"FIL 350 Property Insurance"
FIL 350 Property Insurance Prof. George Flanigan Insurance Industry Professor. Chapter 1 Major Categories of Commercial Loss Exposures Property loss exposures: possibility that a person or an organization will sustain a financial loss as a result of damage to, destruction of, theft of, or loss of use of property Liability loss exposure: possibility that a person or an organization will sustain a financial loss as the result of a claim from someone seeking monetary damages Steps in the Risk Management Process Identifying loss exposures Analyzing loss exposures Evaluating techniques Selecting best technique(s) Implementing techniques(s) Monitoring program & making needed corrections & adjustments. Major Risk Management Techniques Insurance Avoidance Loss control Retention Noninsurance transfer Main Lines of Commercial Insurance Commercial property Business income Crime insurance Equipment breakdown Inland & ocean marine CGL insurance Commercial auto Business owners Farm insurance Workers compensation & employers liability Excess & umbrella liability Professional liability Environmental Surety bonds Miscellaneous coverages Miscellaneous but Vital Forms of Commercial Insurance Excess & Umbrella Liability Professional liability D&O Aircraft Environmental Surety Bonds Components of the Commercial Package Policy Common policy declarations. Common policy conditions. Coverage parts If only one “part,” it is considered “monoline” rather than packaged. We will spend the next 3 weeks on one coverage part, the BPP. Components of the ISO Commercial Package Policy (CPP) Small business (Pub II, Victors) probably have Business Owners policy (BOP) Middle Market – has CPP Beer Nuts Beich Candy Alamo Big Companies have manuscripted policies Mitsubishi General Electric Ford Anatomy of a “Dec” Page Policy number Name of insurer and producer Insured‟s name, address, and business description Effective and expiration dates Premium for each part Total premium Common Policy Conditions Cancellation Changes Examination of books & records Inspections & surveys Premiums Transfer of rights & duties A Coverage Part Consists of . . . Declarations page One or more coverage forms Applicable endorsements Conditions form containing general provisions, unless included as part of a coverage form Package Modification Factors Chapter 2 Documents of the Commercial Property Coverage Part Commercial property declarations One or more coverage forms Causes-of-loss form Commercial property conditions form Any applicable endorsements Commercial Property Declarations Property description Kinds & amounts of property covered Covered causes of loss Mortgage(s) (if any) Deductible amount List of forms & endorsements Coinsurance % Any optional coverages. Building and Personal Property Coverage Form (BPP) A commercial property coverage form that can be used to cover buildings, “your business personal property,” and personal property of others. Nine Sections of BPP Coverage Form Covered property Deductible Property not covered Loss conditions Additional coverages Additional conditions Coverage extensions Optional coverages Limits of insurance BPP: Types of Covered Property Buildings Insured‟s business personal property Personal property of others in insured‟s custody Definition of “Building” Structures listed on Dec page Completed additions to covered buildings Completed additions to covered buildings Fixtures (including outdoor) Permanently installed machinery and equipment Insured‟s personal property used to maintain business & premises Additions, alterations, & repairs (including materials within 100‟). Definition of Insured‟s Business Personal Property Within 100 feet of premises Furniture, fixtures Machinery and equipment “Stock” Other personal property owned Value added in other people‟s personal property Use interest in improvements and betterments Leased property required to insure by contract Definition of Personal Property of Others Within 100 feet In care custody or control Settlement for account of owner Property NOT Covered by BPP accounts, bills, etc. bulkheads, piers, etc. animals for most property covered elsewhere insureds. (excess) autos held for sale retaining walls bridges, roadways, etc. underground pipes contraband valuable papers (except as excavations, etc. $2,500 extension) foundations vehicles/aircraft/watercraft land outside grain, hay, straw, Property air/water-borne fences, antennas, trees, etc. except as per extension. Pollutant Cleanup and Removal Debris removal covers cost to extract from inside the premises, not from land or water outside Pollutant cleanup covers from land or water “at the described premises if caused by covered cause of loss” NO coverage off described premises Increased cost of construction To comply with building and other codes When previously enjoyed a “grandfather clause” $10,000 Questions for Review 1. Hancock Company owns an apartment building. Hancock insures its property under a BPP covering only the “building” (as defined in the BPP). Indicate whether each of the following items of property is covered under Hancock Company’s BPP. a) Equipment owned by Hancock and used to clean and maintain the building b) Furniture owned by Hancock and located in several furnished apartments in the building c) Light fixtures and counters in a commercial space that were originally paid for by a tenant d) New plumbing fixtures owned by Hancock on the premises awaiting installation in the building Questions for Review continued 2. Katie Corp. has a fire. It is insured under a BPP with special cause of loss form for $500,000. The value of the property at the time of loss was $550,000. Katie has an 80% coinsurance provision. The direct physical loss was $100,000. Debris removal costs were $40,000. Katie will recover ______________. Questions for Review continued 3. Suppose the bookstore burned down. The coverage limit of liability was $470,000. Also suppose the direct physical loss was $400,000. The cleanup of debris proved problematic and ultimately cost $110,000. In addition to paying the direct physical loss of $400,000, the insurer would pay __________ for debris removal. How much for the total loss payment ________ What if the limit is $550,000 ? Questions for Review continued 4. D&D Paint Company owns and operates a retail paint store insured under a BPP. Suppose a fire or other covered peril damages the store and causes many cans of paint, solvents, and other chemicals from the inventory to release their contents. D& D would like to know the answers to the following questions. Assume two completely separate losses in time and separate limits. Will the BPP cover the cost of cleaning up pollutants? 1) $3,000 to clean up spills inside the building _______________ 2) $15,000 to clean up spills on the ground of the insured premises __________________ Questions for Review continued Problem 4 continued… 3) Will the BPP cover the cost of cleaning up any pollutants that have spread to neighboring properties? ____________________ How much? __________________ 4) For each of the losses, indicate where in the policy coverage comes from. Extensions to coverage 80% coinsurance see earlier table slide 23 Hard to distinguish between extensions and additional coverage Limits As in declarations Outdoor attached signs: $1,000 Signs not attached to buildings: $1,000 but in extensions to coverage Extensions to coverage only if 80% coinsurance Deductibles Rule – take off deductible if loss is less than limit plus deductible Example – 2 buildings Building 1 2 Limit 60,000 60,000 Loss 60,100 62,000 Limit plus Deductible 60,250 60,250 Loss 60,100 - 250 62,000 - 0 Recovery 59,850 60,000 deductible applies only once per occurrence in BPP earthquake deductible: 5% of value BPP Loss Conditions Abandonment Appraisal Duties in event of loss or damage (see form) loss payment (next slide) recovered property vacancy 60 day named perils no coverage other perils: 85% valuation Insurer‟s Loss Payment Options Pay the amount of damage or loss Pay to repair or replace damaged property Take property & pay agreed or appraised value Repair, rebuild or replace with property of like kind and quality Review Rocky signs a four year lease. Rocky is insured with Country Companies. His landlord is insured with State Farm. Rocky invests $1,000 (ACV) in counters. Three years remain on his lease. Case 1. Rocky violates the conditions of his policy and when fire destroys the counter, refuses to pay to repair them as there is no insurance. What will State Farm pay? _____________________ Case 2. Rocky‟s insurance is valid and he decides to rebuild. How much will the insurer between them pay? _____________________ Case 3. Rocky decides not to rebuild and instead relocate. What will Country Companies pay? ________________ What will State Farm pay? ________________ TEST 1 BPP Additional Conditions Coinsurance Loss payment = Did Did - Deductible Loss Should Loss Should Mortgageholder Review Smith‟s Garage owns a building with an actual cash value of $120,000. The building is covered under a BPP with a coinsurance clause and a $1,000 deductible. How much will Smith‟s Garage recover under its BPP in each of the following situations? Limit of Coinsurance ACV of Recovery Insurance Loss (a) 80,000 80% 12,000 _______ (b) 60,000 80 12,000 _______ (c) 80,000 90 15,000 _______ (d) 96,000 80 95,000 _______ (e) 120,000 80 45,000 _______ Additional Condition: Mortgage holders In order of preference as interests appear Recovers even if deny claim if: pays premium due proof of loss notify of change in hazard We assume mortgage holder‟s rights 10 day notice cancellation (non-pay) or 30 day notice for cause Optional Coverages Under BPP Agreed value option Inflation guard Replacement cost Extension of replacement cost to property of others Questions for Review 1. A building and its contents are insured under a BPP with the agreed value option in effect. The limit of insurance is $100,000 with a $1,000 deductible. If the agreed value shown in the policy is $140,000, how much will the insurer pay if the insured sustains a $30,000 loss by an insured peril? 2. An office building that is leased to tenants is insured under a BPP on a replacement cost basis for a limit of $1,500,000 with 90 percent coinsurance and a $1,000 deductible. The building is damaged by a covered peril. Immediately before the loss occurred, the building‟s actual cash value was $1,600,000 and its replacement cost was $2,000,000. If the building owner has the building repaired at a cost of $700,000, how much will the insurer pay? ______________ Functional Valuation Endorsements: BPP Functional building valuation Functional personal property valuation (other than stock) Functional replacement cost = cost to replace damaged property with similar property that will perform the same function Value Reporting Forms Limit Report values for premium determination Reports in excess of limit Reports due 30 days end of reporting period 60 days for first report Penalties for improper reporting: value reporting forms no report made (75% of amount would otherwise have paid) report past due after one report made (last report) inaccurate reports (100% coinsurance) *Peak season limit of insurance Questions for Review 1. Collegiate Supply Company (CSC) is a wholesaler of school supplies. CSC deals primarily with college bookstores. The greatest demand for its products occurs just before the start of the fall and spring terms. Therefore, CSC‟s inventories in the months preceding the start of each semester are substantially higher than at other times, making CSC a logical candidate for the Value Reporting Form. Because CSC did not expect its total business personal property to exceed $1,100,000 at any time, it selected a provisional limit of $1,100,000. a. The applicable rate is $.37 per $100 of insurance, making the provisional or a deposit premium, calculated in two steps as shown below. 1) $ .37 $1,100,000 = A) _______________ x 0.75 $ 100 Questions for Review continued 2. A&R Supply Company, a wholesaler that deals in seasonal products, insures its business personal property under a BPP to which a Value Reporting Form has been attached. The limit of insurance is $800,000 with a $1,000 deductible. Reports of values are due monthly. The inception date of the policy was January 1. A. On the following November 10 of the policy year, A&R suffered a business personal property loss of $240,000 caused by an insured peril. The actual value of A&R‟s business personal property at the time of its last report, which was made on time, was $750,000. However, the value stated on that report was $610,000. At the time of the loss, A&R‟s business personal property had a value of $700,000. Question: What amount would A&R‟s insurer pay for the described loss? Questions for Review continued 2 B. Consider A&R: A&R agreed to file monthly reports. So far they are Jan. 15 $450,000 Feb. 15 $475,000 Mar. 15 $517,000 On June 30th there is loss of $612,000. A&R failed to file the April, May and June report on time, which should have been filed for $576,000, $580,000, $650,000. Question: How much should they recover? 2C. Suppose A&R had a total loss valued at $700,000 on May 15. A&R had never filed a report. They will recover ___________. Two Major Approaches to Insuring Property SPECIFIC INSURANCE: States separate amount for each building and for personal property at each location BLANKET INSURANCE: Covers with one limit: 2 or more types of property 1 or more types of property at more than 1 location Example Locations Day 1 A B C 40,000 60,000 80,000 Day 2 60,000 50,000 70,000 must use 90% coinsurance → $162,000 Example Values $40,000 $60,000 $80,000 Specific Insurance 90% $36,000 $54,000 $72,000 Total Loss 40,000 Specific 36,000 Blanket 40,000 Review 1. Explain the following conditions in the Commercial Property Conditions: a) concealment, misrepresentation, or fraud b) control of property c) insurance under two or more coverages 2. Identify the aspects of coverage that affect the premium for commercial property coverage. 3. What other factors affect commercial property premiums? 4. How is specific rating different from class rating? Chapter 3 Types of Causes of Loss Forms Basic form Broad Special form Causes of Loss-Basic Form Covers. . . Fire (hostile) Riot or civil commotion Lightning Vandalism Explosion Sprinkler leakage Windstorm or hail Sinkholes Smoke Volcanic action Aircraft or vehicles Main Exclusions in the Causes of Loss-Basic Form Ordinance or law Earth movement Governmental action Nuclear hazard Utility services War & military action Water, flood, etc. Other exclusions: Artificially generated electric current Bursting of water pipes or leakage (unless caused by covered perils or sprinkler leakage) Steam boiler explosion Mechanical breakdown Neglect (duty to protect). Causes of Loss-Broad Form Covers. . . All the BASIC form perils, PLUS: Falling objects Weight of snow, ice, or sleet Water damage Collapse caused by certain perils Advantages of Causes of Loss – Special Form More perils covered (broad or “open perils” including theft coverage)* Covers unanticipated losses Shifts burden of proof from insured to insurer *theft can be excluded if underwriting requires it Exclusions Unique to Causes of Loss – Special Form Wear & tear Rust, corrosion, fungus, mold, decay or deterioration Smog Settling, cracking, expansion, etc. Infestation of insects, birds, rodents, etc. Damage from dampness, dryness, etc. Builders Risk Covered Property Building described on Dec page, while in course of construction Foundations Temporary structures, e.g., scaffolding or concrete forms Property to become part of the building, within 100‟ of described premises Special Causes-of-Loss Form: Builders Risk Provisions Collapse during construction excluded (endorsement available) Theft of unattached building materials excluded (endorsement available) Nonowned (e.g., leased) detached trailer not covered Builders Risk: When Does Coverage Cease. . .? Expiration date in policy Cancellation date Date buyer accepts the property When insured‟s interest in property ceases When insured abandons construction with no intent to complete 90 days after project completed or 60 days after bldg. is occupied or put to its intended use. Condo Coverage Forms – Covered Property Condo Association Coverage Form building (and fixtures as required by condo agreement) business personal property owned by condo association (not by individual unit-owners) Condo Commercial Unit-Owners Coverage Form fixtures, improvements, etc., owned by unit-owner property covered only if condo agreement does not require association to cover it Commercial Property Conditions Concealment, misrepresentation, fraud Control of property Insurance under 2 or more coverage parts Legal action against insurer Liberalization No benefit to bailee Other insurance Policy period, coverage territory Transfer of rights of recovery (subrogation) Endorsements Ordinance or law coverage Spoilage coverage Manufacturers‟ consequential loss assumption Brands & labels Flood coverage Earthquake and Volcanic Eruption coverage Rating Factors in Commercial Property Coverage Insurance limits Causes of loss Coinsurance Deductibles Optional coverage . . . Plus: Construction Occupancy Protection Location Exposure Two Major Approaches to Commercial Property Rating Specific rating individual inspection large businesses or unusual risks Class rating based on loss stats no firsthand inspection needed to rate large groups of similar risks reflects average probability of loss within groups Questions for Review The Murphy Corporation has a commercial property policy with a Causes of Loss – Basic Form covering its building. Explain whether each of the following losses would be covered under Murphy‟s policy. If not, identify a causes- of-loss form, if any, that would cover the loss. a) A windstorm damaged Murphy‟s roof. b) During a major storm, the river that runs near Murphy‟s property overflowed its banks. The rising water seeped into Murphy‟s building, damaging the hardwood floors. Questions for Review continued c) Vandals broke several windows in Murphy‟s building. d) An employee driving one of Murphy‟s trucks accidentally backed into Murphy‟s building and damaged an exterior wall. e) Heavy earthquake shocks caused structural damage to Murphy‟s building. TEST 2 Chapter 4 Business Income Insurance There are three types of coverage Form 1. Business income ( and extra expense) coverage form: covers lost income and continuing expenses that continue during a shutdown; also covers additional “extra expenses” incurred to speed recovery in additional to expense that reduces the loss. Form 2. Business income (without extra expense) coverage form: does not pay additional “extra expenses” incurred to speed recovery in additional to expense that reduce the loss. Form 3. Extra expense coverage form only pays extra expenses, not business income. Business Income Business income is defined as the net profit or loss (before income taxes) that would have been earned plus continuing normal operating expenses, including payroll, on an “actual loss sustained” basis Example: Sales $500,000 CGS $200,000 Gross Income $300,000 Continuing Expenses 50,000 Expenses $150,000 ----Non-continuing Expenses 100,000 NIBT $150,000 NIBT 150,000 If 50,000 of expenses are continuing expenses insurer pays $200,000 for full year. NIBT + 50,000 Net Profit & Gross Continuing Exp Earnings Gross Margin 300,000 300,000 Continuing 50,000 Non continuing 100,000 100,000 NIBT 150,000 Continuing 50,000 Loss 200,000 200,000 Additional Coverages Extra expenses W/o extra expenses: only covers cost incurred to extent those costs reduce BI loss W/extra expenses: covers costs to remain in business regardless of business income Example: Suppose a business has a probable business income loss of $25,000 a month and the expected time of loss will be 8 months.. Now suppose an opportunity arises to get back in business in 7 months instead of 8. It will cost $40,000 to do so. Form 1 will pay _______________ Form 2 will pay _______________ Action of civil authority: loss because civil authority prohibits access because of a covered peril to some other property (max. – 3 weeks) Extended business income: the standard form will pay 30 days after the business can restart Example: Rebuild Time: 6 months with due diligence and dispatch Insurance will pay: 6 months plus 30 days on an actual loss sustained basis. Coinsurance 50, 60, 70, 80, 90, 100, 125 percent The basis for coinsurance is the sum of net income and all operating expenses, including payroll, that would have been earned (if the loss had not occurred) for the 12 months following inception of the policy or the last anniversary date, whichever is later. We will call it: Gross Earnings (GE); gross earning is larger than business income loss because it includes all expenses, not just continuing expenses. Ordinary payroll is covered under the business income coverage form unless it is excluded by an endorsement to the policy. Note: “12 months following inception” so this number is not known until there is a loss; the adjusters will determine it. Loss settlement; (Limit of Insurance / Coins % * GE) * the Loss Coinsurance percentage should be directly related to recovery period because “gross earnings” is based on one year. 6 month 50% of a year, therefore 50% coinsurance. 8 month * 70% 9 month * 80% 1 year 100% More 125% “Roll up principle”: when between % is “roll up” to next highest % Example: *Coins Price 60 $1.11 70 $1.05 80 $1.01 .95 *Recovery period – 9 months *Gross earnings $2,000,000 *Therefore, expected max. loss - $1,500,000 Could buy: $1,500,000 and 70% then: $1,500,000 = 1 x Loss = full recovery 70% * 2,000,000 Cost calculated in $100‟s of insurance: 15,000 units * $1.05 = $15,750 With roll up: Instead buy: $1,600,000 and 80% then: $1,600,000 = 1 x Loss = full recovery 80% * GE Cost: 16,000 * $1.01 = $16,160 So have: 1. More coverage for total loss 2. Have more coverage than you need 3. Only costs $410 for $100,000 of coverage Example: Application of the Coinsurance Provision When: The GE is: $400,000 The Coinsurance percentage is: 50% The Limit of Insurance is: $150,000 The amount of loss is: $ 80,000 Step 1: $400,000 x 50% = $200,000 (the minimum amount of insurance to meet your Coinsurance requirements) Step 2: $150,000 ÷ $200,000 = .75 Step 3: $80,000 x .75 = $60,000 less the deductible Question for Review Waco Distributing Company is a specialty beverage wholesaler that operates out of sixteen warehouses in a tri-state area. The business is not seasonal. Waco has completed a business income worksheet showing projected “gross earning” of $4 million for the twelve months following policy inception. Waco has also calculated its maximum probable business income loss at $2 million, which implies approximately a 6-month recovery period. Waco wants to insure its full business income exposure and avoid coinsurance penalties, but doe now want to buy substantially more insurance than it needs. (Assume that Waco cannot obtain business income coverage without a coinsurance clause.) a) Recommend an appropriate (1) coinsurance percentage and (2) amount of business income insurance for Waco and justify your recommendations. (The insured may choose coinsurance percentages of 50, 60, 70, 80, 90, 100, or 125%.) b) Assume that Waco‟s estimate of maximum probable loss was $2.4 million instead of $2 million. Recommend an appropriate coinsurance percentage and amount of insurance and justify your recommendations. c) Assume that Waco‟s estimate of maximum probable loss was $3.6 million. Recommend an appropriate coinsurance percentage and amount of insurance and justify your recommendations. Questions for Review George‟s Disco Lounge (GDL) is insured under a BIC with a limit of $1.4 million and an 80% coinsurance clause. GDL‟s garage is damaged by earthquake, a covered cause of loss under GDL‟s policy. Repair of the garage will take four months, during which time GDL will sustain a business income loss of $740,000. GDL‟s net income and operating expenses for the twelve months following policy inception would have been $2.6 million had the loss not occurred. a) Does the amount of insurance carried by GDL meet coinsurance requirements? Show your calculations. b) How much will GDL be able to recover under its BIC for the loss described above? Show your calculations. c) Assuming that rebuilding the garage following a total loss would take twelve months and that there is no seasonal element, recommend an amount of BIC insurance and coinsurance percentage that would meet GDL‟s needs better than it current policy. Justify your recommendations. Optional Coverages 1. Maximum period of indemnity – this provision suspends the coinsurance provision; it allows business income payment for 120 days only; suitable for short recovery, simple business; costs more per unit 2. Monthly limit of indemnity: 1/3, 1/4, 1/6 fractions available - Also suitable for short recovery time or small losses relative to G.E. businesses - Maximum insurer will pay in any month is limit of insurance purchased * fraction in declarations 3. Agreed Value To avoid problem with unpredictable gross earnings; possibility that G.E. turns out to be higher than expected setting the insured up for a coinsurance penalty. 100% coinsurance required Business income worksheet becomes part of the policy and G.E. equals the outcome of the worksheet. 4. Extended period of Indemnity More than the automatic 30 days after the period of restoration; consider the example of a restaurant Ordinary payroll Limitation or Exclusion Endorsement Endorsement that limits coverage for ordinary payroll expenses to a specified number of days or excludes such expenses altogether; allows the insured to satisfy the coinsurance requirement with a lower amount of insurance, thus reducing the policy premium. Power, Heat, and Refrigeration Endorsement Endorsement that eliminates power, heat, and refrigeration expenses from coverage and from the coinsurance calculation; allows insured to satisfy the coinsurance requirement with a lower limit of insurance. Endorsements 1. Premium Adjustment Endorsement Reporting form approach: better alternative than agreed value if reports are actually filed!! (Remember reporting form penalties) 2. Dependent Properties business Income Coverage: this is insurance that pays the insured if someone else has a fire or other covered loss; also called Contingent Business Income; Three examples: a. Supplier b. Customer c. Magnet business Ordinance or Law – Increased Period of Restoration Endorsement Endorsement that covers business income loss during the additional time required to comply with building ordinances or laws. Questions for Review 1. Bailey‟s Steak House is located in suburban Chicago area. They are interested in arranging business income insurance. Consider the following information: A. Gross earnings and expenses $2m annual B. Coinsurance Business Income Rate Per $100 125% .29 100% .34 90% .37 80% .42 70% .45 60% .48 50% .52 0% (no coinsurance) 1.25 Questions for Review Continued.. C. Optional overages: 1) Payroll Limitation: Payroll for workers can be totally excluded or limited using form CP1510 Rate formula: Bus. Income rate (above) x payroll endorsement factor Ordinary payroll excluded Payroll Factor 1.13 2) Monthly Period of Indemnity: per month: 1/3, 1/4, or 1/6 Rate formula: 80% coinsurance building rate x monthly indemnity factor Monthly Limitation Monthly Indemnity Factor 1/3 1.29 1/4 1.15 1/6 1.065 3) Maximum Period of Indemnity: 1.19 times the 80% coinsurance rate Part 1: Suppose Bailey estimates maximum time to recover/rebuild after a major loss is 9 months. a. How much insurance would they need with a standard BI form to avoid coinsurance penalties? b. What coinsurance percentage? Support your answers with numbers. Part 2: Suppose maximum time to recover/rebuild is 10 months: a. Amount of insurance? b. What coinsurance? Part 3: Assume Bailey‟s business is not seasonal. Suppose recovery period is 3 months, what are two good alternatives to a 50% coinsurance %? How much insurance would you recommend for each? Would you recommend each or would Bailey be better off with one or the other? Support your answer by reference to rating information. a. b. Part 4: Suppose Bailey has indicated that, should a severe (9 month) loss occur, he would not keep his employees on the payroll. It is estimated that his annual ordinary payroll is $750,000. Calculate the rate Bailey would pay along with the amount of insurance and determine what is the best alternative. a. The ordinary payroll deduction. b. Not using the endorsement. Part 5: Suppose the Bailey ordinary payroll is only $100,000. Using the information in Part 4, which of the following is the best alternative? Justify your answer. a. $100,000 ordinary payroll deduction. b. $750,000 ordinary payroll deduction. c. Not using the endorsement. Chapter 7 Fire Casualty separate insurers in old days. Marine Marine insurance insurance that, in the u.s..includes both ocean and inland marine coverage and in the rest of the world is limited to insurance for vessels and cargo. Multi line : after WW Inland marine insurance Insurance that covers many different classes of property that typically involve an element of transportation or movement (floater). Goods in domestic shipment (coverage b of BPP: 100 feet) common carriers: Airlines, railroad, trucking companies, and other entities that furnish transportation services to the public. Contract carriers: Carriers that furnish transportation services to shippers with whom they have contracts. Private carriers: Organizations that transport their own goods. Liability of Common Carriers not Acts of God Acts of Public Enemies Acts of Public Authority Neglect / Fault of Shipper Inherent Vice of Cargo Bill of lading The contract between the shipper and the carrier, which may limit the shipper‟s recovery for cargo loss. Released bills of lading are widely used. Terms of Merchandise Sale Define when title and responsibility transfer - FOB = buyer responsible when goods or ship FAS = free along side CIF = cost insurance freight Property In Possession Of Bailees Bailment The temporary possession by one party(the bailee) of personal property owned by another party(the bailor) for a specific purpose, such as cleaning or repair. Bailor The owner of the personal property in a bailment. Bailee The party temporarily possessing the personal property in a bailment. Property Of Certain Dealers. “Block Policies : jewelers, furriers, fine art, camera etc. Covers in transit and other people‟s property as well as fixed instrumentalities and Communication * antennas * bridges I.M. Insurance * ISO Forms often used for Filed classes: The classes of inland marine business for which policy forms and/ or rates must be filed with the state insurance department. - large numbers - homogeneous Nonfiled classes: The classes of inland marine business for which neither policy forms nor rates must be filed with the state insurance department. Many important nonfiled forms. Contractors Equipment Floater Policy that covers mobile equipment or tools while anywhere in the coverage territory Non-filed Builders Risk Policy Builders Risk Policy Policy that covers a building in the course of construction, including building supplies while on or away from the building. Recall also „Fire‟ builders policy Soft costs coverage: Coverage for various incidental expenses that might result from a physical loss to a building project, such as additional interest, advertising expenses, or real estate taxes, can be added to a builders risk policy. All risk – include flood and earthquake Theft of building materials. Close relative of Builders Risk Installation floater Policy that covers a contractor‟s interest in building supplies or fixtures that the contractor has been hired to install. Bailee coverage. Policies for owners of property in shipment by carriers Common Contract Private Trip transit policy Policy that covers a particular shipment of goods specified in the policy. Annual transit policy Policy that covers all shipments made or received by the insured throughout a one-year policy period. High value property ; buy back All risk Valued at invoice or CIF Motor Truck Cargo Liability Policy Policy that covers a trucker‟s liability for damage to cargo of others being transported by the trucker. Remember limitation on liability. Difference In Conditions (DIC) Policy Policy that covers “all-risks” basis to fill gaps in the insured‟s commercial property coverage, especially gaps in flood and earthquake coverage. Electronic Data Processing (EDP) Equipment floater Policy that covers computer equipment, software, and electronic data. Property direct Business income and extra exp. Warehouse Operators Legal Liability Policy Policy that covers warehouse operators against liability for damage to the property of others being stored in operator‟s warehouses. Bailee coverage. Bailee‟ Customer Policy Policy that covers damage to customers‟ goods while in the possession of the insured, regardless of whether the insured is legally liable for the damage. Dry cleaners etc. Commercial Articles Coverage Form Form that covers photographic equipment and musical instruments used commercially by photographers, motion picture producers, professional musicians, and others. Filed Form Sample policy Camera and Musical Instrument Dealers Coverage Form Form that covers the stock in trade (inventory) of camera dealers or musical instrument dealers; also covers similar property of others in the insured‟s care, custody, or control. Filed, ISO Equipment Dealers Coverage Form Form that covers the stock in trade of dealers that sell agricultural or construction equipment ; also covers customers‟ equipment in the insured‟s care, custody, or control. * Filed, ISO Physicians and Surgeons Equipment Coverage Form Form that covers the professional equipment, materials, supplies, and books of physicians, surgeons, and dentists; also covers the insured‟s office equipment and (if the insured is a tenant ) improvements and betterments that the insured has made to the building. Also :business income and extra expense. Commercial Property (BPP) $1000 either attached or not attached (80% coins ) Signs Coverage Form Forms that covers neon, fluorescent, automatic, or mechanical signs. Sample Policy Theatrical Property Coverage Form Form that covers stage scenery, costumes, and similar property used in theatrical productions. Film Coverage Form Form that covers exposed motion picture film and magnetic tapes or videotapes, including related soundtracks or sound records. Floor Plan Coverage Form Form that covers merchandise being held for sale and that the dealer has financed under a floor plan; can cover * interest of dealer * interest of manufacturer * interest of finance company * interest of all Jewelers Block Coverage Form Form that covers the merchandise of retail jewelers including similar property of others in the insured‟s care, custody, or control. Mail Coverage Form Form that covers a financial institution against loss of securities and other negotiable instruments while in transit through specified types of mail Accounts Receivable Coverage Form Form that covers losses (including uncollectible accounts) due to destruction of the insured‟s records of accounts receivable. * Also covers cost to reconstruct Valuable Papers and Records Coverage Form Form that covers valuable papers and records, such as an architect‟s blueprints and plans. * 2500 only in BPP Filed; commercial Cines Manual for Rating Non-Filed Judgment rating Rating used by underwriters to rate one-of-a-kind risks. Examples : Motor Truck, Cargo and Equipment floaters. Summary of Ocean Loss Exposures Vessel Owner (Carrier) Loss of or damage to vessel Loss of use of vessel Loss of non – guaranteed freight Liability for ; - Loss to cargo of others - Injury to crew, passengers, or others - Damage to other vessel ( collision , etc) - Oil spills Cargo Owner (shipper) Loss of or damage to cargo Loss of guaranteed fright Freight Insurance The compensation a carrier receives for transporting cargo. Freight Insurance is Business income Insurance Cargo Voyage policy (cargo) Policy that covers cargo for a single trip specified on the policy; comparable to an inland marine. Open cargo policy Policy ( ocean marine) that covers all goods shipped or received by the insured during the policy‟s term ; comparable to an inland marine Valuation ; CIF “cargo insurance freight” Warehouse to warehouse clause Clause in open cargo policies that covers the insured cargo during the ordinary course of transit (including land transit) from the time the cargo leaves the point of shipment until it is delivered to its final destination. Sue and labor clause 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. * GTE lost a Y2K suit General Average General Average Example Hull $ 10,000,000 Cargo A $ 3,000,000 Cargo B $ 1,000,000 Cargo B is jettison will pay Insurer A _________ “ B _________ “ C _________ Salvage-payable to outsiders who save the venture General average Partial loss that must, according to maritime law, be shared by all parties to a voyage (cargo owners and vessel owner) Particular average Partial loss that is borne by only one party to a voyage (such as a cargo owner ) F.P.A. terms: free of particular average Hull Insurance Insurance that covers physical damage to vessels, including their machinery and fuel but not their cargo. Sometimes on a valued basis Covers damage, general average, sue and labor salvage. Causes of Loss Perils of the seas Accidental causes of loss that are peculiar to the sea and other bodies of water Fire lightning, EQ Barratry All other like perils “ Running Down Clause” Collision liability clause: Clause that covers the insured‟s liability for collision damage to other ships and their cargoes. Usually equal to value of hull Protection and Indemnity (P&I) Insurance Insurance that covers ship owners against various liability claims due to operating the insured vessel 55. S.S Katie is valued at $1,000,000. It carries George Corp cargo valued at $100,000 and Jones Corp cargo valued at $150,000. All three interests are insured. To save the venture, Jones Corp‟s is jettisoned for a total loss. Jones Corp. Insurer will pay ______________ Will anyone else pay? Who? How much? TEST 3 Boiler & Machinery Insurance Questions ? Comprehensive Final Exam