CPCU 551: Chapter 10
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Why is there more flexibility in the underwriting of the nonfiled classes of inland marine insurance?
The nonfiled classes allow more flexibility because the form can contain whatever provisions the insured and the insurer agree on. The form does not have to be filed for approval.
In what circumstances is an inland marine underwriter likely to use each of the following valuation provisions?
a. Invoice value
b. Valued policy
- a. Invoice value is likely to be used when insuring shipments from a seller to a buyer.
- b. The valued policy approach is likely to be used when insuring fine arts or other property that is difficult to value objectively.
Why are the terms of sale an important factor in determining loss exposures involving property in transit between a seller and a buyer?
The terms of sale state when title passes from seller to buyer. Thus, they define who owns the property at any given point in transit when loss might occur.
What are the five exemptions from the cargo liability that apply to a common carrier of goods in surface (land) transit?
- 1) acts of god
- 2) acts of a public enemy
- 3) exercise of public authority
- 4) shiipers fault
- 5) inherent vice
How can a common carrier limit the amount of its cargo liability?
By using a released bill of lading, through whcih the carrier charges a lower rate in return for the shipper's acceptance of a loss limitation.
How is a contract carrier's liability for cargo damage determined?
A contract carrier's liability for cargo loss depends on the terms of the shipping contract agreed on by the carrier and the shipper.
To what shipments does COGSA apply?
COGSA (Carriage of Goods by Sea Act - a federal statue) detemines a carrier's liability for goods shipped in foreign trade to or from the United States by sea. By agreement between the shipper and the carrier, it can also be applied to domestic shipments within the US.
What are four measures that can be taken to control theft losses of property in transit?
- 1) use intermodal containers to reduce pilferage losses
- 2) useadequate locks and alarm systems on trucks
- 3) use attendants to stay with trucks while their drivers are not present
- 4) select appropriate routes and carriers for transporting valuable cargoes. (many other answers are possible)
Describe the type of shipper best served by each of these:
a. Annual transit
b. Trip transit coverage
- a. An organization that has frequest incoming and outgoing shipments is best served by annual transit coverage.
- b. An infrequent shipper or consignee is best served by trip transit coverage.
Is the property covered by annual transit insurance usually limited to property owned by the insured? Briefly explain.
No. Annual transit policies often cover not only property owned by the insured but also property of others that is being used in the insured's business.
When does annual transit coverage on a particular shipment typically begin and end?
Annual transit policies cover the property from the time it comes into the carrier's custody until it is delivered at its destination. When property is being carried on the insured's own vehicles, the policy may cover the property from the time the vehicle leaves its point of origin until it reaches its destination.
Why do open cargo policies often state that losses will be payable to the assured "or order"?
The phrase "or order" permits the assured to direct the insurer to pay a loss to the consignee, a bank, or some some other party that has an insurable interest in the property.
What do open cargo policies cover in addition to the assured's interest in property being shipped?
- 1) general everage charges for which the assured becomes liabile (an expenditure or a sacrifice of part of a vessel or its cargo, made in a time of danger to save the voyage, that must be shared by all parties to the voyage - cargo owners and vessel owners)
- 2) sue and labor expenses (the sue and labor clause obligates the assured to take reasonable measures to preserve the property at a time of loss and obligates the insurer to pay the cost of such measures the assured takes.)
In addition to ocean going vessels, on what other conveyances might shipments be covered in an ocean cargo policy?
An ocean cargo policy might also cover shipments on aircraft, metal barges, or conecting conveyances. Connecting conveyances at either end of an ocean voyage could include land vehicles such as trucks or railcars.
Name and briefly describe the "paramount" warranties of an ocean cargo policy.
- 1) FC&S (free of capture and seizure) warranty, which excludes loss caused by war, piracy, and any type of seizure, atomic weapons, mines, torpedoes, and various types of governmental taking.
- 2) the SR&CC (strikes, riots, and civil commotion) warranty, which excludes loss caused by strikes, labor disturbances, riots, vandalism, sabotage, malicious acts, or civil commotion.
- 3) the Delay clause, which excludes spoilage, loss of market, and business interuption losses.
What perils are usually covered in a named perils ocean cargo policy?
A named perils ocean cargo policy typically covers the perils of the sea (fortuitous causes of loss peculiar to the sea and other bodies of water), fire, jettison (the voluntary throwing overboard of cargos or other property in an emergency), assailing thieves (theft by force, does not include clandestine theft, pilferage, or theft by the passengers or crew), barratry (any wrongful act willfully comminted by the master or crew with criminal intent and to the detriment of the shipowner or charterer), and all other like perils. The Inchmaree clause, if addd, covers additional perils such as bursting of boilers, breakage of shafts, latent defects, and faults or errors in navigation or management of the vessel.
In what situations might an FPA warranty come into play under an "all-risks" ocean cargo policy?
An FPA warranty (warranty that restricts the covered perils applicable to particular average - a partial loss of cargo or vessel, other than general average) might come into play when the affected shipment is a type of property other than the commodities specifically described in the policy. The commodities described in the policy are not affected by the FPA warranty.
How does cargo war risk insurance differ from regular ocean cargo insurance with regard to each of the followinng?
a. Duration of coverage
- cargo war risk insurance - Insurance that covers cargo against many of the perils excluded by the FC&S warranty.
- a. Cargo war risk applies only while the covered property is afloat (with some minor exceptions), whereas regular ocean cargo insurance applies on a warehouse-to-warehouse basis.
- b. The insurer can cancel cargo risk insurance by giving forty-eight hours' notice, whereas the insurer must normally give much longer notice of cancellation under an open cargo policy.
In what situations might a shipper or consignee be well advised to purchase cargo business interruption insurance?
Cargo business interruption insurance is well advised in any situation in which delay of the shipment will cause a significant business income loss. An example is a shipment of a custom-made production machine that is a key component in a production process and would take several months to replace if it were destroyed.
How are covered shipments between a seller and buyer ordinarily valued under an ocean cargo policy?
They are usually insured for the invoice value and frieght plus an "advance" equal to 10 percent or more of the invoice and freight.
What types of property and what types of organizations are covered by the Mail Coverage Form?
The Mail Coverage Form covers valuable property (such as money, securities, and precious stones) sent through the mail by banks, trust companies, security brokers, and others whose business is mainly of a fiduciary nature.
Distinguish between the two basic types of motor truck cargo insurance.
One type of motor truck cargo insurance (sometimes called motor truck cargo liability insurance) covers motor carriers against their liability for loss of their customers' cargo. The other type (sometimes called owners' goods on owners' trucks insurance) covers a property owner for shipments made on the owner's own vehicles.
When is property covered under a motor truck cargo liability form, apart from the time it is on the insured's vehicles?
The property is also covered for a stipulated numebr of hours while in the insured's terminal. The insurer may be willing to eliminate the hour limitation and to cover property in storage at the insured's terminal.
Why is the financial strength of a prospective insured one of the most important underwriting considerations for motor truck cargo liability insurance?
The BMC 32 endorsement (must be attached to interstate carriers) attached to most motor truck cargo policies obligates the insurer to pay for virtually all cargo loses up to the limits required by the US Department or Transportation, regardless of whether the policy would otherwise cover them. The insurer has the right to seek rembursement from the insured for losses it has paid under BMC 32 that would not otherwise have been covered, but if the insured does not have the financial strength to reimburse the insureer, the insurer must absorb the losses.
Name four examples of instrumentalities of transportation and communication that are included in the Nationwide Marine Definition.
Bridges, tunnels, piers, wharves, docks, slips, dry docks, marine railways, pipelines including on-line propulsion, regulating, and other equipment, power transmission and telephone and telegraph lines, radio and televsion communication equipment, outdoor cranes, loading bridges, and similar equipment used to load, unload and transport are examples of instrumentalities of communication and transporation.
Give four examples of equipment that could be insured under a contractors' equipment floater.
Cranes,earthmovers, tractors, stone crushers, front-end loaders, bulldozers, portable offices, scaffolding, and mobile asphalt plants can be insured under a contractors' equipment floater.
When does coverage usually begin and end under rental reimbursement coverage?
Rental reimbursement coverage (can be added to a contractors equipment floater to pay the cost of renting necessary substitute equipment to replace coverd equipment that has been damaged by a covered peril) typically begins forty eight hours after the equipment is damaged, and it ends when the proerty has been repaired or replaced (subject to an overall limit).
What features does a typical EDP equipment floater offer that are not found in commercial property polcies?
EDP equipment policies can cover perils that are not covered under commercial property policies, such as mechanical or electrical breakdown or changes in temperature. EDP policies may also cover property while in transit, which commercial property policies usually exclude. Because EDP policies are nonfiled inland marine in many states, other favorable provisions not found in filed commercial property policies may be added.
Compare the basic purposes of builders' risk policies and installation floaters.
A builders risk policy is intended to cover an entire building throughout the course of construction. An installation floater is intended to cover property (such as plumbing fixtures) being installed at a work site by a particular contractor.
Describe three ways in which an inland marine builders' risk policy might provide broader coverage than the Builders Risk Coverage Form that is part of the ISO commercial proerty program.
- 1) Property in tranist (without a $5,000 sublimit)
- 2) Property while bieng stpred at locations other than the job site
- 3) Perils such as collapse during the course of construction resulting from defective materials or methods and boiler explosion
- 4) The description of covered property includes property of others (without the $5,000 sublimit)
- 5) Coverage is provided for theft of building materials not attached as part of the building
- 6) Insured is permitted to waive rights of recovery against contractors or subcontractors
Identify three types of expenses insured by "soft costs" coverage under a builders' risk policy.
- Soft Cost Coverage - can be added to builders risk policy to cover various incidental expenses that might result from a phsicla loss to a building project.
- - Additonal interest on funds borrowed to finance reconstruction or repairs
- - Additional real estate taxes
- - Additional advertising expenses
- - Additonal costs and commissions resulting from having to renogotiate leases
- - Additional architects' and engineers' fees
- - Additional insurance premiums
- - Additional legal and accounting fees
Describe a commercial bailee's potential liability for damage to customers's goods.
A commercial bailee is usually legally liable for damage to customers' goods that result from the bailee's negligence (failure to exercise ordinary care).
a. Describe the "loss of goodwill exposure" of bailees.
b. How can the goodwill exposure be insured?
- a. If the bailee does not pay customers for losses to their proerty that occur while the property is in the baile's custody (regardless of whether the bailee is legally laible for the losses), the customers will probably take their business elsewhere
- b. A bailee can insure its goodwill exposure through bailees' customers insurance.
What is the basic purpose of a pattern and die floater?
A pattern and die floater coverd the insred's pattern and dies while located at the premises of others (such as the premises of a manufacturer that is using the patterns and dies to make products for the insured) and also while intransit to and from those premises.
Name four types of dealers eligible for inland marine dealers policies.
Jewelers, Equipemt (farm or construction) dealers, fine arts dealers, Furriers, Camera dealers, Musincal Instrument dealers, stamp and coin dealers, dealers of any property that, when sold to the ultimate puchaser, may be covered by the owner under an inland marine policy.
What types of property can usually be insured under an inland marine dealer policy?
A dealer policy typically cavers the insured's stock in trade (inventory) and similar proerty of pthers, whether on or away from the insured's premises. the form can usualy be extended to cover furinture, fixtures, office suuplies, tools, patterns, and tenants' imporvements and betterments.
What does accounts receivable insurance cover in addition to uncollectible accounts receivable?
Accounts receiveable insurance also covers 1) interest charges on loans required to offset the uncollectible amounts, 2) collection expenses in excess of normal, and 3) other reasonable expenses the insured incurs to reconstruct the damaged records.
Identify the two valuation approaches used in valuable papers insurance, and explain when each is used.
- Actual cash value is used for items that can be replaced or reconstruced.
- Agreed value is used for irreplaceable items.
Identify which party - buyer or seller - would hold title to the goods at the time of each of these cargo losses:
a. The terms of sale were FOB Vessel. The goods were destroyed while in the custondy of a trucker who was transporting the goods from the seller's warehouse to the overseas vessel.
b. The terms of sale were FOB Vessel. The goods were damaged as they were placed on the deck of the overseas vessel.
c. The terms of sale were FOB Vessel. The goods were damaged after they had unloaded from the overseas vessel at the port of destination.
d. The terms of sale were FAS Vessel. The goods were damaged while being unloaded from the overseas vessel at the port of destination.
- a. seller
- b. buyer
- c. buyer
- d. buyer
Acme Manufacturing Company has experienced these losses to its outgoing shipments to customers. For each loss described, explain whether Acme will have any right of recovery against the common carrier trucker that was transporting the property.
a. Through no fault of the carrier, another vehicle collided with the carier's truck, resulting in damage to Acme's goods.
b. The carrier's truck was unavoidably caught in a hurricane, and Acme's goods were lost.
c. A truck carrying Acme's goods was hijacked. The goods were being shipped under a released bill of lading.
d. A shipment of finished goods was damaged because Acme improperly strapped the goods to the pallet on which they were shipped.
- a. Acme will have right of recovery because the loss was not within one of the exceptions to a common carriers liability
- b. Acme will not have right of recovery because the loss was caused by an "act of God," one of the exceptions to common carrier liability.
- c. Acme will have a right of recovery because the loss was not within one of the exceptions to common carrier liability. The fact that a released bill of lading was used may reduce the amount the carrier is legally obligated to pay but will not eliminate liability altogether.
- d. Acme will not have a right of recovery, because fault of the shipper is one of the exceptions of common carrier liability.
Miller Appliance is a dealer in industrial refrigeration equipment. Miler's physical facilities consist of a showroom/office building and an adjacent warehouse building . The warehousse building also contains a service area where Miller performs repair and maintenance work on customers' appliances. Miller owns several forklifts and other mobile equipment and tools for use in its warehouse and repair operations. Miller also maintains a small fleet of trucks for transporting sold and repaired property to customers. In many cases, Miller employees provide installation services at the customer's premises. Sales are made by cash and on customer charge accounts. Shipments of new merchandise to Miller's premises are transported by common carrier truckers under FOB Point of Origin selling terms.
a. Identify all loss exposures of Miller Appliance that could be insured under inland marine policies.
b. For each loss exposure indentified in your answer to a., name an appropriate inland marine insurance policy or coverage form.
- Customers' property in Miller custody - Bailees' customers policy
- Miller's forklifts, mobile equipment, tools - Contractors equipment floater
- Property being delivered to customers on Miller's trucks - Annual transit policy or motor truck cargo (owner's goods on owner's trucks) policy
- Property being installed in customers' accounts - Account receivable coverage
- Incoming FOB Origin shipments from manufacturers - Annual transit policy
Miller Appliance is a dealer in industrial refrigeration equipment. Miler's physical facilities consist of a showroom/office building and an adjacent warehouse building . the warehousse building also contains a service area where Miller performs repair and maintenance work on customers' appliances. Miller owns several forklifts and other mobile equipment and tools for use in its warehouse and repair operations. Miller also maintains a small fleet of trucks for transporting sold and repaired property to customers. In many cases, Miller employees provide installation services at the customer's premises. Sales are made by cash and on customer charge accounts. Shipments of new merchandise to Miller's premises are transported by common carrier truckers under FOB Point of Origin selling terms.
c. Describe the responsibility, if any, that Miller Appliance bears for damage to each of these:
1. Customers' property that Miller is repairing
2. New merchadise while in transit to Miller's premises
- 1. As a commercial bailee, Miller could be held legally liable for any damage to customers' property that results from Miller's negligence.
- 2. Because the shipments of merchadise to Miller's premises are being sold on FOB Origin terms, Miller is the owner of the property while intransit and this bears the risk of loss to the property while in transit. However, the common carrier transporting the property will be legally liable to Miller for any loss that occurs during transit unless the loss is caused by one of the perils for which common carriers are not liable, such as acts fo God, in herent vice, or fault of the shipper.
Zenith Construction Company is a general contractor. Zenith is currently engaged in several building construction projects. Materials and equipment for these projects are stored at Zenith's yard while awaiting delivery to the various job sites, either by its own trucks or common carrier truckers. More than fifty pieces of construction equipment owned or leased by Zenith are in use at these various sites at any one time. What inland marine coverages would you recommend for Zenith to insure the property exposures described?
An inland marine builders risk policy could be arranged to cover the building underconstruction, the materials and eqpuiment is storage, and materials and equipment in transit. The owned and leased equipment could be insured under a contractors equipment floater.
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