CPCU 551, Chapter 5

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hborgert
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12854
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CPCU 551, Chapter 5
Updated:
2010-04-02 00:22:59
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Commercial Property Coverage Options
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CPCU 551: Commercial Property Risk Management, Chapter 5: Commercial Property Coverage Options
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  1. How does the Manufacturer's Seling Price endorsement modify coverage under the Building and Personal Property Coverage Form?
    The Manufacturers Selling Price endorsement values finished stock manufactured by the insured at selling cost (less discounts and unincurred expenses). This valuation approach applies regardless of whether the finished stock has been sold at the time of loss.
  2. In what circumstances might the Functional Building Valuation endorsement be an appropriate addition to a BPP?
    The Functional Building Valuation endorsement is appropriate when the insured building has a replacement cost that is far in excess of its market value. This is typically an old building that was constructed using materials and techniques that are now prohibitively expensive to reproduce.
  3. How does loss settlement under the Functional Building Valuation endorsement differ from loss settlement under the replacement cost coverage option?
    In the event of a total loss, the Functional Building Valuation endorsement covers the cost to repair or replace the building with a less costly building that is functionally equivalent to the old one. For a partial loss, the insurer's payment for repair or replacement of the damaged portion of the building is calculated on the basis of using less costly material, if available, in the architectural style that existed before the loss.
  4. In what circumstances might the Functional Personal Property Valuation endorsement be an appropriate addition to a BPP?
    The functional Personal Property Valuation endorsement might be appropraite when insuring old machinery or equipment that is no longer available, such as a machine that has been superseded by a newer, more efficient, less-expensive model.
  5. How much is the insureer obligated to pay under the Functional Personal Property Valuation endorsement if the insured contracts for repairs or replacement within 180 days after the loss?
    The insurer is only obligated to pay the smallest of the following amounts: The applicable limit of insurance, the cost to replace with the most closely equivalent property available, or the amount necessarily spent to repair or replace the property.
  6. What is the principal benefit of blanket insurance over specific insurance?
    The insured can collect up to the full blanket limit for loss to a single item (building or contents), whereas specific insurance would limit recovery to the limit shown for the particular item (which could be less than the property's value).
  7. What problems can blanket insurance, on an agreed value basis, help to solve?
    Blanket insurance on an agreed value basis can overcome the problem that results when the insured is unable to predict future maximum values of covered property. In addition to being able to recover up to the full blanket limit for loss to a single item, the insured (through agreed value) avoids the possibility of a coinsurance penalty.
  8. What basic problem is addressed by both the Peak Season Endorement and the Value Reporting Form?
    The Peak Season Limit of Insurance endorsement and the Vlaue Reporting Form address the fluctuation (ups and dows) of persoal property values during the policy period. In different ways, these two methods reduce the premium that the insured must pay in order to cover actual values at risk. The insured does not have to pay for unneeded insurance when property values are reduced.
  9. How does the Peak Season endorsement modify the BPP?
    The peak season endorsement provides differing amounts of insurance for selected time periods during the policy term, as indicated by specific dates shown in the endorsement.
  10. If the insured makes timely and accurate reports of values, will the Value Reporting Form limit recovery for a loss that occurs today to the amount last reported? Explain.
    No. The value reporting form will cover the acual amount of the loss, even if it is greater than the amount last reported. However, the insurer will pay no more than the applicable limit of insurance.
  11. If the amount last reported under the Value Reporting Form is greater than the limit of insurance, how will premiums and recovery for loss be affected?
    The premium will be calculated based on the amount reported. Recovery will still be subject to the limit of insurance.
  12. Under the value reporting form, how is revoery affected if at the time of loss:
    The first report was over due?
    If the first report was overdue at the time of loss, the insurer would pay only 75% of the amount that would otherwise have been paid.
  13. Under the value reporting form, how is revoery affected if at the time of loss:
    The foirst report had been made, but the second report was overdue?
    If the first report had been made but the secoond report was overdue, the insurer would pay no more than the amount first reported (not to exceed the policy limit).
  14. Under the value reporting form, how is revoery affected if at the time of loss:
    The last report of values is found to have been les than the actual values on hand as of the date of the report?
    If the last report of values is found to be less than the actual values on hand as of the date of the last report, the insurer will pay only that proportion of the loss that the amount reported bears to the actual amount that should have been reported ((did /should) x loss), not to exceed policy limit.
  15. How is the final earned premium determined for value reporting coverage?
    The reported values are summed and divided (by 12 in the case of 12 monthly reports) to come up with an average value, which is multiplied by the applicable rate. This earned premium is reconciled with the provisional premium charged at the beginning of the policy period, and the policy-holder either pays an additional premium (if the earned premium is greater than the provisional premium) or receives a refund (if the provisional premium is greater than the earned premium).
  16. How does specific insurance, as defined in the Value Reporting Form, affect a loss settlement?
    Coverage under the Value Reporting Form is excess over the amount recoverable under specific insurance (plus the amount of the deductible under the specific insurance).
  17. Identify two reasons for inaccurrate reporting with the Value Reporting Form.
    Inaccurate reporting can result from (1) an inadequate system for developing the needed information or (2) the insured's misunderstanding of what values need to be reported.
  18. Explain these features of the Business Personal Property Limited International Coverage endorsement:
    - Covered location
    - Coverage for transit
    - Coverage period
    • - The property must be temporarily in the foreign country specified in the schedule, and it must be located at a business location the insured owns, operates, or leases; or in the care, custody, or control of the insured or its authorized representative.
    • - Property in transit is covered only while it is being handled or stored by a carrier that is at the same time transporting the insured or its authorized representative.
    • - Coverage is limited to the specified period listed in the schedule. This period begins to run when the property leaves the insured's premises, not when it arrives in the foreign coverage territory.
  19. Identify four types of property that can be covered under the Additonal Covered Property Endorsement.
    The additional Covered Property endorsement can cover foundations of buildings, underground pipes, fences outisde buildings, and retaining walls that are not part of a building. (many other answers possible)
  20. Explain the purpose of the Manufacturer's Cnsequential Loss Assumption endorsement.
    The Manufacturer's Consequential Loss Assumption endorsement covers loss in value of undamaged property as a result of physical loss to other property that would would have been assembled or sold with the undamaged property. A classic example is trousers that lose value because the matching suit coats were destroyed and cannot be replaced with the same fabric.
  21. Summarize the three coverages provided by the Ordinance or Law Coverage Enndorement.
    Coverage A of the Ordinance or Law Coverage extension covers loss in value of the undamaged portion of the building that must be demolished. Coverage B covers the cost to demolish the undamaged portion of the structureand to remove its debris. Coverage C covers the increased cost to repair or reconstruct the property.
  22. In what ways does the Spoilage Coverage endorsement provide broader coverage for spoilage losses than the Utility Services - Direct Damage endorsement?
    Coverage under the Utility Services - Direct Damage endorsement applies only if the loss of power is caused by damage to described power supply services by an insured peril. The Spoilage coverage endorsement provides broader coverage. It covers spoilage of perishable stock resulting from change in temperature or humidity caused by either mechanical breakdown or power outage - regardless of whether the outage occurs on or off the insured premises.
  23. According to the Commercial Lines Manual (CLM), what is the maximum amount of insurance available under the Spoilage Coverage endorsement?
    There is no CLM-imposed maximum limit of insurance under the Spoilage Coverage endorsement.
  24. Contrast the "limited" and "broad"coverage options of the Radioactive Contamination endorsement.
    The limited coverage options requires the release of radioactive contamination to result from a covered cause of loss, whereas the broad coverage option treats radioactive contamination as a free-standing covered cause of loss. That is, it does not have to be caused by one of the regular covered causes of loss.
  25. Manufacturing Company owns three building valued, on a replacement cost basis, as follows:
    Building 1: $120,000
    Building 2: $300,000
    Building 3: $750,000
    What would be the advantage(s) of insuring these buildings on a blanket basis rather than a specific basis?
    The full blanket limit would be available for loss at a single location, eliminating the possibility of underinsurance.
  26. Manufacturing Company owns three building valued, on a replacement cost basis, as follows:
    Building 1: $120,000
    Building 2: $300,000
    Building 3: $750,000
    If the buildings were insured on a blanket basis subject to the usual coinsurance rule for blanket insurance, what is the lowest limit of insurance that the Manufacturing Company could buy and still comply with the coinsurance requirement?
    ($120,000 + $300,000 + $750,000) x 0.90 = $1,053,000 (must comply with 90% coinsurance)
  27. Manufacturing Company owns three building valued, on a replacement cost basis, as follows:
    Building 1: $120,000
    Building 2: $300,000
    Building 3: $750,000
    How could Maufactuirng Company's policy be arranged to avoid any possibility of a coinsurance penalty?
    The agreed value optional coverage could be activated to avoid the possibility of a coinsurance penalty.
  28. Camera shop occupies a leased building. On december 10, a fire totally destroyed the building and its contents. The ACV of the contents was $1,050,000. Camera Shops persol property was insured under a BPP with the Value Reporting Form with a $900,000 limit and a monthly reporting requirement. the policy had been in force since August 1. At the time of the loss, Camera Shop had made the following monthly reports of values:
    8/31 - $793,000; 9/30 - $910,000; 10/31 - $1,100,000
    Because these reports were accurate and made on time, Camera Shop believed that it was entitled to receive payment of $1,050,000, which was less than the amount last reported. Disregarding any deductible, how much will camera Shop be able to recover under its value reporting coverage? Explain.
    Camera Shop should be able to recover $90,000. Although its reports of values were timely and accurate, camera Shop cannot recover any more than the limit of insurance. To make sure the peak values will be recovered, Camera Shop should set the limit high enough to cover any anticipated seasonal increase.
  29. A retail store insures its business person property, including merchandise, under a BPP with the Value Reporting Form. The limit of insurance is $500,000, and the deductible is $1,000. On November 24, a fire (covered peril) destroyed the store and all its personal property. The store's last report of values was $350,000 and was made on time, on October 31.
    Assuming that the last repot of values was accurate, how much would the policy pay for the store's personal property loss, which amounted to $490,000?
    $490,000 - $1,000 = $489,000
  30. A retail store insures its business person property, including merchandise, under a BPP with the Value Reporting Form. The limit of
    insurance is $500,000, and the deductible is $1,000. On November 24, a fire (covered peril) destroyed the store and all its personal property.
    The store's last report of values was $350,000 and was made on time, on October 31.
    Assume that the last report of valueswas $300,000, and thereofre underreported the actual values of $350,000 on hand as of the time of the last report. under these circumstances, how much would the insured store collect for a $490,000 loss?
    (($300,000/$350,000) x $490,000) - $1,000 = $419,000
  31. Identify the appropriate ISO commercial property endorsement:
    The insured is a foundry that wants to have coverage for damage to its equipment that would result from an off-opremises power interruption. (The damage would result from molten metals cooling and hardening in their receptacles before being poured or formed.)
    Utility Services - Direct damage endorsement
  32. Identify the appropriate ISO commercial property endorsement:
    A wholesale florist wants to cover spoilage of his cut flowers in the event of either an off-premises power interruption or a breakdown of his refrigeration equipment.
    Spoilage Coverage endorsement
  33. Identify the appropriate ISO commercial property endorsement:
    A university research facility wants to cover contamination of its proerty that could result from the escape, for any reason, of radioactive materials used in the facility's research activities.
    Radioactive Contamination endorsement

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