CPCU 551: Chapter 6

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Author:
hborgert
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13241
Filename:
CPCU 551: Chapter 6
Updated:
2010-04-06 20:43:25
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Other Commercial Property Forms
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CPCU 551: Commercial Property Risk Management and Insurance; Chapter 6: Other Commercial Property Forms
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  1. How can an insurance producer determine where the dividing line lies between condominium association's interests and the unit owners' interests?
    The producer must become familiar with the applicable state statute governing condominiums and must also analyze the particular condominium assocaition agreement.
  2. In additon to determining who owns what in a condominium, what are two other problems that may arise when arranging insurance for condominiums?
    Two other problems that may arise include (1) the valuation of property to be insured and (2) the types of coverage to be obtained.
  3. In terms of ownership, how does a planned unit development (PUD) differ from a condominium?
    In a PUD, the occupants have exclusive ownership of their own units in the same way that individual homeowners own their property. In contrast, a condominium unit owner owns only the interior of the unit. Additionally, the PUD occupants also individually own the land below their structures. In a condominium, the unit owners do not have individual ownership of any of the land.
  4. The building coverage of the Condominium Association Coverage Form closely resembles the building coverage of the Building and Personal Property Coverage Form (BPP) with one exception relating to property within individual units. Describe this exception.
    The building coverage of the Condominium Association Coverage Form covers fixtures, improvements, alterations, and applicances within condominium units only if the condiominium association agreement requires the association to insure them.
  5. With regard to business personal property, how does the Condominium Association Coverage Form clarify the dividing line between personal property insured by the association and personal property insured by the association and personal property insured by individual unit owners?
    The Condominium Association Coverage Form states that it covers personal property if it is owned by the association or if it is indivisibly owned by all unit owners. The form does not cover personal property that is owned only by a single unit owner.
  6. Describe the condominium association's ability to waive its rights of recovery under the Condominium Association Coverage Form.
    The association's waiver rights are very broad. The association can waive its recovery rights against any unit owner, members of the unit owner's family, the association, and members of the board of directors when acting in the scope of their duties as such.
  7. How does the Condominium Commercial Unit-Owners Coverage Form coordinate with the Condominium Asociation Coverage Form with regard to property inside of units?
    Fixtures, improvements, alterations, and appliances inside a unit are not covered by the unit owner's policy if the condominium association agreement requires the association to insure them, in which case such items are covered under the association's policy. If the agreement does not require the association to insure such items, then they are covered under the unit owner's policy but not under the associations's policy.
  8. What are four ways in which builders' risk exposures differ from the exposures of completed buildings?
    Builders' risk exposures differ from completed buildings' exposures in these ways: (1) builders' risk values increase significantly during the policy period, whereas the value of a completed building remains relatively stable during the policy period; (2) builders' risk may involve more insurable interests (such as builders, owners, and contractors) than completed building do; (3) building materials at a construction site are aspecially susceptible to theft; and (4) buildings under construction are more susceptible to fire than are completed buildings because of both the work being performed and the incomplete status of fire protection devices.
  9. What interests (parties) can usually be insured under a builders' risk policy?
    The builders' risk form can be used to insure the interests of the building owner, the contractor, and subcontractors.
  10. How does the ISO Builders Risk Coverage Form differ from the BPP with regard to:
    a. property covred and property no covered?
    a. The builders' risk form covers various items that the BPP excludes, such as foundations and underground pipes, flues, or drains. The Builders Risk Form also covers temporary structures built or asembled on site, such as cribbing and scaffolding.
  11. How does the ISO Builders Risk Coverage Form differ from the BPP with regard to:
    b. coverage extensions?
    b. The builders risk form doesnot provide any of the 6 extensions of the BPP. Instead, it provides extensions for (1) building materials and supplies of others (up to $5,000) and (2) sod, trees, shrubs, and plants (up to $250 per item and $1,000 per occurrence).
  12. How does the ISO Builders Risk Coverage Form differ from the BPP with regard to:
    c. covered causes of loss?
    c. The builders risk form excludes loss caused by collapse, but collapse coverage can be added by endorsement.
  13. Under the completed value method of writing a builders' risk policy, why is the premium rate lower than that for a completed building of the same type?
    The builders risk premium is lower because actual values at risk are substantially lower than the limit of insurance for much of the policy period while the building is being constructed.
  14. When does coverage cease under the ISO Builders Risk Coverage Form?
    Coverage ceases sixty days after an insured building is occupied or put to its intended use. Coverage can cease earlier if any of these occurs: (1) the named insured's interest ceases, (2) the purchaser accepts the property, or (3) the named insured abandons the project with no intention to complete it.
  15. Identify two alternatives to the Builders Risk Coverage Form for insuring property during construction?
    One alternative to the Builders Risk Coverage Form is to rely on the BPP, and another is to obtain a nonfiled inland marine builders' risk policy.
  16. For what purpose was the Standard Property Policy (SPP) developed?
    The SPP was developed to give insurers an alternative form to use when they are reluctant to grant the broader coverage of the BPP and related causes of loss forms. Accordingly, the SPP is used for insuring risks in the residual property market.
  17. How does the SPP differ from the BP (with basic causes of loss) with regard to the following?
    a. Covered Perils.
    a. All of the Basic Form Perils can be purchased in increments under the SPP. Only fire, lightning, and explosion are mandatory in the SPP.
  18. How does the SPP differ from the BP (with basic causes of loss) with regard to the following?
    b. Valuation of covered property.
    • b. The SPP applies on an ACV basis with no opion for replacement cost
    • coverage, which is an option under BPP.
  19. How does the SPP differ from the BP (with basic causes of loss) with regard to the following?
    c. Cancellation.
    c. The SPP requires the insurer to give only five days notice of cancellation.
  20. The Legal Liability Coverage Form covers loss of or damage to property of others in the insured's care, custody, or control, but only if the insured is a legally liabile for the loss or damage.
    a. How does this approach to insuring property of others differ from using the BPP to cover property of others?
    a. When property of others is insured under the BPP, the insured does not have to be legally liable for the loss in order for the coverage to apply. The Legal Liability Coverage Form does not pay a loss unless the insured is legally liable for the loss.
  21. The Legal Liability Coverage Form covers loss of or damage to property of others in the insured's care, custody, or control, but only if the
    insured is a legally liabile for the loss or damage.
    b. Why might an insured prefer to use the Legal Liability Coverage Form instead of the BPP to cover property of others?
    b. An insured might prefer the Legal Liability Coverage Form because (1) the rate is significantly lower than the direct coverage rate and (2) the Legal Liability Coverage Form covers loss of use of the insured property as well as the physical loss itself.
  22. Decribe two ways in which cancellation of a lease mght cause a lessee to suffer a financial loss. How can the exposures described in your answer to the question be insured?
    (1) The lessee has a lease at a rental rate that is much lower than the current rental rate for comparable premises. If the lease is cancelled, the lessee will have to negotiate a new lease at a higher rate. (2) The lessee paid a bonus to acquire a lease. If the lease is cancelled and the bonus is non refundable, the lessee would lose the unamortized value of the bonus.

    A lessee can purchase leasehold interest insurance.
  23. The Office Park Condominium Association (OPCA) is insured under the Condominium Assocation Coverage Form. PAR Reality, Inc., has been a unit owner at the OPCA complex for fifteen years and is insured under the Condominium Commercial Unit-Owners Coverage Form. The condominium association agreement follows the single-entity concept with regard to property ownership and insurance requirements. PAR Realty recently suffered a fire loss inside its premises. Indicate which policy- OPCA's or PAR's- would cover the following items that were damaged by the fire.
    a. Business personal property owned by PAR
    a. Covered by PAR's policy. OPCA's policy does not cover business personal property owned individually by a unit owner.
  24. The Office Park Condominium Association (OPCA) is insured under the Condominium Assocation Coverage Form. PAR Reality, Inc., has been a unitowner at the OPCA complex for fifteen years and is insured under the Condominium Commercial Unit-Owners Coverage Form. The condominium association agreement follows the single-entity concept with regard to property ownership and insurance requirements. PAR Realty recently suffered a fire loss inside its premises. Indicate which policy- OPCA's or PAR's- would cover the following items that were damaged by the fire.
    b. Interior walls that were in the unit as sold to PAR
    b. Covered by OPCA's policy. Under the single-entity concept, the interior walls are owned by OPCA and coverd as part of the building. PAR's policy would not cover interior walls unless they were improvements or betterments made by PAR.
  25. The Office Park Condominium Association (OPCA) is insured under the Condominium Assocation Coverage Form. PAR Reality, Inc., has been a unit owner at the OPCA complex for fifteen years and is insured under the Condominium Commercial Unit-Owners Coverage Form. The condominium association agreement follows the single-entity concept with regard to property ownership and insurance requirements. PAR Realty recently suffered a fire loss inside its premises. Indicate which policy- OPCA's or PAR's- would cover the following items that were damaged by the fire.
    c. A water heater, a stove, and a refrigerator that were in the unit as sold to PAR
    Covered by OPCA's policy. Under the single-entity concept, these appliances are owned by OPCA, and OPCA is responsible for insuring them. OPCA's policy covers the appliances because OPCA is required to insure them. For the same reason, PAR's policy does not cover the appliances.
  26. An office building under construction is insured by its owner under the ISO Builders Risk Coverage Form, to which the Causes of Loss - Special Form is attached. Indicate whether each of the following losses would be covered under the policy. If a loss is not covered, explain why.
    a. Building supplies owned by the insured and worth $5,000 were destroyed by vehicle collision while being conveyed on a supplier's truck to the insured location.
    a. Not covered. The property in transit extension in the Cause of Loss-Special Form applies only to shipments on the insured's own vehicles.
  27. An office building under construction is insured by its owner under the ISO Builders Risk Coverage Form, to which the Causes of Loss - Special
    Form is attached. Indicate whether each of the following losses would be covered under the policy. If a loss is not covered, explain why.
    b. A hailstorm destroyed several trees and plants that the land-scaping contractor had just planted at the insured location.
    b. Not Covered. The builders' risk form provides a coverage extension for sod, trees, shrubs, and plants, but hail is not covered peril for the extension.
  28. An office building under construction is insured by its owner under the ISO Builders Risk Coverage Form, to which the Causes of Loss - Special
    Form is attached. Indicate whether each of the following losses would be covered under the policy. If a loss is not covered, explain why.
    c. Late on a Saturday night, a group of teenagers "partied" in the building. In the course of the party, several walls were defaced with spray-paint graffiti.
    c. Covered. No exclusion applies.
  29. An office building under construction is insured by its owner under the ISO Builders Risk Coverage Form, to which the Causes of Loss - Special
    Form is attached. Indicate whether each of the following losses would be covered under the policy. If a loss is not covered, explain why.
    d. Roofing shingles worth $3,000 belonging to the roofing contractor (not an insured under the policy) and being stored outside the building but within 100 feet of the building were destroyed by fire.
    d. Covered under the extension for materials and supplies owned by others.
  30. An office building under construction is insured by its owner under the ISO Builders Risk Coverage Form, to which the Causes of Loss - Special
    Form is attached. Indicate whether each of the following losses would be covered under the policy. If a loss is not covered, explain why.
    e. The building collapsed because of faulty construction methods and materials.
    e. Not covered. The builders' risk form excludes collapse caused by faulty workmanship. Coverage can be added by endorsement.
  31. An office building under construction is insured by its owner under the ISO Builders Risk Coverage Form, to which the Causes of Loss - Special
    Form is attached. Indicate whether each of the following losses would be covered under the policy. If a loss is not covered, explain why.
    f. Several fixtures that had not yet been installed were stolen from the building in the middle of the night.
    f. Not covered. The Special Form does not cover theft of unattached building materials. Coverage can be added by endorsement.
  32. An office building under construction is insured by its owner under the ISO Builders Risk Coverage Form, to which the Causes of Loss - Special
    Form is attached. Indicate whether each of the following losses would be covered under the policy. If a loss is not covered, explain why.
    g. Although some finish carpentry still needed to be completed and the building had not been formally accepted by the owner, the owner occupied the new building on October 1. On October 2 the entire structure was destroyed by fire.
    g. The loss would be covered because the builders' risk form allows coverage to continue for up to six days after the building is occupied or put to its intended use.
  33. A building under construction was insured on a completed value basis for $500,000 under the builders Risk Coverage Form. A $5,000 deductible applied. Shortly after the building was completed, and before it was occupied, it sustained a $120,000 loss by an insured peril. If the actual cash value of the building at the time of loss was $600,000, how much would the insurer be obligated to pay on the loss?
    [($500,000/$600,000) x $120,000] - $5,000 = $95,000

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