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How is time of loss relevant to assessing ACV?
- - time of loss is essential because values fluctuate;
- - the cost of replacing damaged or destroyed property after the loss may be different from the cost at the time of loss
Describe the different types of depreciation.
- Depreciation types:
- - physical
- - function of marketing
-- most consumable objects begin to depreciate as soon as they are acquired (ie. automobile)
What is the practical purpose of a fair basis for indemnity?
Moral Hazard - a danger that the possible profit from a loss may tempt insd's to bring loss on themselves or be less diligent in avoiding it than they should be
In commercial insurance, what are the 5 conditions for replacement cost?
- Conditions for Replacement Cost:
- 1. replacement must be made promptly
- 2. Replacement must be on the same site or an adjacent site
- 3. Payment will be limited to the cost of replacing, repairing, constructing, or reconstructing (whichever is least) on the same site w new property of like kind and quality and for like occupancy
- 4. Settlement will be made only when the work is completed and then for no more than the actual cost of the work
- 5. All other insurance covering the same perils (and the same interest) must have the same replacement cost provisions
What is the outcome when an insured fails to meet any of the conditions for replacement cost?
- a loss will be settled at ACV
Describe the evolution of automatic reinstatement.
- - an insured may have several losses during 1 policy term - thereby getting paid more than the limits in total
- - finally, many insurers agreed to reinstate amounts of insurance automatically after claims payments, at no additional premium, and modify their policies accordingly
What are the 2 important features of the IBC wording of the Automatic Reinstatement clause?
IBC wording: "Loss under (any item of) this policy shall not reduce the (applicable) amount of insurance.
- 2 features:
- 1. The amount of insurance remains unchanged throughout the policy period, even if losses are paid.
- 2. If the insd cancels the policy after a loss, even one equal to the full amount of insurance, the insurer must return premium (calculated on a short-rate basis) for the unexpired part of the policy period, as required by statute.
Stock may be understood as goods and merchandise that the insured manufactures or acquires that are usual to the insured's business or that the insured is obligated to keep insured or for which the insured is legally liable.
What is the purpose of a declarations form?
Ensures that stock will be fully covered, up to the peak values stated in the form, however much the values actually at risk fluctuate.
How does an insurer calculate the deposit premium for a business with distribution warehouses in scattered locations throughout the country?
To calculate the deposit premium, the insurer first sets a premium rate for each location. Then, the insurer applies the rate to the provisional limit for the location to determine the premium for that location. The total of premiums for all locations is then discounted by a % - perhaps 25% - to determine the deposit premium.
How does an insurer calculate the average value at each location for a business with distribution warehouses in scattered locations throughout the country?
At the end of each period (monthly or quarterly), the sum of the values that were reported throughout the period for each location is divided by the number of reports to determine the average value at each location.
What 6 additional perils are commonly included in the property policies issued by most insurers?
- - explosion (beyond the Basic Fire Policy)
- - impact by aircraft & land vehicles
- - riot, vandalism or malicious acts
- - smoke
- - leakage from fire protective equipment
- - windstorm or hail
How do additional perils affect premiums? Explain.
Additional perils do not change the amount of insurance or the property insured. A claim for loss/damage by one of the additional perils has the same impact on the policy as a loss by fire.
Insurers charge additional premium for added perils. This is justified b/c there are more possibilities of a claim under the policy if more perils are included.
Why is the explosion of natural, coal, or manufactured gas exempted from the exclusions in the Explosion peril?
Because such a loss or damage is part of the fire coverage under the Insurance Acts of the common law provinces
Why are chemical recovery boilers and smelt-dissolving tanks typically excluded from coverage? Is it possible to include them in a policy?
They may be found in paper mills and are used to recover caustic chemicals. They are excluded bc they present a greater-than-average explosion hazard. The perils excluded may be added back by endorsement.
How do owners of commercial buildings secure insurance for a domestic water heater when they often don't have boiler and machinery insurance?
To overcome this problem, it is becoming common for insurers to amend exclusion (ii) to make an exception (to include coverage) for domestic water heaters having a diameter not exceeding 610mm (24 inches)
What types of occurrence are identified by the second set of exclusions under the Explosion peril?
- - electric arcing
- - hydrostatic pressure tests (applying pressure of liquid) to test for hidden damage
- - safety devices (such as safety discs, rupture diaphragms, or fusible plugs that are intended to burst or rupture under given circumstances)
The Impact by Aircraft, Spacecraft, or Land Vehicle peril expands coverage to include what additional source of damage?
Coverage is expanded to include not only impact by aircraft or spacecraft but also impact by any part of it or any of its contents should they become separated and fall to earth.
- Riot has a precise legal meaning.
- - an act or threat of violence by one or more persons who are part of an assembly of 3 or more persons
- - that might give rise to damage to property or injury to persons
How are insurers affected by the fact that courts have ruled theft a malicious act?
It has forced insurers to pay theft claims under policies that did not cover theft but did cover malicious acts.
What 3 elements trigger coverage for damage from smoke?
- Smoke due to:
- - sudden
- - unusual
- - faulty operation
- of any stationary furnace
Define leakage from fire protective equipment
means the leakage or discharge of water or other substances from within the equipment used for fire protection purposes for the "premises" described on the "Declarations Page" or for adjoining premises and loss/damage cause by the fall or breakage or freezing of such equipment.
Describe the 2 exclusions that establish the scope of the Windstorm or Hail exclusion.
- 1) Interior Damage
- 2) Other Causes
What is the purpose of the extension of policy coverage applicable to windstorm damage?
to remove windstorm debris that is not included in the Debris Removal clause (ie. trees)
What 3 endorsements are generally used to extend fire policies to cover water damage?
- 1) Freezing of a heating, plumbing or air conditioning system
- 2) Escape of water from a plumbing, heating, or air conditioning system
- 3) Escape of water from a public watermain
What cause of damage is excluded from coverage of building collapse?
Earth movement of any kind
The additional peril of Smoke covers...
... damage from smoke due to sudden, unusual, and faulty operation of a stationary furnace
Smoke means smoke due to a sudden, unusual, and faulty operation of any stationary furnace
Quotation marks allow the drafter of the form to distinguish between the intended meanings of the same word when it is used in....
Quotation marks allow the drafter of the form to distinguish between the intended meanings of the same word when it is used in different contexts
Falling object refers to an object...
...striking the exterior roof or walls of the building
Falling object refers to an object striking the exterior roof or walls of the building
Under the peril of Glass Breakage, there is no coverage if the building has been vacant for more than...
No coverage applies if the building has been vacant for more than 30 days or while the building is in course of construction
Deductibles used in commercial risks are usually applied per...
Deductible amounts applied to commercial risks are usually applied per occurrence
SA(5): List the 5 conditions for settling loss at replacement cost.
- 1) Replacement must be made promptly
- 2) Replacement must be on the same site or an adjacent site
- 3) Payment will be limited to the cost of replacing, repairing, constructing, or reconstructing (whichever is least) on the same site w new property of like kind and quality and for like occupancy
- 4) Settlement will be made only when the work is completed and then for no more than the actual cost of the work
- 5) All other insurance covering the same perils (and the same interest) must have the same replacement cost provisions
SA(1): What happens if the insured fails to meet any of the 5 conditions for settling loss at replacement cost?
- if the insured fails to meet any of these conditions, a loss will be settled at ACV
SA(4): The wording recommended by IBC for Automatic Reinstatement coverage states that loss under (any item of) the policy shall not reduce the (applicable) amount of insurance. Explain 2 important features of this wording.
- 2 important features:
- - the amount of insurance remains unchanged throughout the policy period
- -- even if losses are paid
- - if the insd cancels the policy after a loss, even on equal to the full amt of insurance
- -- the insr must return premium (calculated on a short-rate basis)
- -- for the unexpired part of the policy period
- -- as required by statute
SA(3): What is a declaration form?
- - if the insurer is satisfied that the distributor's business records
- -- and systems are well organized and accurate, the solution to our distributor's problem is a policy with a declaration form
- - such a form ensures that stock will be fully covered, up to the peak values stated in the form
- -- however much the values actually at risk fluctuate
- -- for a premium that reflects no more than the values that were actually at risk
SA(7): Outline the features of a declaration form.
- - the form incorporates a schedule with an address and a provisional amount,
- -- or limit of insurance for each location
- -- the limit will not necessarily be the same for each location
- - the insurer charges a deposit premium
- -- but adjusts it at the end of the initial policy period
- -- and each subsequent renewal period
- - to calculate the deposit premium, the insurer first sets a premium rate for each location
- - then, the insurer applies the rate to the provisional limit for the location to determine the premium for that location
- - the total of premiums for all locations is then discounted by a % to determine the deposit premium
LA: You are a claims adjuster working for People First Insurance, and you have received the following property claims.
Will your company cover each of the following claims? Explain.
LA(10): Joel Raso had his house and furniture damaged in a windstorm. The winds were quite strong and tore a section of the roof off Joel's house. The interior and contents of Joel's house were later damaged by a torrential downpour of rain that followed the windstorm a day later. Joel purchased from People First Insurance a Basic Fire Policy with coverage for the additional peril of Windstorm and Hail.
- Windstorm or Hail
- - The additional peril of Windstorm or Hail covers loss arising from either
- -- or both of its constituent perils
- - For windstorm coverage to apply, the force of the wind must be strong enough to be considered a storm - what one dictionary defines as a "violent disturbance of the atmosphere w strong winds and usually rain, thunder, lightning or snow"
- - A normal wind that might topple over some insured property stacked in the open would not be considered a windstorm
- - 2 exclusions establish the intended scope of these perils:
- -- damage to the interior of the building
- -- or to contents is covered only if the damage occurs at the same time as and results from an opening caused by the windstorm
- -- or hail
- - Losses due to other causes that might have had wind
- -- or windstorm as a contributing factor are specifically excluded
- - Damage to Joel's house would be covered, but the damage to his contents would not, b/c they were caused by a spate of rain that followed a day later
LA(10): One of the main water pipes in the basement of Herriot Edward's house was so corroded that it burst. Herriot's basement was filled with water 4 ft deep. Both the interior and the contents of her basement were damaged by the water. Herriot has a Basic Fire Policy and Water Escape endorsement with People First Insurance.
- Water damage
- - To extend the fire policy to cover water damage, 3 separate endorsements are in general use:
- -- water escape
- -- sewer backup
- -- and flood
- - Water escape would apply here
- - Escape of water from a plumbing
- -- or heating
- -- or air conditioning system
- - Resulting water damage is covered,
- -- subject, of course, to the exclusions
- - There is, however, no coverage for the cost of repairs to the system iteslf,
- -- except for damage by freezing
- - Thus, if a water pipe, part of the plumbing system, bursts due to corrosion, coverage is afforded for the water damage
- -- but not for the cost to replace the corroded section of pipe
- - Coverage would be denied under the endorsement for loss due to the following:
- -- freezing of any part of a system not in the building where heat is maintained during the heating season
- -- damage to Herriot's basement would be covered, but the cost to repair the corroded pipes would not
LA(3): A section of Ken Chan's house collapsed due to the weight of the snow that fell during a winter storm. Ken had purchased only a Basic Fire Policy from People First Insurance.
- - Coverage for the additional peril of Collapse includes collapse due to the weight of ice
- -- sleet
- -- or snow
- -- but excludes collapse by earth movement of any kind
- - The damage to Ken's house due to collapse would not be covered, as he only has a Basic Fire Policy without this additional peril attached to it
LA(7): Kristina owns a house located near an industrial area with many factories. Recently, one of the factories locked its employees out of the factory and laid them all off. When the employees reported for work the next day, they became outraged, destroying the properties in the surrounding area, including Kristina's house. The windows, garage door, exterior, and front yard of Kristina's house were damaged. Kristina has a Basic Fire Policy with coverage for the additional peril of Riot, Vandalism, and Malicious Acts.
- Riot, Vandalism, or Malicious Acts
- - The Riot, Vandalism, or Malicious Acts peril restores coverage excluded in the Insurance Acts of the common law provinces and so, in the Basic Fire Policy
- - In effect, it removes riot from the list of uninsured events
- - The coverage for riot is permitted under the insurer's Fire Insurance licence
- -- and, if offered, overrules the exclusion in the Basic Fire Policy
- - Under this additional peril, the meaning of riot is expanded to include assemblies of strikers
- -- and locked out employees
- - The peril allows the insured to claim for damage caused by rioters
- -- even fire proximately caused by a riot will be covered
- - Damages to Kristina's house would be covered as she has a Riot, Vandalism, or Malicious Acts added peril to her policy
- - The damage caused was by locked-out employees