CPCU 551, Chapter 4

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hborgert
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12767
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CPCU 551, Chapter 4
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2010-04-05 18:56:46
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Causes of Loss Forms
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CPCU 551: Commercial Property Risk Management and Insurance, Chapter 4: causes of loss forms
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  1. What coverage limitations are impoesed by the use of the phrase "direct physical loss" in the insuring agreement of property policy policy?
    It means that, to be covere, there must be actual, perceptible damage to, or disappearance of, the coveraered property.
  2. List the perils covered by the basic form and the additional perils covered by the Broad form.
    • -Basic: Fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinklerleakage, sinkhole collapse, volcanic action.
    • -Broad: Basic plus falling objects, weight of snow, ice, or sleet, and water damage.
    • -Both forms provide limited coverage for fungus as an additional coverage; broad form also covers collapse as an additional coverage.
  3. What two requirments must be met for there to be a fire for purposes of insurance?
    For purposes of insurance, a fire must involve 1) flame or glow and 2) rapid oxidation.
  4. What losses does the fire peril cover in addition to loss of property acctually burned by a fire?
    The fire peril also covers heat and smoke damage caused by a hostile fire, as well as damage resulting from attempts to extinguish the fire.
  5. What types of explosion are not covered by the explosion peril?
    The explosion peril does not include expansion or swelling of the contents of a building or structure; or the rupture or operation of pressure relief devices. (Steam pressure explosion is excluded elsewhere in the form)
  6. What limitation applies to building interior or contents damage caused by wind-driven rain, snow, sand, or dust?
    For such damage to be covered, the force of wind (or a substance driven by the wind) must first damage the exterior of the building allowing the rain, sand or dust to enter.
  7. What limitations apply to the aircraft or vehicles peril?
    There must be physical contact between the aircraft or vehicela dn the covered property or a building containing covered property. Additionally, the peril does not include damage caused by vehicles owned by the named insured or operated in the course of the named insured's business.
  8. To what types of loss does the vandalism peril not apply? (2000)
    The vandalism peril excludes loss covered by theft, other than building damage caused by the forcible entry or exit of burglars. (In other words, no coverage for the taking of property.)
  9. What aspects of loss does the sprinkler leakage peril cover in addition to water damage to covered property?
    The sprinkler leakage peril also covers the cost to repair or replace damaged parts of the sprinkler system if the damage results in sprinkler leakage or is caused by freezing. The insurer will also pay for tearing out a replacing any part of the building to make these repairs.
  10. What is the difference between volcanic action and volcanic eruption? Why does it matter?
    "Volcanic action" refers only to the airborne blast or shock waves, ash or dust, and lava flow; it is a specified covered cause of loss in the basic form and broad form. The earth movement exclusions in these forms excludes "volcanic eruption, explosion, or effusion" but by exception allows coverage to apply to volvanic action. Thus, volcanic action is the only consequence of a volcanic eruption that is covered by the basic form and broad form.
  11. What conditions must the insured meet to be covered for water damage that results from freezing of pipes?
    Water damage caused by freezing of plumbing is excluded unless the named insured 1) does his or her best to maintain heat in the building or 2) shuts off the water supply and drains the equipment if heat is nit maintained.
  12. Why is the additional coverage for fungus referred to as "limited"?
    The additonal coverage for fungus is "limited" because it pays no more than $15,000 per annual policy period. (The additional coverage is also subject to coverage restrictions notdiscussed in the text)
  13. By what perils must collapse of a building be caused in order to be covered under the Broad form?
    To be covered under the broad form, colapse must be caused by any covered peril under that form, hidden decay, hidden insect or vermin damage, weight of perople or personal proerty, weight of rain that collects on a roof, or use of defective materials or methods in construction if the collapse occurs during the course of construction.
  14. How were property insurance policies modified in response to the concurrent causation doctrine?
    Certain exclusions were re-worded to apply even if another cause is involved in the loass. 'All' was removed from "all-risks" policies. Collapse was excluded unless caused by one of several named perils.
  15. Why do the causes of loss forms exclude loss resulting from the enforcement of building ordinances of laws?
    Building ordinances and laws can substantially increase repar or replacement costs. Insurers need to charge an additioanl premium if the insured wants these increased costs to be covered beyond the basic Increased Cost of Constructioncovrage that is automatically provided in the BPP. If the insured wants to supplement the basic coverage, the supplemental coverage can be added by endorsement.
  16. What perils does the Earth movement exclusion exclude in addition to earthquake?
    The Earth Movement exclusion excludes any kind of earth movement (other than sinkhole collapse), such as earthquake, landslide, or mine subsidence. It also excludes volcanic eruption, explosion, or effusion (other than "volcanic actions").
  17. What type of loss is excluded by the utility services exclusion?
    The utility services exclusion excludes loss caused by the failure of power or other utility service supplied to the described location if the failure originates away from the described location or originates at the described location and involves equipment used to supply utility services to the premises because of a power outage resulting from downed power lines either on or off the described location.
  18. What does the Water exclusion exclude other than "flood, surface water, waves, tides, tidal waves, or overflow of any body of water"?
    The water exclusion also excludes mudslide or mudflow; water that backs up through sewers, drains, or sumps; and water under the ground that flows or seeps through foundations, walls, basements, doors, and windows.
  19. To what perils does the mold exclusion not apply?
    The mold exclusion does not apply to mold resulting from the fire (specifically if the mold resultsfrom the insured property becoming saturated by water used to extinguish a fire) or lightning.
  20. Does the mechanical breakdown exclusion apply to all losses resulting from mechanical brekdown? Briefly explain.
    The mechanical breakdown exclusion does not apply to resulting loss or damage by a covered cause of los (such as a fire resulting from the breakdown of a machine).
  21. Name three perils that the special form covers but the broad form does not?
    Three perils covered by the Special form but not by the broad form are theft, water damage caused by "ice dam", and damage by a vehicle owned by the named insured.
  22. What types of theft does the special form not cover?
    The Special Form does not cover these types of loss that might otherwise be considered theft: 1) dishonest acts of the named insured's employees, partners, members, directors, or anyone else to whom the named insured entrusts property; 2) voluntary parting with covered property as the result of trickery; 3) transfer of property to a person or place outside the described premises on the basis of unauthorized instructions; 4) loss when the only evidence of the loss is a shortage discovered on taking inventory; 5) unexplained disappearance of property; and 6) theft of building materials before they are actually attached to the bulding or structure.
  23. In the special form, what categories of property are subject to dollar limitations for theft loss?
    The Special Form places dollar limitations for theft loss of furs and fur-trimmed farments; patterns, dies, and molds; jewelry, watches, and precious and semiprecious stones, and precious metals; and stamos, tickets, and letters of credit. ( The limit is $2,500 for the first three categories and $250 for the last).
  24. Under the special form, what property is covered only against the "specified causes of loss"?
    Animals, fragile articles, and contractors' tools and equipment are covered only against the "specified causes of loss".
  25. On whose vehicles does the Special form's property in transit extension cover shipments of covered property?
    The property in Transit extension applies only to property that is in or on a motor vehicle that the named insured owns, leases, or operates.
  26. Assume covered property is involved. Which of these will be covered by the Basic Form?
    a. An expensive hand tool was accidentally dropped into a smelting furnace.
    b. firefighters efforts to extinguish a fire caused extensive water damage to the insured building, several windows were broken by theintense heat of the fire.
    c. Leaking natural gas accumulated in the insured's basement and exploded.
    • a. Not covered (if friendly fire distinction is observed)
    • b. Covered under the fire peril.
    • c. Covered under the explosion peril.
  27. Assume covered property is involved. Which of these will be covered by the Basic Form?
    d. The insured's steam boiler exploded.
    e. A windstorm blew damaging rainwater into the insured building through a window that had been left open before the storm occurred.
    f. An employee of the named insured was attempting to back a borrowed truck up to the named insured's loading dock when he accidentally ran into the side of the building causing extensive damage.
    • d. Not covered. Explosion peril excludes explosion of inssured's steam boiler.
    • e. Not covered. The rain did not enter through an oening caused by wind or hail.
    • f. Not covered. The vehicle was being operated in the named insured's business.
  28. Assume covered property is involved. Which of these will be covered by the Basic Form?
    g. during a riot, several rioters loted the insured store.
    h. Vandals broke several windows in the insured building.
    i. Vandals spray-painted graffiti on the exterior walls of the insured building.
    • g. Covered. The riot peril includes looting at the time and place of the riot.
    • h. Covered under the vandalism peril.
    • i. Covered under the vandalism peril.
  29. Assume covered property is involved. Which of these will be covered by the Basic Form?
    j. An old mineshift under the insured building collapsed, causing the building's foundation and walls to crack in several places.
    k. The insured building was covered with ash and dust from a volcanic eruption. the building was not damaged, but cleaning up themes cost $5,000.
    l. A steam boiler in an adjoining building, not under the insured's control, exploded. (read exclusion carefully.)
    • j. Not covered. The sinkhole collapse peril does not include man-made underground cavities such as a mine.
    • k. Not covered. The volcanic action peril does not cover the cost of cleaning up volcanic debris that has not caused physical damage.
    • l. Covered. The steam boiler explosion exclusion applies only to steam boilers owned or leased by the named insured or under the named insured's control.
  30. Assume covered property is involved. Which of these will be covered by the Broad Form?
    a. A heavy machine being hoisted into place in the insured's factory was accidentally dropped, crushing some other machinery and damaging the shop floor.
    b.the rrof of the insured building collapsed because buildup of sleet.
    c. The insured building was shut down for two weeks in January while the insured went on a ski trip. When they returned, extensive water damage had resulted from the freezing and breaking of a water pipe. No one had been in the building since the insurede left for vacation.
    • a. Not covered. The falling objects peril does not cover interior damage unless the object first damages the roof or an outside wall.
    • b. Covered under weight of snow, ice, or sleet peril.
    • c. Not covered, assuming that the insured did not "do his best" to maintain heat in the building or drain the system.
  31. Assume covered property is involved. Which of these will be covered by the Broad Form?
    d. The subfloor of a kitchen area was discovered to be rotted as a result of seepage from a drain that had been leaking for an estimated six months.
    e. The floor of a woodworking shop collapsed as a result of hidden and previously unknown damage caused by carpenter ants.
    f. A completed additon to the insured building collapsed solely as a result of faulty workmanship and materials.
    • d. Not covered. The seepage occurred over a period ofmore than fourteen days.
    • e. Covered under the Additional Coverage - Collapse provision.
    • f. Not covered. Collapse of a completed building caused solely by faulty work or materials is not covered.
  32. Assume covered property is involved. Which of these will be covered by the Broad Form?
    g. The insured's finished goods (perishable foods) spoiled as a result of a power failure caused by a fire at the utility's generating station.
    h. The isnured's building was damaged by a natural gas explosion that resulted from flooding.
    i. The insured's contents were damaged by water that backed up through a floor drain.
    • g. Not covered. Utility Services exclusion applies.
    • h. Covered. The Water exclusion does not apply to loss by explosion resulting from flood.
    • i. Not covered. Water exclusion applies.
  33. Assume covered property is involved. Which of these will be covered by the Broad Form?
    j. Water that was used to fight a fire at the insured premises caused mold damage to the building and its contents.
    k. Rain water that leaked through a defect in the insureds roof caused mold damage to the building and its contents.
    l. The sudden and accidental breakdown of the insured's production machine because of centrifugal force caused flying debris of the machine to damage a wall in the insured building.
    • j. Covered. The mold exclusion does not apply to mold resulting from fire (or lightning).
    • k. Not covered. The mold exclusion applies.
    • l. Not covered. Broad Form excludes mechanical breakdown.
  34. Assume covered property is involved. Which of these will be covered by the Special Form?
    a. Damage caused by a friendly fire.
    b. A vehicle owned by the insured and driven by one of the insured's employees knocked down a garage wall.
    c. Thawing snow seeped through the roof shingles because of "ice damming" and damaged the ceiling of the insured building.
    • a. Covered. Unlike the specified fire peril, Special Form is not limited to hostile fire.
    • b. Covered. Special form does not contain all the same restrictions on vehicle damage as in the broad form.
    • c. Covered. no applciable exclusion.
  35. Assume covered property is involved. Which of these will be covered by the Special Form?
    d. A box of laboratory glassware was dropped, resulting in the breakage of all contents in the box.
    e. Settling of the building caused several large cracks in the building's foundation.
    f. Burglars stole merchadise belonging to the insured store.
    • d. Covered. The restriction of coverage to specified causes of loss for fragile articles does not apply to glass.
    • e. Not covered. Earth movement exclusion applies.
    • f. Covered. No applicable exclusion.
  36. Assume covered property is involved. Which of these will be covered by the Special Form?
    g. A disgruntled employee of the insured started a fire in a storage closet.
    h. An emplopyee stole tools from the insured factory.
    i. The insured gave sold-but-not-delivered merchandise to a thief who was impersonation the rightful owner.
    • g. Covered. Although the loss was caused by employee dishonesty, the employee dishonesty exclusion does not apply to acts of destruction committed by employees.
    • h. Not covered. Employee dishonesty exclusion applies.
    • i.Not covered. Voluntary parting exclusion applies.
  37. Assume covered property is involved. Which of these will be covered by the Special Form?
    j. Several lighting and plumbing fixtures that were about to be installed in the insured building were stolen from the insured premises.
    k. An air conditioning unit (valued at $1,500) belonging to the insured was destroyed by collision while being transported to a repair shop on the insured's truck.
    j. A shipment of merchandise (valued at $4,000) from the insured manufacturer to a customer was destroyed by a fire that occurred while the merchandise was being transported in a truck operated by a common carrier.
    • j. Not covered. Special form excludes theft of building materials that have not yet been installed.
    • k. Covered under the Special Form's $5,000 extension for property in transit.
    • l. Not covered. Property in transit extension applies only to property in transit while on the insured's own vehicle.

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