liability of a corp. and the tax advantages of a partnership
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Unincorporated association
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a voluntary association of indviduals acting together under a common name to accomplish a lawful purpose
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Line of business
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a general classification of insurance, such as commercial property, commercial general liability, commercial crime or commercial auto
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Monoline policy
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covers only one line of business
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Package policy
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covers 2 or more lines of business
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Commercial Package Policy (CPP)
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covers 2 or more lines of business by combining the ISO's commercial lines coverage parts
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Common policy declarations
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a required CPP component that provides basic information about the insurer, the PH, and the insurance provided
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Common policy conditions
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a required CPP component that contains 6 conditions applicable to all coverage parts unless a coverage parts states otherwise
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Coverage part
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a component of CPP or a monoline policy that contains the policy provisions relating to a particular line of business, consists of the coverage part's dec page, 1 or more coverage forms, applicable endorsements, and in some cases a general provisions form
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Rate
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the price per exposure unit for insurance coverage
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Commercail Lines Manual (CLM)
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an ISO publication that includes rules and rating procedures for several major lines of commercial insurance
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Package modification factors
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factors that are applied to the regular policy premiums for certain coverage parts of a CPP that includes both property and liability coverages, resulting in premium ddiscounts for those coverage parts
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Define and give an example of a property loss exposure
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the possiblity of a financial loss as the result of damaging, destruction, taking or loss of use of property in which that person or organization has a financial interest in.
- Tornado may damage a building |
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Define and give an example of a liability loss exposure
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possible financial loss as the result of a claim by someone seeking monetary damages or some other legal remedy.
- a customer who is hospitalized immediately after eating in a restaurant with sue for damages |
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Define and give an example of a personal loss exposure
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possiblity of financial loss by injury sickness or death.
- anyone who could be injured on the job or in an auto accident |
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Summarize the risk management process
(6 six steps) |
- identify loss exposure
- analyze loss exposure - exam the feasibility of risk management techniques - select the appropriate techniques - implement the selected tech. - monitor results and revise |
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List and briefly describe 5 risk management techniques
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Insurance - enables a person/organization to transfer the financial consequences of a loss to an insurer
Avoidance - occurs when an organization avoids an indentified loss exposure by choosing not to own a particular item of property or not to engage in a particular activity Loss control - includes any measure to prevent losses from occurring or to reduce the size of losses that do occur Retention - occurs when an organization pays all or parot of its own losses noninsurance transfer - occurs when an organization obtains the promise of a 2nd, noninsurance organization to pay for certain losses for whcih the first organization would otherwise be responsible |
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Why is the form of ownership important (in an insurance context)
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because it affects the insurability of the business and it determines to some extent exactly how the named insured should be identified on the policy
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Advantages of Corportation
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limits the owners liability for the corporatiosn contracts and torts
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Advantages of Partnership
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income flows to each partner and is taxable at that individual's rate, rather than at a rate that would apply to a corporation
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Advantages of Joint Venture
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it can be formed quickly, and participants can pool resources in order to pre-empt competitors while sharing the risks of an undertaking
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Advantages of LLC
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provides its owners the limited liability of a corporation and the tas advantages of a partnership
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Advantages of Unincorporated associations
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can be easily formed and is no subject to many of the taxes commonly levied on corporations
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What is covered and what is omitted in commercial property insurance
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covers commercial buldings and their contents against loss caused by fire, windstorm, and many other perils. It provides little, if any, coverage for property while it is in transit or otherwise away fromt he insured location. It omits most crime related perils as well as mechanical or electrical breakdown or steam boiler explosions
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What is the difference between ocean marine and inland marine insurance
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Ocean marine conforms to the international meaning of marine insurance, where inland marine includes a wide variety of risks that in the US were first insured by marine underwriters.
These risks include property in domestic transit, mobile equipment, buildings in the cours of construction, property essential to transportation or communication and many other classes of property that typically invovle an element of transportation. |
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describe a surety bond and how a contractor might be involved in its use
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an agreement by 1 party (the surety) to answer for the failure of another (the principal) to perform as the principal has promised. Contract surety bonds are used to guarantee that a contractor will complete a building project according to specifications and w/in a stated time frame, that the contractor will pay certain bills for labor and materials, and that the contractor's work will be free from defects for a specified time.
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what are the components of ISO's commercial package policy (CPP)
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- Commom Policy Declarations
- Common Policy Conditions - 2 or more coverage parts |
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What information is shown on a CPP's common policy declaration
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- Policy #
- Names of the insurer and the producer - name, address, and business description of the named insured - effective date and expiration date of the policy - premium for each coverage part included in the policy - total premium * it also includes a general statement, known as the "in consideration" clause, in which the insurer agrees w/ the NI to provide the insurance as stated int he policy in return for the payment of premium and subject to all the terms of the policy |
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List the6 common Policy Conditions in a CCP
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- Cancellations
- Changes - Examination of yoru books and records - inspection and surveys - premiums - transfer of rights and duties under your policy |
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Each coverage part of a CPP contains the following elements
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- a dec page that pertains only to that coverage part
- 1 or more coverage forms, which contains insuring agreements, exclusions, and other policy provisions - applicable endorsements, which modify the terms of the coverage forms to fit the needs of the particular insured |
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examples of coverage parts that may be used in ISO's Commercial Package Policy
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- commercial property
- commercial general liability - commercial crime - equipment breakdown - commercial inland marine - commercial auto |
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Describe 2 ways that a commercial insurance premium can be calculated
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- divide the rate by the unit amount and then mulitply that value by the amount of insurance
- establish the # of exposure units by dividing the amount of insurance by the unit amount and then multiplying the # of units by the rate |
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how do insurers convert loss costs in a Commercial Lines Manual (CLM) to rates that can be used to rate policy
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by calculating a loss cost multiplier to cover other expenses that it will incur. In addition, a charge is usually added to allow for possible errors in the insurer's predictions. An allowance for insurer profit may also be added.
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How is a package discount determined
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by applying the appropriate package modification factors to the premium for the eligible coverage parts included in the policy
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what do package modifications reflect
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the type of business, the particular coverage part being rated, and other eligibility requirements.
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What does a package modification of .85 mean
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it means that the premium for that coverage part will be 85% of the premium that would apply if the coverage part were issued in a monoline policy
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Commercial property coverage part
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commercial package policy component that provides a broad range of coverage to "middle market" or larger firms to insure buildings and business personal property
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commercial property declarations page
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A required commercial property coverage part component that provides basic information about the policyholder and the insurance provided
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commercial property coverage form
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a comm. prop. coverage part component tthat can be any of several comm. proprerty forms containint an insuring agreement and related provisions
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Building and personal property coverage form (BPP)
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can be used to cover buildings, "your business personal property" and personal property of others
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causes of loss form
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a required component of the commercial property coverage part that specifies perils covered
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commercial property conditions
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contains conditions applicable to all commercial property coverage forms.
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Improvements and betterments
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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
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Abandoment condition
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prohibits the insured from abandoning damaged property to the insurer
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appraisal condition
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establishes a method for the insurer and the insured to resolve disputes about the insured property's value or amount of loss
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Proof of loss
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a statement of facts about a loss for which the insrued is making a claim
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actual cash value
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cost to replace property with new property of like kind and quality less depreciation
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coinsurance conditions
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condition that requires the insured to carry insurance equal to atleast a specified percentage of the ACV of the property insured
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agreed value optional coverage
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suspends the coinsurance condition if the insured carries the amount of insurance that the insurer and the insured agree to be the property's full value
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inflation guard optional coverage
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coverage for the effects of invlation that automatically increases the limit of insurance by the % of annual increase shown in the declarations
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replacement cost optional coverage
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coverage for losses to most types of property on a a replacement cost basis (no deduction for depreciations or obsolescence) instead of on an ACV basis
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Functional replacement cost
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the cost of replacing damaged property with similar property that performs the saem fuction but might not be identical to the damaged property
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value reporting form
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form that covers the fluctuating values of business personal property by providing insurance for the insrued's amximum expected values and requiring the insrued to periodically report property values to the insurer
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peak season limit of insurance endorsement
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endorsement that covers the fluctuating values of business personal property by providing differing amoutns of insurance for certain time periods during the policy period
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specific insurance
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insurance that covers each building for a specific limit of insurance and personal property at each building for a specific limit of insurance
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blanket insurance
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insurance that covers either of the following with one limit of insurance:
- one type of property in one or more separately rated buildings - two or more types of property in one or more separately rated buildings |
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5 documents that constitute a commercial property coverage part
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1. comm. property declarations, which provides basic information about the PH and the insurance provided
2. 1 or more comm. prop. coverage form that contain an insuring agreement and related provisions 3. 1 or more causes of loss form that allow the insured to select or the UW to offer a range of covered perils 4. comm prop conditions, a component which contains conditions applicable to all commercial prop cov forms 5. any applicable endorsements, available to talior commercial property coverage to meet specialized needs of the insrued or UW concerns of the insurer |
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specific information contained in the commercial property declarations page
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- description of the property insured
- the kinds and amounts of coverage provided and the covered causes of loss - a list of mortgages, if any - the deductible amount - a list of property coverage forms and endorsements attached to the policy - the applicable coinsurance % - any optional coverages |
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what elements are part of every commercial property coverage form
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- insuring agreement
- delineation of the property covered and not covered - additional coverages and coverage extensions - provisions and definitions that apply only to that coverage form |
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3 reasons why certain kinds of property are specifically not covered under the BPP
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- may be illegal to insure
- may not be subject to loss by the perils insured against - can be insured better using other forms |
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Debris removal
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removal of debris resulting from a coverd COL during the policy period
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Preservation of property
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any direct physical loss or damage to the covered property while being moved
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Fire department service charge
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the fire dept charges for services to control or extinguish a fire is assumed by contract prior ot loss or required by local ordinance (upto $1K)
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Pollutant cleanup and removal
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expenses to extract pollutants from land or water at the premises if the release, discharge, dispersal, seepage, migration, or escape of the pllutants is the result of a covered COL occurring during the polciy period (upto $10K per location)
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Increased cost of construction
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the add'l cost to rebuild in compliance with building laws, not to exceed the lesser of 5% of the limit of insurance or $10K
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electronic data
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$2500 of coverage per policy year for electronic date damage
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Benefits and limitations of Newly acquired or constructed property
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Benefits - automatically covers a new building constructed a the premise in the declarations and can provide automatic coverage at other locations
Limitations - limits coverage to $250K; limits coverage at other locations to newly acquired buildings used as a warehouse or for some purpose as building in the decs; limits business personal property to $100K; excluded property at a fair or an exhibition |
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Benefits and limitations of personal effects and property of others
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Benefits - covers the property of others in the care, custody, or control of the insured (higher limits available); includes loss of personal effects owned by an individual insured, its partner, officer, or employee while on the premises
Limitations - limits coverage on all property to $2,500 at each described location; excludes theft |
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Benefits and limitations of Valuable papers and records - Cost of research
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Benefits - coverst eh cost of research and reconstruction of information in destroyed records
Limitations - limits coverage to $2500 at each described location unless a higher limit in the declarations |
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Benefits and limitations of property off premises
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Benefits - covers property while temporarily at a location not owned, leased, or operated by the insured
Limitations - limits coverage to $10K, excludes coverage for stock or property in or on a vehicle, unloess the property is in the care of the insured's sales personnel, or at a fair or an exhibition |
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Benefits and limitations of outdoor property
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Benefits - covers loss to outdoor fences, radio and television antennas including satellite dishes, signs not attached to buildings, and trees, shrubs, and plants for loos by fire, lightning, explosions, riot or civil commotion and aircraft
Limitations - limits coverage to $1K and not more than $250 for any one tree, shrub, or plant; excludes loss by windstorm, vehicles, and vandalism |
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Benefits of non-owned detached trailers
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Benefits - extends the insured's business personal property coverage to include loss to a trialer that the insured has leased from others to expand office space or provide add'l storage or work space, if the insured has a contractual responsibiity to pay for loss to the trailer
Limitations - applies only while the trailer is not attached to a motor vehicle. The limit is $5K unless a higher limit is shown in the policy |
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How is it possible for an insurer to pay more than the limit of insurance to an insured in any one policy year
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- payments are made under coverage extension and add'l coverages, in addition to the policy limit
- insured sustains multiple losses (other than under the Pollutant Cleanup and Electronic Date coverage extensions) during the policy year |
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How can an insured collect the full BPP policy limit for a building loss, even if there is a deductible?
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an insured can collect the full BPP policy limit for a building loss even if there is a deductible because the limit applies to loss in excess of the deductible
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Why do higher deductibles appeal to insureds and to underwriters
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Insureds - because the insrued pays a reduced premium for taking a higher deductible.
Underwriters - the UW likes to save the insurer the expense of handling small claims. |
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What are the steps for the procedure in the appraisal clause of the BPP
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- the insured or insurer disagree on the value of the property or the amount of the loss
- either party makes a written demand for appraisal - each party appoints an appraiser, and the 2 appraisers appoint an umpire - each appraiser perpares a statement of property value and amount of loss - the appraisers submit the items of conflict to the umpire - a decision agreed to by any 2 of the 3 is binding on all parties |
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What ar the insured's duties in the event of a loss
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- notify the police if the loss might have resulted from a violation of the law
- promptly notify the insurer of the loss - Protect the property from futher loss and keep a record of expenses incurred - prepare an inventoryof the damaged and undamaged property - permits the insurer to inspect the property and records and take samples for testing and analysis - submit to examination uder oath - cooperate with the insurer in the adjustment of the loss - send a signed, sworn proof of loss to the insurer w/in 60 days after the insurer requests one **The insurer can deny payment of a claim for lack of coverage under the polcy or for failure of the insured to comply with the policy conditions |
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Insurer's options in settling a claim
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- pay the amount of the loss or damage
- pay the cost of repairing the damaged property - take over all or any part of the property and pay it's agreed or appraised value - repair, rebuild, or replace the damaged property w/other property of like kind and quality |
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Explain how the vacancy conditions affect the insurer's obligation to pay a loss
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if a building has been vacant for more than 60 consecutive days before the loss occurred, the insurer will not pay for loss from certain perils (vandalism, most sprinkler leakage, breakage of building glass, water damage, theft, or attempted theft). Payment for loss by other perils is reduced by 15%.
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How are stocks valued on the BPP
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at ACV, except that stock sold and not delivered is valued at selling price less discounts and incurred costs
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How is glass valued under the BPP
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valued at replacement cost for safety glazing if required by law
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how are inprovements and betterments replaced by the insured valued under the BPP
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valued at actual cash value
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how are valuable papers and records valued under the BPP
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valued at cost of blank material plus cost of transcription or copying
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how is property other than that specifically listed valued under the BPP
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valued at actual cash value
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Described the rights granted to a morgageholder that is named on the declarations page of a commercial property policy
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- Payment for any claim for losson the covered mortgaged property
- notification of cancellation or non-renewal |
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list the 4 optional coverages available in the BPP
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1. Agreed value
2. Inflation guard 3. REplacement cost 4. extension of replacement cost to personal property of others |
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describe the purpose and operation of the Agreed Value optional coverage in the BPP
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to remove the uncertainty as to whether the amount of insurance carried complies with the Coinsurance condition. The option suspends the Coinsurance condition if the insured carries the amount of insurance that the insurer and insured agree to be the property's full value
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When the insured chooses the Replacement Cost option under the BPP, how is the coinsurance condition effected
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the coinsurance condition continues to apply, but the amount of insurance required by the coinsurance condition is calculated by multiplying replacement costs by the coinsurance % if the claim is made on a replacement cost basis
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Explain how and why the functional valuation endorsements may be used to change the loss settlement provision in a commercial property policy
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insurers use these endorsements for insureds unwilling to purchase amounts of insurance in excess of the market value of their buildings. Also, insurers avoid moral and morale hazards that might result from writing amounts of insurance that exceed the market value of the property
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Explain how the interior walls of an older building cold be used to illustrate functional replacement costs
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if the interior walls were constructed of three-coat plaster on wire lath, the walls could be replaced using sheetrock. The sheetrock walls would be functionally equivalent to the previous walls but would cost far less than an exact replacement
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Explain how loss recovery is limited if property is not replaced using fuctional replacement costs
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If property is not replaced using functional replacement cost, recovery is limitd to the smallest of hte following:
- the limit of insurance - the market value of the building or personal property - the functional replacement cost |
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how does the value reporting form address the needs of a business with fluctuating inventory values
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it is based on the insured's reports of actual property values druing the policy period. Thus, the insured pays for the amount of insurance it actually needs instead of having to pay for an amount of insurance that is more than needed during most of the year. The limit for the Value Reproting form can be set high enough to cover the highest anticipated value during the policy period, but the insured will only have to pay for the amount of insurance needed to cover actual values
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how does the Peak Season Limit of Insurance endorsement address the needs of a business with fluctuating inventory values
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it provides differing amounts of insurance for specified time periods during the policy term
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Explain why a peak season endorsement, rather than a value reporting form, is better suited to small buisnesses that have regular fluctuations in inventory
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Because many small businesses don't have accounting systems of sufficent sophistication to generate the required reports accurately and on time. Many insurers would decline to issue a value reporting form for a small insured because the premium mingt not be large enough to warrant the added expense of processing the reports and calculating the final premium.
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explain how an insured with blanket insurance would meet coinsurance requirements
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by purchasing more insurance than otherwise would be required. this is true because the minimum coinsurance clause is 90%, but the rates are the same as for 80% coinsurance. The insured with blanket insurance must insure to 90% of value to avoid a coinsurance penalty but does not receive the 5% discount that applies to specific insurance with a 90% coinsurance clause.
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what is a major advantage of blanket insurance
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the full blanket limit can be applied to any one loss. The minimum amount of blanket insurance to comply with coinsurance would fully protect property at each location.
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Causes of Loss - Basic Form
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Form that covers fire, lightning, explosion, windstorm, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, sprinklery leakage, sinkhole, collapse, and volcanic action
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concurrent causation doctrine
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approach that a loss is covered when caused by 2 or more independent, concurrent perils if only one of hte perils is covered - even if the other peril or perils are clearly excluded
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Causes of Loss - Broad Form
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Form that covers basic from perils plus falling objects; weight of snow, ice or sleet; water damage; and (as additional coverage) collapse caused by certain perils
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Causes of Loss - Special Form
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Form that covers "risks of direct physical loss" subject to the form's exclusions and limitations
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Builders Risk Coverage Form
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Form that covers buildings in the course of construction, including additions or alterations to existing buildings
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Condominium Association Coverage Form
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Form that covers building and business personal property of condominium associations
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Condominium Commercail Unit-Owners coverage Form
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covers buisness personal property and building property exposures of commercial condominum units
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Loss assessment coverage
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coverat for a commercial condo unit-owner's share of any assessment made by the association against allunit owners because of physical loss to conto property caused by a covered COL
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Miscellaneous real property coverage
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coverage for real property that pertains only to the NI's condo unit or real property that the NI has a duty to insure according to the condo association agreement
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Insurance for highly protected risks
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covers large property risks with superior loss protection characteristics; has broader coverage than most commercial property policies and usually a lower premium rate
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Ordinance or Law Coverage endorsement
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covers 3 types of losses resulting from the enforcement of building ordinaces or laws:
1. the value of the undamaged portion of a building that must be demolished 2. the cost to demolish the bulding's undamaged portion and remove its debris, and 3. the increased cost to rebuild the property |
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Spoilage Coverage endorsement
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covers damage to perishable stock due to power outages; on-premises breakdown; or contamination of hte insured's refrigerating, cooling, or humidity control equipment
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Manufactures' Consequential Loss Assumption endorsement
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covers reduction in value of undamaged property due to physical loss to other property
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Brands and Labels endorsement
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permist the insured, when the insurer takes damaged merchandise as salvage, to stamp the work "salvage" on the merchandise or to remove its brands or labels before sale
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specific rating
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a rating approach that bases a building's property insurance rate on inspecting and evaluating that particular building
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class rating
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a rating approach that uses rates reflecting the average probability of loss for buisnesses with large groups of similar risks; the predominant method used for rating commercial properties
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The covered causes of loss on the Basic Form
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- Fire
- Lightning - Expolsion - Windstorm or hail - Smoke - Aircraft/vehicles - Riot or civil commotion - vandalism - Sprinkler leakage - sinkhole collapse - volcanic action - fungus, wet rot, dry rot, and bacteria (as an add'l limited coverage) |
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Excluded COL under the Causes of Loss - Basic Form
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- ordinance or law
- earth movement - gov't action - nuclear hazard - utility services - war/military - water - fungus, wet rot, dry rot, and bacteria - artificially generated electric currents - rupture/bursting of water pipes - leakage of water/steam - explosing of steam boilers, steam pipes, steam turbines, or steam engines - Mechanical breakdown - loss resulting from the neglect of the isnreud to use all reasonable means to save to preserve property at and after the time of loss |
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Causes of loss that are covered under the broad form that aren't covered under the basic form
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- Falling objects
- weight of snow, ice or sleet - Water damage |
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What are the advantages to the insure for purchasing the causes of loss- speical form
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an insured purchading the causes of loss special form has coverage for the following:
- COL omitted or excluded under the broad form (such as theft) - Unanticipated losses (other than those specifically excluded) - All accidental losses unless the insurer can prove an excluded peril caused the loss (shifts in burden of proof) |
