AIC 41 Flashcards

Question

Coverage A—Dwelling and Coverage B—Other Structures are provided on a

Answer 1

special form coverage basis, commonly referred to as open perils coverage.

Answer 2

is provided on a named perils coverage basis.

Answer 3

Coverage D and three of the Additional Coverages apply only when other covered losses occur. The remaining Additional Coverages individually describe when coverage applies.

Answer 4

Examples of excluded perils are flood, earthquake, and war. Collapse (without cause ?) Freezing of a plumbing, heating, air conditioning, or sprinkler system or a household appliance Freezing, thawing, pressure, or weight of water or ice Theft (while under construction or home sharing) Vandalism and malicious mischief (if home sharing or vacant for more than 60 days) Mold, fungus, or wet rot (unless hidden or results from accident) Natural deterioration Smoke from agricultural smudging or industrial operations Pollutants Settling of the dwelling Animals

Answer 5

For example, settling of foundations is excluded, but if a settling foundation causes a water pipe to break, the ensuing water damage would be covered.

Answer 6

``` Fire or lightning Windstorm or hail Explosion Riot or civil commotion Aircraft Vehicles Smoke Vandalism or malicious mischief Theft Falling objects Weight of ice, snow, or sleet Accidental discharge or overflow of water or steam Sudden and accidental tearing apart, cracking, burning, or bulging Freezing Sudden and accidental damage from artificially generated electrical current Volcanic eruption ```

Answer 7

Theft committed by an insured is excluded. Theft from a building under construction and theft of construction materials are excluded. Theft from a part of the insured premises rented to someone other than an insured is excluded. Theft of personal property from another residence the insured owns, rents, or occupies is excluded unless the insured is temporarily living there. Theft of property of an insured who is a student residing away from home (such as in a dormitory) is excluded unless the student has been there during the ninety days before the loss. Theft is excluded for watercraft, including furnishings and equipment, away from the residence premises. Theft of trailers, semi-trailers, and campers is excluded. Theft arising from home-sharing host activities is excluded.

Answer 8

``` Ordinance or law--This exclusion eliminates coverage for losses resulting from any ordinance or law that reduces the value of the property; requires testing for or cleaning up of pollutants; or requires demolition, construction, or debris removal. Earth movement Water Power failure Neglect War Nuclear hazard Intentional loss Governmental action ```

Answer 9

Weather is an excluded peril only if it contributes to any of the previously excluded perils. For example, torrential rain that causes a mudslide would not be a covered peril, because earth movement (mudslide) is excluded. However, if the weight of rainwater that has collected on a roof causes the roof to collapse, coverage is provided under the Collapse form of Additional Coverage. Acts or decisions—including the failure to act or decide Damage that results from faulty planning, zoning, surveying, design specifications, workmanship, construction, renovation, materials, and maintenance is excluded.

Answer 10

are settled at the lesser of two amounts: Actual cash value (ACV) at the time of the loss The amount required to repair or replace the items

Answer 11

If the limit of insurance is 80 percent or more of the replacement cost, the insurer will pay for the replacement cost of the damage up to the limit of coverage. If the limit of insurance is less than 80 percent of the replacement cost, the insurer will pay the greater of two amounts. The first amount is the ACV of the damage. The second is the proportion of the cost to repair or replace the damage that the limit of insurance bears to 80 percent of the replacement cost. This second method is sometimes easier to understand as a formula.

Answer 12

Loss payment = Limit of insurance/80% x replacement cost of entire dwelling x Replacement cost of the loss

Answer 13

equal the current replacement cost of the dwelling if that amount exceeds the limit appearing on the Declarations page. The limits of liability for Coverage B—Other Structures, Coverage C—Personal Property, and Coverage D—Loss of Use will be increased by the same percentage applied to Coverage A.

Answer 14

Replace the missing lantern for $1,500 and restore the pair to its original value Pay Cindy the difference between the ACV of the lanterns as a pair and the ACV of the remaining single lantern ($1,700)

Answer 15

Insurance applies as excess

Answer 16

condition reserves the right for the insurer to repair or replace damaged property with similar property, should it choose to do so.

Answer 17

sixty days after the insurer receives a proof of loss and either an agreement has been reached by the insurer and the insured or a court judgment or an appraisal award has been entered.

Answer 18

A mortgagee has rights that are independent of the insured’s rights. If the insurer denies the insured’s loss (if, for example, arson by the insured is discovered), the mortgagee retains the right to collect from the insurer its insurable interest in the property.

Answer 19

cannot avoid responsibility for the damage because the insured has coverage under the homeowners policy

Answer 20

``` Insurable Interest and Limit of Liability Deductible Your Duties After Loss Loss Settlement Loss to a Pair or Set Appraisal Other Insurance and Service Agreement Our Option Loss Payment Abandonment of Property Mortgage Clause No Benefit to Bailee Loss Payable Clause OTHERS: Suit Against Us Recovered Property Volcanic Eruption Period Policy Period Concealment or Fraud Nuclear Hazard Clause ```

Answer 21

declarations, insuring agreement, conditions, and exclusions

Answer 22

The vehicles peril is found in both policies, but the HO-2 policy has an exclusion for loss to a fence, driveway, or walk caused by a vehicle owned or operated by a resident of the premises. For accidental discharge or overflow of water or steam, the HO-2 excludes coverage if the building is vacant for more than sixty consecutive days. The HO-3 does not mention vacancy under this peril.

Answer 23

HO-4 Coverage C is written at a limit the insured selects as adequate to cover personal property. In the HO-3, HO-2, and HO-5, the Coverage C limit is typically 50 percent of the Coverage A limit. Coverage D in the HO-4 is provided automatically at 30 percent of the Coverage C limit, rather than as 30 percent of the Coverage A limit, as in the HO-2 and HO-3. The HO-4 provides an additional coverage for building additions and alterations, with a limit equal to 10 percent of the Coverage C limit. The HO-4 does not include an additional coverage for furnishings provided by a landlord, because the occupant-insured of the apartment does not have an insurable interest in such property. Both the HO-3 and the HO-4 provide an additional coverage for increased costs imposed by a building ordinance or law. The HO-3 limit is 10 percent of the Coverage A limit, while the HO-4 limit is 10 percent of the building additions and alterations limit. Trees, shrubs, and other plants are covered for 10 percent of the Coverage C limit in the HO-4 policy, while the HO-3 provides coverage for up to 5 percent of the Coverage A limit.

Answer 24

The HO-5 covers water damage, including flood damage, for personal property away from a location owned, rented, occupied, or controlled by an insured. The HO-5 covers personal property damaged by rain through an open window, door, or roof opening, even if the building itself is not damaged. The HO-5 special limits of $1,500 for jewelry and furs, $2,500 for firearms, and $2,500 for silverware apply not only to items that are stolen, but also to items that are misplaced or lost. The HO-3 does not cover, for any amount, items that are misplaced or lost.

Answer 25

The HO-6 with a mandatory Residence Premises Definition Endorsement defines residence premises as the unit where the insured resides on the inception date of the policy. The HO-3 mandatory endorsement definition includes a one- to four-family dwelling where the insured resides on the inception date of the policy. The HO-6 description of Coverage A—Dwelling under Section I—Property Coverages includes: (1) alterations, appliances, fixtures, and improvements that are part of the building contained within the insured unit; (2) items of real property that pertain exclusively to the insured unit; (3) property that is the unit owner’s responsibility under a condominium or cooperative association’s property owners’ agreement; and (4) structures owned solely by the insured at the residence location (such as a storage shed or garage). Coverage A—Dwelling in the HO-6 provides a basic limit of $5,000, which can be increased if needed. Coverage B—Other Structures coverage is eliminated from the HO-6 because Coverage A of the HO-6 includes other structures owned solely by the insured. Coverage C—Personal Property is subject to a limit the insured selects. Coverage D—Loss of Use is provided automatically at a limit that is 50 percent of the Coverage C limit, rather than 30 percent of the Coverage A limit. Section I—Perils Insured Against in the HO-6 provides named perils coverage for Coverages A and C, similar to the coverage provided in the HO-2. Loss Assessments coverage is identical in the HO-3 and the HO-6, although it is more applicable to a condominium or cooperative corporation than a private dwelling. Condominiums and cooperatives have many elements, such as driveways, outdoor lighting, and swimming pools, that belong to all unit owners collectively. Damage to any of these commonly owned elements could result in an assessment against each individual unit owner. Trees, shrubs, and other plants are covered for up to 10 percent of the Coverage C limit, in contrast to the HO-3 limit of 5 percent of the Coverage A limit. In the HO-6, this coverage applies to plants solely owned by the named insured on grounds at the insured unit (such as those in the yard of a townhouse-style condominium). The additional coverage for landlord's furnishings is not included in the HO-6 policy. In the HO-6 policy, coverage for debris removal does not cover the cost to remove trees that damage a covered structure or block a driveway or ramp. This cost would be the condominium corporation’s responsibility.

Answer 26

A form of real property ownership in which the real property is owned by a corporation whose shareholders are the tenants of the property.

Answer 27

Personal Property Replacement Cost Loss Settlement Scheduled Personal Property Inflation Guard Earthquake Assisted Living Care Coverage Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money Coverage—Increased Limit Home Business Insurance Coverage Ordinance or Law—Increased Amount of Coverage Limited Water Back-Up and Sump Discharge or Overflow Coverage Supplemental Loss Assessment Coverage Broadened Residence Premises Definition Endorsement Home-Sharing Host Activities Amendatory Endorsement Broadened Home-Sharing Host Activities Coverage Endorsement Additional Residence Rented to Others—1, 2, 3, or 4 Families Personal Injury Coverage Aircraft Liability Definition Revised to Remove Exception for Model and Hobby Aircraft Personal Injury for Aircraft Liability Excluded

Answer 28

For losses with a replacement value of more than $500, the insured must repair or replace the lost or damaged items before the insurer will pay the replacement cost.

Answer 29

provides scheduled coverage for specific items, such as jewelry, furs, musical instruments, silverware, fine arts, and rare coins. endorsement is not subject to any deductible -open perils- The Scheduled Personal Property Endorsement covers more causes of loss than the HO-3 and other homeowners forms. The special limits and Coverage C deductible do not apply to the endorsement. does not contain the regular homeowners exclusions of earth movement, water damage (flood), and government action The endorsement typically has certain primary exclusions: Wear and tear, gradual deterioration, and inherent vice Insects or vermin War in its various forms, as well as accidental discharge of nuclear weapons Nuclear hazards

Answer 30

help prevent underinsurance caused by economic inflation and rising replacement costs. automatically increases limits for Coverages A, B, C, and D

Answer 31

mandatory deductible is usually 5 percent of the limit that applies to either Coverage A or Coverage C, whichever is greater, but not less than $500.

Answer 32

provides Section I—Coverage C—Personal Property and Section II—Coverage E—Personal Liability Coverage to a relative of the insured who is a resident of a facility that provides assisted living services This scheduled person must not be a resident of the insured’s household. Section II coverage excludes liability assumed by the facility before an occurrence and bodily injury to a staff member of the facility.

Answer 33

provides a higher limit of coverage to as much as $10,000 (Normally, Section I provides $500)

Answer 34

requirements for a home business to be covered under this endorsement, such as ownership by an insured, operation from the residence premises, and a maximum of three employees. Section I—Property Coverage provides full Coverage C—Personal Property limits for business property, accounts receivable, loss of business income, extra expense, and increased Coverage C limits for other property. Section II—Liability Coverages provides products-completed operations coverage up to an annual aggregate limit equal to the Coverage E—Personal Liability limit; provides all other business liability coverage (including personal and advertising injury).

Answer 35

increases the coverage that is provided by an HO-3 policy of 10 percent of Coverage A by increments of 25 percent

Answer 36

Unendorsed homeowners policies exclude property coverage for water or waterborne materials that originate from within the insured’s dwelling and back up through sewers or drains, or that overflow from a sump, sump pump, or related equipment.

Answer 37

An association might assess homeowners for major expenses, such as the installation of a new roof on a club house or damages paid to a person injured on the association’s property. The unendorsed homeowners policy provides some limited coverage under the Additional Coverages of Section I—Property Coverages and Section II—Liability Coverages.

Answer 38

This endorsement can be used when an insured may not be planning to reside in the premises on the inception date of the policy

Answer 39

clarify that the HO-3 policy does not provide any property or liability coverage for home-sharing exposures

Answer 40

provide property and liability coverage for home-sharing host activities

Answer 41

designed for insureds who own rental property not at the insured location It extends Coverage E—Personal Liability and Coverage F—Medical Payments to Others to one- to four-family residences that are owned by the insured and rented to others.

Answer 42

expands the liability coverage of a homeowners policy by adding the definition of personal injury and then adding coverage for personal injury Personal injuries are defined in this endorsement as injuries arising out of one or more of these offenses: False arrest, detention, or imprisonment Malicious prosecution Invasion of privacy, wrongful eviction, or wrongful entry Publication, in any manner, of material that slanders or libels another party or disparages the other party’s goods, products, or services Publication, in any manner, of material that violates a person’s right to privacy

Answer 43

excludes liability for bodily injury or property damage arising from the operation of unmanned aircraft.

Answer 44

excludes "aircraft liability" from personal injury coverage provided by endorsement to homeowners policies

Answer 45

The residence is not owner-occupied. The value of the dwelling is below the minimum limit for a homeowners policy. The residence does not otherwise meet an insurer’s underwriting guidelines.

Answer 46

``` Coverage A—Dwelling Coverage B—Other Structures Coverage C—Personal Property Coverage D—Fair Rental Value Coverage E—Additional Living Expense ```

Answer 47

liability coverage

Answer 48

the premises and located on the described location are covered if they are not covered elsewhere in the policy. For example, if the insured owns a lawn mower kept in the garage of the insured dwelling and uses it to cut the grass at the insured location, the lawn mower would be included under Coverage A (if the insured did not purchase Coverage C—Personal Property).

Answer 49

Unlike the homeowners form, the dwelling form has no special limits that apply to any specific type of personal property excludes coverage for money excludes boats other than rowboats and canoes can choose to purchase only Coverage A under the DP-3. The HO-3 has no such option.

Answer 50

Loss assessment coverage not automatically included (like in homeowners) additional coverages in the homeowners policy for landlord’s furnishings and for credit cards, transfer cards, forgery, and counterfeit money are not available in the dwelling policy. The DP-3 form provides up to 10 percent of the Coverage A limit for Coverage B—Other Structures as outlined in the Other Coverages provision. This coverage is additional insurance and does not reduce the Coverage A limit for the same loss. debris removal coverage of the DP-3 form is included in the limit that applies to the damaged property There is no debris removal coverage for trees, shrubs, and plants in the DP-3 form. The DP-3 form provides 10 percent of the Coverage C limit as additional insurance to cover a tenant’s improvements, alterations, and additions for loss by a covered peril. The HO-3 form has no comparable coverage. The DP-3 form provides up to 10 percent of the Coverage C limit for loss to the property covered under Coverage C, except rowboats and canoes, while that property is anywhere in the world. The DP-3 form provides up to 20 percent of the Coverage A limit for losses under both Coverage D—Fair Rental Value and Coverage E—Additional Living Expense. This coverage is additional insurance and does not reduce the Coverage A limit for the same loss. The DP-3 form, like the HO-3 form, provides coverage for the cost of reasonable repairs made after the occurrence of a covered loss solely to protect covered property from further damage. This coverage does not increase the limit of liability that applies to the covered property. maximum limit that can be applied (as an additional amount of insurance) to trees, shrubs, other plants, or lawns is 5 percent of the Coverage A limit Collapse: Coverage C—Personal Property perils Hidden decay of a building or any part of a building Hidden insect or vermin damage to a building or any part of a building unless the insured is aware of the damage prior to the collapse Weight of contents, equipment, animals, or people Weight of rain collecting on a roof Use of defective materials or methods of construction, remodeling, or renovation if the collapse occurs during the course of such work Ordinance or Law: Coverage A provides ordinance or law coverage up to 10 percent of the Coverage A limit. If there is no Coverage A limit, up to 10 percent of the Coverage B limit is provided for ordinance or law coverage. This coverage is additional insurance. The DP-3, like the HO-3, uses the special form approach and insures against “direct physical loss to property” (as opposed to named perils coverage) under Coverage A—Dwelling and Coverage B—Other Structures The DP-3 does not cover theft of personal property, but coverage is provided for damage to covered property caused by burglars unless the dwelling has been vacant for more than sixty days.

Answer 51

Broad Theft Coverage (DP 04 72) and Limited Theft Coverage (DP 04 73)

Answer 52

Only if on-premises coverage is purchased.

Answer 53

HO-3 policy (can also be used with an HO-2 policy) Mobilehome tenants may use the HO-4 policy without adding the mobilehome endorsement.

Answer 54

The definition of “residence premises” is changed in the mobilehome endorsement to mean the mobile home and other structures located on land owned or leased by the insured where the insured resides on the inception date of the policy period.

Answer 55

The liability coverage limit for other structures on the premises is a maximum of 10 percent of the limit that applies to Coverage A, with a minimum limit of $2,000.

Answer 56

This "property removed" coverage applies if the mobile home is endangered by an insured peril, requiring removal to avoid damage, and provides up to $500 (with no deductible) for reasonable expenses incurred by the policyholder for removal and return of the entire mobile home. The mobilehome endorsement removes the ordinance or law additional coverage that is provided by the HO-3; however, it may be restored by another endorsement.

Answer 57

carpeting and appliances are not included as property to be valued on the basis of actual cash value (ACV). Therefore, such property is included in Coverage A, and—if the required amount of insurance is met—replacement cost coverage applies.

Answer 58

Additional coverage is added to repair or replace damaged parts of a series of panels to match the remainder of the panels as closely as possible or to provide an acceptable decorative effect. However, the coverage does not guarantee that replacements will be available, and the insurer is not required to pay for repair or replacement of the entire series of pieces or panels.

Answer 59

This provision modifies the word "mortgagee" in the policy to include a lienholder (a lending institution that holds title to the mobile home).

Answer 60

policy is the same as the liability coverage under a homeowners policy

Answer 61

This endorsement changes the loss settlement terms on the mobile home and other structures to apply an ACV basis rather than a replacement cost basis. (maybe the owner decides this because the mobilehome is old = lower premium)

Answer 62

This endorsement provides coverage for perils of transportation (collision, upset, stranding, or sinking) and coverage for the mobile home and other structures at the new location anywhere in the United States or Canada for a period of thirty days from the effective date of the endorsement. Losses are subject to a transportation peril deductible specified in the endorsement or elsewhere in the policy.

Answer 63

It provides coverage only to the lienholder for collision and upset transportation exposures, subject to numerous recovery conditions. It also provides coverage to the lienholder for any loss resulting from the owner’s conversion, embezzlement, or secretion (concealment) of the mobile home.

Answer 64

This endorsement allows the policyholder to increase the $500 limit, provided as an additional coverage under the ISO Mobilehome Endorsement (MH 04 01), for removing a mobile home that is endangered by an insured peril.

Answer 65

This endorsement enables the mobilehome policyholder to add ordinance or law coverage for an amount equal to a specified percentage of the Coverage A limit

Answer 66

When roof surfacing is damaged by windstorm or hail, the property loss settlement for the roof surfacing is made on an ACV basis. However, other buildings, such as those insured under Coverage A or B, may be settled at replacement cost *Virtually identical to homeowner's

Answer 67

This endorsement indicates a starting date and an ending date within the policy period during which the residency requirement will be temporarily removed. It is used when the insured will not be residing on the premises on the inception date of the policy period.

Answer 68

Covered under Section I, Coverage A—Dwelling

Answer 69

make standard lines of property insurance available for exposures located in areas underserved by the voluntary market. private insurers and state insurance authorities coordinate efforts to provide such coverage. To be eligible for FAIR plan coverage, a property must be ineligible for coverage in the voluntary market, and the policyholder must have the property inspected by the FAIR plan administrator. the state can deny insurance, provided the exposures are not related to the neighborhood location or to hazardous environmental conditions that are beyond the owner's control Some state FAIR plans provide limited homeowners coverage; however, most plans provide coverage only for fire and a limited number of perils, which often include vandalism, riot, and windstorm

Answer 70

A group of insurers or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer; each syndicate member accepts predetermined shares of premiums, losses, expenses, and profits.

Answer 71

Policy that covers on an “all-risks” basis to fill gaps in the insured’s commercial property coverage, especially gaps in flood and earthquake coverage.

Answer 72

Property that is vacant or open to trespass Property that is poorly maintained or that has unrepaired fire damage Property that is subject to unacceptable physical hazards, such as poor housekeeping or storage of flammable materials Property that violates a law or public policy, such as a condemned building (one that is considered unfit for human habitation) In some states, property that was not built in accordance with building and safety codes

Answer 73

Most beachfront and windstorm plans provide insurance coverage for windstorm and hail losses that cannot be obtained in the voluntary market. Under these plans, losses from tidal water are generally excluded and should be covered under a flood insurance policy. must be ineligible for coverage in the voluntary market and must be located in designated coastal areas Eligibility for coverage under each plan requires that buildings constructed or rebuilt after a specified date conform to an applicable building code.

Answer 74

often insured against total loss on an agreed value basis in the event of total loss ACV for other items When property is insured on an ACV basis, the policy typically states the insured will collect the least of three amounts in the event of a loss: The ACV of the property immediately before loss The actual cost to repair or replace the damaged property The limit of insurance scheduled in the policy for the damaged property These exclusions commonly apply to boatowners liability coverage: Liability assumed under a contract Damage to property owned by an insured Bodily injury to an insured or the insured's employees, including crew members paid by the insured Bodily injury or property damage intentionally caused by the insured Discharge or escape of pollutants of any kind Accidents occurring while the insured boat is rented to others, used to carry persons or property for a fee, hired or chartered, placed in an exhibition, or operated in an organized race Bodily injury to persons being towed by the covered boat in waterskiing, parasailing, hang gliding, or similar activities For an additional premium, coverage can often be provided by endorsement for the activities described in the last two items.

Answer 75

An express warranty stating that the insured boat may be used only for private pleasure purposes.

Answer 76

A provision in a boatowners policy stating that the insured boat will be placed in a safe berth or ashore for storage between certain dates specified in the policy.

Answer 77

``` Commercial property declarations One or more commercial property coverage forms One or more causes of loss forms Commercial Property Conditions Any applicable endorsements ``` The commercial property coverage part is a component of the commercial package policy (CPP) program of Insurance Services Office, Inc. (ISO). It can also be the single coverage part included in a monoline policy under ISO procedures.

Answer 78

Commercial package policy (CPP) coverage component that provides a broad range of coverages to “middle-market” or larger firms to insure buildings and business personal property.

Answer 79

Policy that covers two or more lines of business by combining ISO’s commercial lines coverage parts.

Answer 80

Policy that covers only one line of business.

Answer 81

Factors that are applied to the regular policy premiums for certain coverage parts of a CPP that includes both property and liability coverages, resulting in premium discounts for those coverage parts.

Answer 82

A required commercial property coverage part component that provides basic information about the policyholder and the insurance provided.

Answer 83

A commercial property coverage part component that can be any of several commercial property forms containing an insuring agreement and related provisions.

Answer 84

A required component of the commercial property coverage part that specifies perils covered.

Answer 85

A required component of the commercial property coverage part that contains conditions applicable to all commercial property coverage forms.

Answer 86

A description of the property insured The kinds and amounts of coverage provided and the covered causes of loss (basic, broad, or special) A list of mortgagees, if any The deductible amount A list of the property coverage forms and endorsements attached to the policy The applicable coinsurance percentage(s) Any optional coverages

Answer 87

Insuring agreement Delineation of the property covered and not covered Additional coverages and coverage extensions Provisions and definitions that apply only to that coverage form

Answer 88

Apply to all commercial property coverage forms unless the form contains a condition to the contrary

Answer 89

Specify the endorsements that modify coverage parts in the policy.

Answer 90

the covered causes of loss (basic, broad, or special); the deductible amount; and any optional coverages.

Answer 91

Some kinds of property, such as smuggled goods being held for sale, are illegal to insure. Some property may be much less susceptible to loss by most of the perils insured against. Examples include building foundations below the lowest basement floor or the surface of the ground, retaining walls that are not part of a building, and underground pipes. Some kinds of property are excluded because they can be insured more advantageously under other forms. For example, insurers generally prefer to cover money, securities, automobiles, and aircraft under other policies.

Answer 92

Building Your Business Personal Property Personal Property of Others

Answer 93

owned by the insured and used in the insured’s business. coverage applies only when the property is located in or on the described Building or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the described premises, whichever distance is greater.

Answer 94

Your Business Personal Property

Answer 95

All of the BPP’s additional coverages and coverage extensions, except Preservation of Property, are subject to special dollar limits. the limit for the Pollutant Cleanup and Removal additional coverage is $10,000 per policy year. the Electronic Data additional coverage limit is $2,500 per policy year

Answer 96

``` Debris Removal Preservation of Property Fire Department Service Charge Pollutant Cleanup and Removal Increased Cost of Construction Electronic Data ```

Answer 97

Following a loss, large amounts of debris may remain on the premises, and the cost of removing the debris may be substantial. The Debris Removal additional coverage covers the cost of removing debris of covered property resulting from a covered cause of loss during the policy period. It would not, for example, pay to remove the debris resulting from a flood if flood is not a covered cause of loss or to remove the debris of the insured’s licensed automobiles, because they are not covered property. In some cases, the cost to remove debris of property that is not covered property is also covered. For example, the cost to remove debris of a neighboring building that a windstorm blew onto the insured's premises would be covered. The Debris Removal additional coverage includes the cost to clean up pollution at the insured’s premises caused by an insured peril. For example, if a building is shown as covered property, the cost to clean up debris from a fire that causes the release of toxic chemicals onto the floor of the insured’s building would be covered. However, the Debris Removal provision does not apply to costs for cleanup or removal of pollutants from land or water. Limited coverage for these costs is available under the provisions of another additional coverage. No coverage is provided for cleanup of off-premises pollution even when it results from a covered loss.

Answer 98

It is sometimes necessary to move covered property to another location to protect it. The Preservation of Property additional coverage extends the policy to protect covered property while it is being moved and for up to thirty days at the new location. This coverage is broader than the normal coverage under the policy. It protects against “any direct physical loss or damage” and is not limited to either the covered causes of loss or locations stipulated in the coverage form. The protection provided under this additional coverage is subject to the limits of insurance stated in the declarations. Consequently, the additional coverage provides no protection if the applicable limit of insurance is exhausted by payment for the physical loss.

Answer 99

In some localities, the fire department may make a charge for its services in controlling or extinguishing a fire. The Fire Department Service Charge additional coverage pays fire department charges up to the specified limit at each location if they are required by local ordinance or are assumed by contract before the loss occurs.

Answer 100

The Pollutant Cleanup and Removal additional coverage provides limited coverage for the cleanup and removal of pollutants from land or water at the described premises. This additional coverage pays the insured’s expenses to extract pollutants from land or water at the described premises if the release, discharge, dispersal, seepage, migration, or escape of the pollutants is the result of a covered cause of loss that occurs during the policy period.

Answer 101

The Ordinance or Law exclusion contained in the causes of loss forms that can be attached to the BPP excludes the increased cost to comply with ordinances or laws regulating the repair, rebuilding, or replacement of covered buildings. The Increased Cost of Construction additional coverage provides a small amount of insurance to cover this loss exposure. The amount of insurance is equal to 5 percent of the amount of insurance or $10,000, whichever is less. It is paid in addition to the policy limit. This additional coverage applies only if the Replacement Cost optional coverage has been selected. The Increased Cost of Construction additional coverage provides no coverage for these items: Loss to any undamaged portion of the building that an ordinance or law does not permit to remain in use The cost to demolish the undamaged portion of the structure and remove its debris

Answer 102

Because of businesses’ growing dependence on electronic data and the widespread belief that the exposure could better be treated by other forms of insurance, the BPP excludes electronic data in most instances except as provided by the Electronic Data additional coverage. This additional coverage is subject to a limit that is too low to provide meaningful coverage for most businesses and is the most that the insurer will pay per policy year, regardless of the number of occurrences or locations covered. All electronic data damage is deemed to have been sustained in the policy year that an occurrence began, even if the damage continues or results in additional loss or damage in a subsequent policy year.

Answer 103

Newly Acquired or Constructed Property Personal Effects and Property of Others Valuable Papers and Records (Other Than Electronic Data) Property Off-Premises Outdoor Property Non-Owned Detached Trailers Business Personal Property Temporarily in Portable Storage Units

Answer 104

are payable in addition to the overall limits of insurance stated in the declarations, subject to the special limits that apply to the coverage extensions.

Answer 105

If the policy covers a building, the Newly Acquired or Constructed Property extension provides automatic coverage for a new building being constructed at the premises described in the declarations. Automatic coverage is also provided for newly acquired buildings at other locations, provided the purpose of the newly acquired building is similar to the use of the building described in the declarations or the newly acquired building will be used as a warehouse. The coverage extension states a maximum amount of coverage that applies to each building. If the policy covers business personal property, the extension also provides automatic coverage for these types of property: Business personal property at any newly acquired location other than fairs, trade shows, or exhibitions Business personal property located at newly constructed or acquired buildings at the location described in the declarations A stated amount of coverage applies to loss of business personal property at each building. The coverage for buildings and business personal property provided by this extension is temporary. It terminates automatically at the earliest of three dates: The expiration date of the policy Thirty days after the acquisition of the new location or the start of construction of the new building The date the insured notifies the insurer of the new location or new building

Answer 106

The Personal Effects and Property of Others extension provides a limited amount of coverage for personal effects (such as a coat or jewelry) owned by an individual insured or a partner, a member, an officer, a manager, or an employee of the insured while on the premises described in the declarations. Personal effects are not covered for loss by theft. The extension also covers property of others in the care, custody, or control of the insured.

Answer 107

Valuable papers and records (such as records of accounts receivable, mailing lists, legal documents, medical records, specifications, and drawings) are covered as business personal property, but only for the cost of blank records plus the labor to transcribe or copy duplicate information. This extension does not apply to electronic data; previous versions of the BPP did cover the cost of reconstructing electronic data.

Answer 108

The Property Off-Premises extension provides coverage for covered property while it is away from the described premises. In addition to property temporarily at locations that the insured does not own, lease, or operate, the extension also covers property in storage at a location leased after the inception of the current policy and property at any fair, trade show, or exhibition. This extension does not apply to property in or on a vehicle or in the custody of the insured’s salespersons unless the property in custody is at a fair, trade show, or exhibition.

Answer 109

The Outdoor Property extension covers loss to outdoor fences; radio and television antennas (including satellite dishes); and trees, shrubs, and plants in most instances. Unlike the other coverage extensions, the Outdoor Property extension has its own list of covered causes of loss. It covers only loss by fire, lightning, explosion, riot or civil commotion, and aircraft. Some of the more likely causes of loss to outdoor property—windstorm, vehicles, and vandalism—are not covered.

Answer 110

Insureds frequently lease trailers to expand office space or to provide additional storage or work areas at their own premises. The Non-Owned Detached Trailers extension permits the insured to extend Your Business Personal Property to include such trailers. The trailer must be used in the insured’s business and be in the insured’s care, custody, or control at the described premises. Moreover, the insured must have a contractual responsibility to pay for loss or damage to the trailer. The coverage does not apply while the trailer is attached to any motor vehicle or motorized conveyance, whether or not it is in motion. Nor does it apply during hitching or unhitching operations or when a trailer becomes accidentally unhitched from a motor vehicle or conveyance.

Answer 111

This coverage extension provides temporary insurance for business personal property while stored in a portable storage unit, which could include either a unit specifically designed for this purpose or a detached trailer or semitrailer. For the contents of the unit to be covered, the unit must be located within 100 feet of the building or structure described in the declarations or within 100 feet of the described premises, whichever distance is greater. The coverage is truly limited to temporary storage: coverage ends ninety days after the property is placed in the unit. Moreover, the coverage does not apply if the unit has been in use at the described premises for more than ninety days. Unless a higher limit is shown in the declarations, $10,000 is the most that the insurer will pay for business personal property under this extension, regardless of the number of units in use.

Answer 112

The introductory language to the first group of eight exclusions provides that losses caused directly or indirectly by any of those perils are not covered, even if another covered cause contributed to the loss, regardless of the sequence in which the causes of events occur, unless the exclusion specifically provides otherwise. This wording was developed to eliminate claims based on the concurrent causation doctrine and is therefore referred to as “anti-concurrent causation wording.” The concurrent causation doctrine holds that a loss is covered when caused by two or more independent, concurrent perils if only one of the perils is covered—even if the other peril or perils are clearly excluded.

Answer 113

``` Ordinance or Law Earth Movement Governmental Action Nuclear Hazard Utility Services War and Military Action Water “Fungus,” Wet Rot, Dry Rot, and Bacteria Other Exclusions ```

Answer 114

Causes of Loss—Basic Form (CP 10 10) Causes of Loss—Broad Form (CP 10 20) and Causes of Loss—Special Form (CP 10 30)

Answer 115

Electrical, magnetic, or electromagnetic energy that damages or otherwise interferes with any electrical or electronic wires or devices, including devices, appliances, systems, or networks using cellular or satellite technology. However, if a fire results, the resulting fire damage is covered. Rupture or bursting of water pipes, unless caused by a covered cause of loss. This exclusion does not apply to sprinkler leakage and is included only in the Basic Form. Leakage of water or steam from any part of an appliance or system containing water or steam (other than an automatic sprinkler system), unless caused by a covered cause of loss. Explosion of steam boilers, steam pipes, steam turbines, or steam engines owned by, leased to, or operated by the insured. However, if such an explosion causes a fire or a combustion explosion, the damage caused by fire or combustion explosion is covered. Mechanical breakdown, including rupture or bursting caused by centrifugal force. Loss resulting from the neglect of the insured to use all reasonable means to save and preserve property at and after the time of loss. This exclusion reinforces the insured’s duty to protect covered property after a loss.

Answer 116

Limited Coverage for “Fungus,” Wet Rot, Dry Rot, and Bacteria. The additional coverage is limited in dollar amount ($15,000 in the aggregate for any one twelve-month policy period) and scope of coverage.

Answer 117

Any of the covered causes of loss. Hidden decay, unless such decay is known to an insured before the collapse occurs. Hidden insect or vermin damage, unless such damage is known to an insured before the collapse occurs. Weight of people or personal property. Weight of rain that collects on a roof. Use of defective materials or construction methods if the abrupt collapse occurs during the course of construction. (Collapse of a completed building caused by defective materials or construction is covered only if it is caused in part by any of the causes of loss listed here.)

Answer 118

Falling objects Weight of ice, snow, or sleet Water damage

Answer 119

“direct physical loss unless the loss is excluded or limited in this policy,” instead of listing the perils covered.

Answer 120

Certain causes of loss that are omitted or excluded under the Broad Form are not excluded—and are therefore covered—under the Special Form. Most significantly, the Special Form covers theft of covered property under a wide variety of circumstances, subject to some exclusions and limitations. The Basic and Broad Forms cover theft by looting at the time of a riot or civil commotion, but in no other circumstances. By covering direct physical losses other than those that are specifically excluded, the Special Form covers losses that the insured might not have anticipated. The Special Form shifts the “burden of proof” from the insured to the insurer. Under a named perils form, such as the Basic or Broad Form, the insured must prove that the loss was caused by a covered cause. Under the Special Form, an accidental loss to covered property is presumed to be covered unless the insurer can prove that it was caused by an excluded peril.

Answer 121

The vehicle peril in both the Basic and Broad Forms excludes loss or damage caused by or resulting from vehicles owned by the named insured or operated in the course of the named insured’s business. The Special Form, in contrast, does not contain such an exclusion. For example, the Special Form covers loss or damage to an insured building when an employee accidentally drives a truck owned by the insured into the building’s garage wall. The windstorm peril in the Basic and Broad Forms excludes damage to the interior of a building by rain, snow, sleet, ice, sand, or dust, unless the roof or walls of the building are first damaged by a Covered Cause of Loss. The Special Form contains the same exclusion, but with an additional exception—the Special Form exclusion does not apply if loss results from the melting of ice, sleet, or snow on the building or structure. Therefore, unlike the Basic and Broad Forms, the Special Form covers water damage that occurs when water backs up under roof shingles because roof gutters are clogged with ice, a phenomenon known as ice damming.

Answer 122

Wear and tear Rust, corrosion, decay, deterioration, or hidden or latent defect Smog Settling, cracking, shrinking, or expansion Infestations and waste products of insects, birds, rodents, or other animals Mechanical breakdown Dampness or dryness of atmosphere, changes or extremes in temperatures, or marring or scratching (applicable to personal property only) The Special Form also excludes loss caused by these: Weather conditions that contribute to other excluded causes of loss. If, for example, covered property is damaged by flood waters that were driven in part by high winds, the flood damage will not be covered even though windstorm is not otherwise excluded. Acts or decisions, including the failure to act or decide, of any person, group, organization, or governmental body. Thus, for example, if flooding occurs because municipal authorities fail to take proper flood control measures, the flood exclusion cannot be overcome by the insured’s claim that the municipality’s failure to act was the cause of the loss. Faulty or inadequate planning, zoning, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction, materials, or maintenance.

Answer 123

Valuable papers and records Animals, and then only in the event of their death Fragile articles if broken, such as glassware, statuary, marble, chinaware, and porcelain (but not including building glass and containers of property held for sale) Builders’ machinery and equipment owned or held by the insured unless on or within 100 feet of the described premises

Answer 124

Another exclusion unique to the Special Form concerns trees, shrubs, plants, and lawns that are part of a vegetated roof. Covered property under the Building and Personal Property Coverage Form (BPP) includes trees, shrubs, plants, and lawns that are part of a vegetated roof. Consequently, the BPP covers such items without application of the per item and per occurrence limits and the restricted specified perils that apply to other trees, shrubs, and plants under the BPP's Outdoor Property coverage extension. However, the Special Form excludes these causes of loss to trees, shrubs, plants, or lawns that are part of a vegetated roof: ``` Dampness or dryness of atmosphere or of soil supporting the vegetation; Changes in or extremes of temperature; Disease; Frost or hail; or Rain, snow, ice or sleet ``` The excluded perils are either commercially uninsurable or would require a significant additional premium to insure. It is noteworthy that the Special Form covers trees, shrubs, plants, and lawns that are part of a vegetated roof against loss by windstorm as well as any other causes of loss that are not specifically excluded.

Answer 125

The Special Form does not contain an absolute exclusion of theft, and thus it covers any theft of covered property that is not specifically excluded. Several theft-related exclusions and limitations define the scope of theft coverage under the Special Form. The Special Form excludes dishonest or criminal acts (including theft) of the insured or of partners, members, officers, managers, directors, or employees of the insured, but the exclusion does not apply to acts of destruction by employees. For example, if Fred vandalizes his employer’s property in response to being demoted, the vandalism damage is covered. If, however, Fred steals money from his employer, this dishonest act is subject to the exclusion. Losses resulting from the excluded types of dishonest acts can be covered under separate crime coverage forms. The Special Form also excludes the voluntary surrendering of property as the result of a fraudulent scheme or trickery. If, for example, a thief posing as an honest customer tricks the insured’s salesperson into voluntarily allowing the thief to remove merchandise from the insured’s store, the resulting theft loss will not be covered. Similarly, the Special Form excludes loss of property transferred outside the described premises on the basis of unauthorized instructions. Loss by theft of construction materials not attached as part of the building is excluded unless the materials are held for sale by the named insured. Moreover, the Special Form excludes loss of property that is simply missing without explanation or that is evidenced only by an inventory shortage. The Special Form imposes special limits on theft loss of certain kinds of property that are especially attractive to thieves, such as furs, jewelry, precious metals, and tickets. Such property can be insured for higher limits under separate crime or inland marine forms. A theft exclusion endorsement can be attached to the policy to eliminate theft coverage entirely when the underwriter feels that the risk is unacceptable or when the insured wants to reduce the policy premium.

Answer 126

Property in Transit extension provides up to $5,000 of additional protection for loss to the insured’s property in transit. Water Damage, Other Liquids, Powder or Molten Material Damage extension Glass extension

Answer 127

provides up to $5,000 of additional protection for loss to the insured’s property in transit. The property must be in or on a motor vehicle owned, leased, or operated by the insured and cannot be in the custody of the insured’s sales personnel. It covers only those losses that occur within the coverage territory. The transit extension does not provide special form coverage. The perils insured against are fire, lightning, explosion, windstorm, hail, riot, civil commotion, vandalism, upset or overturn of the conveying vehicle, collision of the conveying vehicle with another vehicle or an object other than the roadbed, and theft. The coverage for theft is limited to theft of an entire bale, case, or package by forced entry into a securely locked body or compartment of the vehicle, evidenced by marks of the forced entry. Because the transit extension has a low coverage limit and restricted covered perils, insureds who have property in transit should consider covering such property under an inland marine or ocean marine policy.

Answer 128

covers the cost to tear out and replace any part of a building necessary to repair an appliance or a system from which water or another liquid—or even powder fire-extinguishing agents or molten materials—has escaped. The extension does not pay for the repair of any defect that resulted in the leakage. It does pay for repairs to fire extinguishing equipment if the damage results in the discharge of any substance from an automatic fire protection system or is directly caused by freezing.

Answer 129

covers the expenses of installing temporary glass plates or boarding up openings when repair or replacement of damaged glass has been delayed. The insurer will also pay for the cost to clear obstructions (but not window displays) that prevent replacement of the glass. While the Basic, Broad, and Special Forms all insure glass breakage by a Covered Cause of Loss, only the Special Form includes this Glass coverage extension.

Answer 130

When the occurrence involves loss to more than one item of Covered Property and separate Limits of Insurance apply, the losses will not be combined in determining application of the Deductible. But the deductible will be applied only once per occurrence. For example, a BPP covers five buildings at one location, each building is insured for a separate limit, and a $5,000 deductible applies. A windstorm (one occurrence) causes less than $5,000 damage to each of the buildings, but the combined total is $10,000 of damage. As stated in the Deductible provision, the losses will not be combined for purposes of applying the deductible. Therefore, because the insurer is not obligated to pay anything to the insured unless the loss on at least one building exceeds the deductible, the insurer will pay nothing for this loss.

Answer 131

``` Abandonment Appraisal Duties in the Event of Loss or Damage Loss Payment Recovered Property Vacancy Valuation Coinsurance Mortgageholder ```

Answer 132

prohibits the insured from abandoning damaged property to the insurer for repair or disposal. Although the Loss Payment condition permits the insurer, at its option, to take all or any part of damaged property at an agreed or appraised value, the Abandonment condition clarifies that making arrangements for the repair or disposal of covered property is the insured’s responsibility, unless the insurer chooses to exercise its option under the Loss Payment condition.

Answer 133

When a loss occurs, the insured must take several actions: Notify the police if the loss appears to have resulted from a violation of law, such as vandalism, arson, or theft. Give the insurer prompt notice of the loss, including a description of the property damaged. Prompt notice is generally held to mean as soon as feasible under the circumstances. Provide information as to how, when, and where the loss occurred. Take all reasonable steps to protect the property from further loss. At the insurer’s request, furnish the insurer with inventories of the damaged and undamaged property and permit the insurer to inspect the property and records. Submit to examination under oath regarding any matter related to the loss. Cooperate with the insurer in the adjustment of the loss. Send a signed, sworn proof of loss to the insurer within sixty days after the insurer’s request for one.

Answer 134

Pay the amount of the loss or damage Pay the cost of repairing or replacing the damaged property (does not include any increased cost attributable to enforcement of ordinances or laws regulating the construction, use, or repair of the property) Take over all or any part of the property and pay its agreed or appraised value Repair, rebuild, or replace the damaged property with other property of like kind and quality

Answer 135

If the building where a loss occurs has been vacant for more than sixty consecutive days before the loss occurs, the insurer will not pay if the loss is caused by vandalism, sprinkler leakage (unless the sprinkler system was protected against freezing), breakage of building glass, water damage, theft, or attempted theft. If any other covered peril causes the loss, loss payment will be reduced by 15 percent. The vacancy conditions apply differently for a building’s tenant than for its owner or general lessee. A general lessee is an entity that leases the entire building and subleases portions of the building to others. In the case of a tenant, a vacant “building” means the unit or suite rented or leased to the tenant. A building is vacant when it does not contain enough business personal property to conduct customary operations. If the policy covers a building owner or general lessee, “building” means the entire building, and it is considered vacant unless at least 31 percent of its total square footage is rented to a lessee or sublessee and is used by that party to conduct its customary operations or by the building owner to conduct its customary operations. Buildings under construction or renovation are not considered to be vacant. Because of the differing definitions for tenants and building owners, when the building does not meet the 31 percent standard, the loss payment to the building owner may be reduced or eliminated, but a tenant may be able to collect in full. Similarly, if the building meets the 31 percent standard, the building owner may have full coverage, but a tenant may be penalized when its premises do not contain enough business personal property to conduct the tenant’s customary operations.

Answer 136

Subject to the exceptions summarized in the exhibit, the insured property is valued at its actual cash value (ACV).

Answer 137

Loss Payment = (Amount of insurance carried / Amount of insurance required x Loss) - deductable Note: Amount of insurance required is usually Amount of property x 80%

Answer 138

Any act or default of the insured does not impair the rights of the mortgageholder, provided the mortgageholder pays any premium due that the insured has not paid, submits a proof of loss if requested, and has notified the insurer of any change in ownership, occupancy, or substantial increase in risk of which the mortgageholder is aware. Consequently, the insurer is sometimes obligated to make a loss payment to the mortgageholder even though it has denied coverage, for example, to an insured who has committed arson. In such cases, the insurer, at its option, can take either of these actions: Take over the rights of the mortgageholder to the extent of such payment and collect the amount of payment from the insured Pay off the outstanding balance of the mortgage and take over all of the rights of the mortgageholder If the insurer cancels the policy because the insured failed to pay the premium or if the insurer does not renew the policy for any reason, it must notify the mortgageholder ten days before the termination of coverage. If the insurer cancels the policy for any reason other than nonpayment of premium, it must give thirty days’ advance notice to the mortgageholder. If the insurer fails to give the required notice to the mortgageholder, the policy remains in force for the protection of the mortgageholder even though it may not provide any protection for the insured.

Answer 139

Agreed Value Inflation Guard Replacement Cost Extension of Replacement Cost to Personal Property of Others The optional coverages apply only when an appropriate notation is made on the declarations page. Agreed Value, Inflation Guard, and Replacement Cost may be used for buildings only, personal property only, or both buildings and personal property.

Answer 140

Optional coverage that suspends the Coinsurance condition if the insured carries the amount of insurance agreed to by the insurer and insured.

Answer 141

Coverage for the effects of inflation that automatically increases the limit of insurance by the percentage of annual increase shown in the declarations.

Answer 142

Coverage for losses to most types of property on a replacement cost basis (with no deduction for depreciation or obsolescence) instead of on an actual cash value basis.

Answer 143

To activate the Agreed Value optional coverage, an amount is entered under the Agreed Value heading in the declarations for each category of property (building, personal property, or both) to which the option applies. This option enables the insured to remove the uncertainty as to whether the amount of insurance carried complies with the Coinsurance condition. With the option in force, the insurer and the insured have agreed in advance that the amount stated in the declarations—the agreed value—is adequate for coinsurance purposes. Because most losses are partial, insureds are often tempted to underinsure, knowing they will not suffer a coinsurance penalty when the agreed value option is in effect. Therefore, insurers underwrite agreed value carefully, requiring proof of value before providing agreed value coverage. At the very least, the insured ordinarily must submit a signed statement of values. Insurance Services Office, Inc. (ISO) Form CP 16 15, Statement of Values, can be used for this purpose. The BPP Coinsurance condition does not apply to property insured under the agreed value option. However, it is replaced by a provision that, while not called coinsurance, is the practical equivalent of 100 percent coinsurance based on the agreed value. The agreed value option provides that if the limit of insurance equals or exceeds the agreed value stated in the declarations, losses will be paid in full up to the limit of insurance. If the limit of insurance is less than the agreed value, the amount of loss payment is calculated by this equation: Loss payment= (limit of insurance/agreed value x loss) - deductible Coverage under this option extends until the agreed value expiration date shown on the declarations or the expiration date of the policy, whichever occurs first. If the coverage option is not renewed, the Coinsurance condition is reinstated.

Answer 144

The insurer is not obligated to pay replacement cost until the property has been repaired or replaced, and then only if such repair or replacement is completed in a reasonable time. If repair or replacement is not completed in a reasonable time, the loss payment is based on the actual cash value (ACV) at the time of loss. The insured may make a claim on the basis of ACV, with the difference between ACV and replacement cost to be paid upon completion of repair or reconstruction. The insurer must be notified within 180 days after the occurrence of loss that a claim will be made for replacement cost. If the replacement cost option is activated, the Coinsurance condition continues to apply, but with one important difference. The amount of insurance required by the Coinsurance condition is calculated by multiplying replacement cost by the coinsurance percentage if the claim is made on a replacement cost basis. If the insured makes a claim on an ACV basis, coinsurance is also calculated on an ACV basis. If the replacement cost option is selected, tenants’ improvements and betterments are also valued at replacement cost if the tenant actually repairs or replaces them, at its own cost, as soon as reasonably possible after the loss. The replacement cost option does not apply to property of others; contents of a residence; manuscripts; or works of art, antiques, or rare articles. It also does not apply to “stock” unless the declarations indicate that the replacement cost option includes stock. The BPP defines stock to mean merchandise, raw materials, goods in process, and finished goods.

Answer 145

Insureds frequently lease photocopiers, computers, phone systems, and other equipment. These leases or agreements may make the insured responsible for the replacement cost of these items in the event they are damaged. To cover this loss exposure, insureds who have selected the replacement cost option may also elect to have the personal property of others valued at replacement cost. In such cases, the amount of the loss is calculated according to the written agreement between the insured and the owner of the property, but it cannot exceed the replacement cost of the property or the applicable limit of insurance.

Answer 146

``` Concealment, Misrepresentation, or Fraud Control of Property Insurance Under Two or More Coverages Legal Action Against Us Liberalization Transfer of Rights of Recovery Against Others to Us No Benefit to Bailee Other Insurance Policy Period, Coverage Territory ```

Answer 147

The Control of Property condition consists of two parts. The first part states that coverage under the policy will not be affected by acts or omissions of persons other than the insured if those persons are not acting under the direction or control of the insured. The second part of the condition states that violation of a policy condition at one location will not affect coverage at any other location. To illustrate how this clause might apply, assume that a liquor store’s policy is endorsed, requiring the store’s burglar alarm system to be maintained in working order at all insured locations. Assume also that the insured leases these locations from other parties. The first part of the clause would protect the insured if the alarm system was disconnected by a building owner, provided that the owner was not under the insured’s control. The second part of the Control of Property condition would be important in this example if the liquor store’s policy provides coverage at more than one location. In the absence of this part of the condition, the insured’s failure to maintain the alarm system at one location might suspend coverage at all locations, even if the alarm systems are properly maintained at the other locations. Under the second part of the condition, only coverage at the location with the deficient alarm system would be affected.

Answer 148

This condition spells out two requirements the insured must meet before legal action can be brought against the insurer (“Us”) to enforce the policy. First, the insured must have complied with all conditions of the policy, including those in the coverage part and the Common Policy Conditions, as well as the applicable Loss Conditions. Second, the action must be brought within two years after the date on which the direct physical loss occurred.

Answer 149

If the insurer adopts any revision that would broaden coverage under the commercial property coverage part and for which there is no additional premium charge, the broader coverage is extended automatically to policies already in effect. This automatic coverage applies only if the broadening amendment is adopted during the policy term or within forty-five days before the effective date of the policy. Liberalization applies only to amendments that broaden coverage, not to those that restrict coverage.

Answer 150

Subrogation is a term commonly used by insurance practitioners but not used in Insurance Services Office, Inc. (ISO) commercial property forms. If the insured takes any action that eliminates the insurer’s right of recovery (other than one specifically authorized by this condition), the insurer may not be required to pay the loss. This condition specifically permits the insured to waive the right of recovery against any other party, provided the waiver is made in writing and before the loss occurs. A waiver of recovery may be given by the insured after loss only to another party insured under the same policy, a parent or subsidiary company, or a tenant of the insured property. Any other waiver given by the insured after loss has occurred may impair the insured’s right to collect from the insurer for the loss.

Answer 151

Bailees sometimes try to limit their liability with contractual provisions stating that the bailee is not liable for damage if the damage is recoverable under insurance carried by the bailor. The No Benefit to Bailee condition is intended to defeat such provisions in the bailment contract and to reinforce the insurer’s right of subrogation against the bailee.

Answer 152

This condition states that coverage begins on the effective date and ends on the expiration date shown in the declarations. The declarations state that the beginning and ending time is 12:01 a.m., determined by standard time at the insured’s mailing address as shown in the declarations, even though some or all of the insured property may be located in a different time zone. The insured property is covered only while it is located within the United States (including its territories and possessions), Puerto Rico, or Canada.

Answer 153

``` Cancellation Changes Examination of Books and Records Inspections and Surveys Premiums Transfer of Rights and Duties Under This Policy ```

Answer 154

First named insured

Answer 155

The insurer reserves the right to examine and audit the insured’s books and records related to the policy at any time during the policy period and for up to three years after the policy’s termination. This provision is included because many commercial insurance policies are issued with estimated premiums. The final premium is determined after the policy expires, based on reported values of the insured property, the amount of the insured’s sales or payroll, or some other variable premium base. The insured is required to report the final figures to the insurer, and the insurer may accept the insured’s reports without verification. However, if the insurer prefers to verify the reports by making an on-site inspection of the insured’s books and records, the condition permits the insurer to do that. An insurer may also choose to exercise its rights under this condition in the process of investigating a claimed loss.

Answer 156

``` Additional Covered Property Ordinance or Law Coverage Spoilage Coverage Flood Coverage Earthquake and Volcanic Eruption Coverage Limited Coverage for Unmanned Aircraft Peak Season Limit of Insurance Value Reporting Form ```

Answer 157

The Ordinance or Law Coverage endorsement (CP 04 05) provides three coverages for losses resulting from the enforcement of building ordinances or laws: Coverage A covers the value of the undamaged portion of a building that must be demolished. For example, an entire structure may have to be totally demolished if it is a frame building in an area where only fire-resistive construction is currently permitted. Demolishing the undamaged parts of the building changes what would have been a partial loss to a total loss. Coverage B covers the cost to demolish the undamaged portion of a building and remove its debris when demolition is required by the building code. Coverage C covers the increased cost to repair or rebuild the property resulting from the enforcement of a building, zoning, or land use law. Building codes may require that reconstruction of damaged property meet higher standards, such as heavier electrical service, elevators to upper floors, and fire-resistive stairwells. Coverage C pays the added expense for these improvements. Coverages B and C can be provided under one blanket limit. The unendorsed commercial property coverage forms exclude these losses except for the additional coverage for increased cost of construction, which adds a small amount of coverage for the types of loss insured by Coverage C of the endorsement.

Answer 158

The Spoilage Coverage endorsement covers damage to perishable stock resulting from power outages; on-premises breakdown; or contamination of the insured’s refrigerating, cooling, or humidity control equipment. The power outage must be caused by conditions beyond the insured’s control. The coverage is not subject to coinsurance and cannot be provided under a blanket limit.

Answer 159

In the United States, losses from flooding accompany hurricanes, heavy rains, and melting snow. Collapsing dams can also cause floods. Any of these events can cause catastrophic losses. Because of the movable nature of the property they insure, auto physical damage insurance and many inland marine forms include flood as an insured peril. However, insurers are reluctant to write flood insurance on property at fixed locations, such as buildings and their contents. Therefore, all three of the causes of loss forms exclude flood. However, flood insurance for buildings and their contents is available from two main sources. The National Flood Insurance Program (NFIP) is a federal government resource that provides insurance for properties located in eligible communities. The NFIP is administered by the Federal Insurance Administration, part of the Federal Emergency Management Agency (FEMA). For commercial properties, the maximum NFIP limit is $500,000 per building and $500,000 for the contents of a building. Although the demand for flood insurance is greatest from insureds in the most hazardous flood zones, NFIP provides coverage in all areas of eligible communities. National flood insurance is sold through private insurers and agents and is backed by the U.S. government. The other source for flood insurance on buildings and contents is private insurers without federal participation. Most private insurers are unwilling to provide flood coverage for commercial properties located in zones that have more than a once-in-100-years flooding probability risk (shown in NFIP flood maps as Zone A). For properties located outside the high-hazard flood zones, private insurers often write flood coverage by endorsement to the insured’s commercial property policy, subject to a substantial deductible (often $25,000 or more). The ISO commercial property program includes a Flood Coverage Endorsement (CP 10 65) for use with the ISO commercial property coverage forms. In some cases, insurers will provide only excess flood coverage that applies in addition to the maximum limit available from NFIP.

Answer 160

Earthquake and volcanic eruption, like flooding, present potentially catastrophic loss exposures. Consequently, earthquake insurance is expensive and limited in availability in areas with a high probability of severe earthquake damage, principally in parts of California and locations near the New Madrid Fault, which extends into portions of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee. In other areas, earthquake insurance is generally available but is often overlooked. Overlooking the earthquake exposure can be a costly mistake. In the past 100 years, earthquakes have occurred in thirty-nine of the fifty states.1 One of the most severe earthquakes in U.S. history was centered in Charleston, South Carolina. Insurers can use either of two ISO endorsements to add earthquake and volcanic eruption as covered perils under a commercial property coverage part. Independently filed earthquake endorsements are also available from some insurers. The two ISO endorsements are these: Earthquake and Volcanic Eruption Endorsement (CP 10 40) Earthquake and Volcanic Eruption Endorsement (Sub-Limit Form) (CP 10 45) Both endorsements extend commercial property coverage to include earthquake and volcanic eruption. The first endorsement includes coverage for the full policy limit and contains a coinsurance condition. The second endorsement includes earthquake and volcanic eruption coverage subject to a sublimit that is lower than the regular policy limit, and it does not contain a coinsurance condition.

Answer 161

The aviation insurance market has developed its own forms for insuring unmanned aircraft, commonly referred to as drones. To accommodate insurers outside the aviation insurance market that want to provide coverage for customers that use small drones for commercial purposes, ISO developed endorsements that can be attached to various ISO commercial property and liability coverage forms. The Limited Coverage for Unmanned Aircraft (Scheduled and/or Blanket Coverage) endorsement (CP 04 14) can be added to the BPP and a few other commercial property coverage forms to cover physical loss to covered drones. Coverage under the endorsement can be arranged on a scheduled basis with an individual limit of insurance for each drone, on a blanket basis with one limit for all covered drones, or with a combination of scheduled and blanket limits. For example, some drones could be scheduled for specified limits, and unscheduled drones could be covered subject to a single blanket limit for all loss in any one occurrence. Coverage applies on and off the described premises throughout the policy's coverage territory, whether a covered drone is in flight or not. Coverage can be extended to apply to flight "between points in the Coverage Territory," which means that if a flight between points in the coverage territory took a drone out of the coverage territory's airspace, the aircraft would be covered even while located outside the coverage territory. Coverage for loss or damage that occurs while the drone is in flight or in preparation for flight applies only if the drone is being used in operations specified in the endorsement's schedule, such as aerial photography or inspection of buildings and structures. If a business manufactures, stores, or sells drones, the endorsement provides coverage only while the drones are in flight. This restriction does not cause a coverage gap, however, as the BPP covers aircraft manufactured, stored, or sold by the insured, by way of exceptions to the exclusion of vehicles or self-propelled machines, including aircraft, in the BPP's Property Not Covered section. The scope of the endorsement depends on the policy. If the policy includes business interruption coverage, then business interruption coverage can be selected to apply to unmanned aircraft operations away from the described premises. The causes of loss (other than equipment breakdown) and exclusions that apply to the policy also apply to the endorsement. The endorsement is designed for use with the Causes of Loss—Special Form. If the underlying policy covers Your Business Personal Property, then the endorsement will cover such property when in the air as part of unmanned aircraft operations. Coverage for physical damage to the drone or related covered property is excluded if the drone is carrying or delivering goods or merchandise to others. This and other exclusions help keep the endorsement appropriate for limited commercial drone use. Coverage does not apply when drones are used for racing, when drones are rented or loaned to others, or to damage to the drone caused by mechanical breakdown. Coverage can be written on an actual cash value or a replacement cost basis.

Answer 162

The Peak Season Limit of Insurance endorsement (CP 12 30) covers the fluctuating values of business personal property by providing differing amounts of insurance for certain time frames during the policy period. For example, a toy store may have a policy providing $100,000 of coverage on personal property with a peak season endorsement increasing coverage to $200,000 from October 1 to December 31, when the store expects to have higher inventory values. Using this endorsement would have exactly the same effect as endorsing the policy on October 1 to increase the coverage and endorsing it again on December 31 to reduce the coverage. The peak season endorsement eliminates the need for these extra transactions and the possibility that they may be overlooked. The peak season endorsement is usually attached when the policy is issued (although it may be added midterm), and a pro rata premium is charged for the period during which the limit is increased.

Answer 163

To encourage accurate and timely reports, the Value Reporting Form specifies penalties for failure to comply with its reporting requirements. Separate rules apply when no report is made (loss payment is reduced to 75 percent of the otherwise collectible loss), one or more reports are past due after the initial report (loss payment is limited to the last reported values), and reports are inaccurate (the loss is reduced by the proportion that the value reported bears to the correct value). The insured pays an advance premium at the inception of the policy. The advance premium is based on 75 percent of the limit of insurance. The final premium is determined after the policy anniversary, based on the reported values. The premium is based on the values reported, even if the values reported exceed the policy limit. However, the insurer is not obligated to pay more than the policy limit in the event of loss, even if the reported values are higher. Thus, care should be taken to set the limit high enough to cover any possible increase in value. Under the Value Reporting Form (CP 13 10), the insured is required to report the value of the insured business personal property to the insurer periodically during the policy period. The frequency of reporting is indicated by a symbol entered in the declarations. For example, MR, the most common choice, calls for reporting values on hand on the last day of the month, with the report due within thirty days after the end of the month. Daily, weekly, quarterly, and annual periods can also be selected as a basis for reports by entering other codes in the declarations. As long as the insured reports values accurately and on time, the insurer will pay the full amount of any loss that occurs (but not more than the policy limit), even if the values on hand at the time of the loss are greater than those last reported to the insurer.

Answer 164

is the portion of a condominium owned solely by the unit owner. It can be thought of as the box of air enclosed by the unfinished surfaces of perimeter walls, floors, and ceilings.

Answer 165

A concept of condominium ownership in which the association has no ownership interest within the bare walls of each unit. the association may be required to insure these elements for the benefit of the individual unit owners (by statute, declarations, or bylaws). In that event, the association’s insurable interest in the unit owner’s property is that of a trustee.

Answer 166

A concept of condominium ownership in which the association is considered to be the owner of all property contained in the unit as sold to the original purchaser or replacements of such property if the replacements are of like kind and quality.

Answer 167

A concept of condominium ownership that is similar to the single-entity concept except that the all-in concept includes improvements made by the unit owner, not just the original installations or replacements of like kind and quality.

Answer 168

A form of real property ownership in which the real property is owned by a corporation whose shareholders are the tenants of the property.

Answer 169

A real estate development in which each occupant has exclusive ownership of its own unit and the land that the structure occupies and a homeowners’ association composed of all the unit owners jointly owns the surrounding land and structures.

Answer 170

Due to their combined ownership nature.

Answer 171

Building Your Business Personal Property Personal Property of Others The Condominium Association Coverage Form provides the same additional coverages and coverage extensions as the BPP.

Answer 172

Although the building coverage of the Condominium Association Coverage Form closely resembles the building coverage of the BPP, they differ in their treatment of fixtures, improvements, alterations, and appliances contained within individual units (including, but not limited to, those used for refrigerating, ventilating, cooking, dishwashing, laundering, and housekeeping). In the Condominium Association Coverage Form, building coverage applies to these items only if the condominium association agreement requires the association to insure them. Otherwise, such property items are not included in the association’s building coverage.

Answer 173

many condominiums have community clubhouses, recreation halls, health clubs, and so forth. The furnishings and equipment of these facilities can be covered as business personal property.

Answer 174

If 80 percent or higher coinsurance is in effect, the form automatically includes a coverage extension for property of others up to $2,500 at each described location.

Answer 175

Loss Payment—The Loss Payment condition contains an additional clause stating that if the association has designated an insurance trustee, then the insurer may pay covered claims to the designated insurance trustee. The condominium’s board of trustees generally serves in this capacity, receiving all loss proceeds in trust for the individual unit owners. The board then acts on all unit owners’ behalf. Sometimes, however, a financial institution serves as trustee. Designating an insurance trustee can avoid unnecessary complications in the event of a loss because some insurers believe that, otherwise, the names of all the unit owners and their mortgagees must appear on a loss draft. Unit-Owner’s Insurance—The Unit-Owner’s Insurance condition states that the association’s policy is primary if a unit owner also has coverage applying to the same property. Waiver of Rights of Recovery—In the Waiver of Rights of Recovery condition, the insurer agrees not to subrogate against any unit owner. Most of the other conditions of the Condominium Association Coverage Form are the same as those of the BPP.

Answer 176

Act or omission: No act or omission by unit owner will void coverage as long as unit owner was not acting on behalf of association. Expanded waiver of Right of Recovery Notice of cancelation or non renewal additional protection for mortgage holders

Answer 177

is often attached to the Condominium Commercial Unit-Owners Coverage Form. This endorsement contains two optional coverages referred to as loss assessment coverage and miscellaneous real property coverage.

Answer 178

Form that covers business personal property and building property exposures of commercial (nonresidential) condominium units.

Answer 179

Coverage for a commercial condominium unit-owner’s share of any assessment made by the association against all unit owners because of physical loss to condominium property caused by a covered cause of loss.

Answer 180

Coverage for real property (such as a storage shed or garage building) that pertains only to the named insured’s condominium unit or real property that the named insured has a duty to insure according to the condominium association agreement.

Answer 181

Form that covers business personal property and building property exposures of commercial (nonresidential) condominium units.

Answer 182

In the BPP, Your Business Personal Property includes improvements and alterations only to the extent of a tenant’s use interest in them, because the tenant does not own improvements and betterments. A unit owner, however, can actually own fixtures, improvements, and alterations to the unit.

Answer 183

loss assessment coverage and miscellaneous real property coverage.

Answer 184

The coverage allows payment for each assessment up to the limit of insurance shown in the endorsement, subject to the deductible shown in the endorsement. However, if the assessment is a result of a deductible in the insurance purchased by the condominium association, the insurer’s payment is limited to $1,000 unless a higher amount is shown in the endorsement’s schedule. Coverage is provided by the policy in force when the assessment is made, not when the loss occurred.

Answer 185

The optional miscellaneous real property coverage extends the form to include condominium property not included under Your Business Personal Property under either of these situations: The condominium property pertains to the named insured’s condominium unit only. The named insured has a duty to insure the condominium property according to the condominium association agreement.

Answer 186

When the Causes of Loss—Special Form is attached to the BRCF, the insured receives $5,000 in coverage for property in transit on the insured’s own vehicles. The Property Not Covered section of the BRCF is brief. The only excluded types of property are land or water and these types of property when outside of buildings: lawns, trees, shrubs, or plants (other than those that are part of a vegetated roof); antennas; and signs not attached to the building. Foundations are specifically covered. The BPP excludes many parts of a building or structure, such as underground pipes, flues, or drains. The absence of an exclusion of these items in the BRCF means that coverage is provided if such items are intended to be part of the described building or structure; unlike the BPP, no specific endorsement is needed to include such items in the BRCF.

Answer 187

debris removal, preservation of property, fire department service charges, and pollutant cleanup and removal The BRCF does not provide the additional coverages, as in the BPP, for increased cost of construction or electronic data, or any of the BPP coverage extensions. Instead, the BRCF contains two coverage extensions: The Building Materials and Supplies of Others extension provides up to $5,000 at each described location to cover building materials and supplies owned by others, such as building materials brought by a subcontractor onto the work site. The materials and supplies must be in the named insured’s care, custody, or control; located in or on the building or within 100 feet of its premises; and intended to become a permanent part of the building. In some cases, the insured may be required to insure materials and supplies owned by others. When the value of such property exceeds the limit of the extension, a higher limit can be specified in the declarations if the insured is required to provide coverage. The Sod, Trees, Shrubs, and Plants extension covers landscaping outside of buildings on the described premises. This extension, similar to the Outdoor Property coverage extension of the BPP, is offered for only five causes of loss (fire, lightning, aircraft, riot/civil commotion, and explosion). Coverage is limited to $1,000 in any one loss and to $250 for any one tree, shrub, or plant.

Answer 188

the Builders Risk—Collapse During Construction endorsement (CP 11 20).

Answer 189

The BRCF is designed to be issued, at policy inception, for an amount of insurance equal to the building’s full completed value. This method of providing builders risk coverage is referred to as the completed value approach.

Answer 190

The Basic Form and the Broad Form do not cover theft. The Special Form covers theft, subject to various exclusions. One of these exclusions eliminates coverage for loss of "building materials and supplies not attached as part of the building or structure." Thus, even when it includes the Special Form, the BRCF does not cover theft of uninstalled building materials. Coverage does not apply while construction is not in progress unless security personnel are on duty. The endorsement includes space to insert a sublimit for this coverage as well as a separate deductible that can differ from the deductible for other losses. The endorsement excludes dishonest or criminal acts committed by the named insured; any of the named insured’s partners, members, officers, managers, employees (including temporary employees and leased workers), directors, trustees, or authorized representatives; contractors or subcontractors or their employees; or anyone else to whom the property is entrusted for any purpose. The Special Form exclusions of voluntary parting, missing property, and inventory shortage are repeated in endorsement CP 11 21 because the endorsement could also be used with the Basic Form or the Broad Form, neither of which contains these exclusions. Underwriters will generally require robust risk control measures before granting this coverage. With such protection in place, insureds often decide to retain this exposure.

Answer 191

The BRCF is designed to be issued, at policy inception, for an amount of insurance equal to the building’s full completed value. Although completed value builders risk policies are issued for a minimum term of one year, the insured receives a refund of the unearned premium if the project is completed in less than a year.

Answer 192

The BRCF contains a standard valuation condition that provides coverage on the basis of actual cash value. Because the actual cash value and the replacement cost of a building under construction are typically the same, the BRCF does not contain optional replacement cost coverage provisions.

Answer 193

builders risk coverage on a value reporting basis.

Answer 194

Unless the insurer agrees otherwise, coverage ceases sixty days after an insured building is occupied, in whole or in part, or is put to its intended use. Even if the building is not occupied or put to use—for example, if the building remains vacant while the owner tries to sell it—coverage ceases ninety days after the construction is completed. Coverage ceases immediately when any of these events occur: The named insured’s interest in the property ceases. The property is accepted by the purchaser. The named insured abandons the project with no intention of completing it.

Answer 195

Increased cost of construction and electronic data

Answer 196

which covers buildings and business personal property on restricted terms, is designed for insuring “distressed risks,” properties with unfavorable attributes that have made them unacceptable in the standard insurance market The SPP (CP 00 99) is a self-contained monoline policy containing all necessary policy provisions in a single document. Only a completed declarations page is needed to complete the contract. As a result, the SPP cannot be a part of a package policy. Any additional coverages, such as general liability coverage, must be obtained separately. Coverage applies on an actual cash value basis. The SPP does not offer any options for replacement cost coverage, inflation guard, or agreed value. Vacancy and unoccupancy—Under the SPP, the insurer will not pay for loss or damage by any peril if the building has been vacant or unoccupied for more than sixty days. After thirty days of vacancy or unoccupancy, coverage for vandalism ceases. Increase in hazard—Coverage is suspended during any period in which the hazard has been increased by means within the named insured’s knowledge and control. This clause, which was a provision of the Standard Fire Policy, is not included in the BPP. Cancellation—The insurer may cancel the policy by providing only five days’ advance notice to the insured. This difference from the BPP is not significant because most state laws require longer notification periods.

Answer 197

“Vacancy” is defined to mean that the building contains no contents pertaining to the operations or activities customary to the building’s occupancy. The SPP does not make the 31 percent building occupancy distinction that the BPP does, and the SPP does not have different definitions of vacancy for owners and tenants. A building with some occupancy, but less than 31 percent, would not be considered vacant under the SPP. Thus, coverage would not be excluded for certain losses or reduced 15 percent for the remainder, as would be the case under the BPP when the condition has existed for more than sixty days. However, the SPP provides no coverage if a building is unoccupied, but not vacant, for more than sixty days, whereas the BPP imposes no penalty at all for unoccupancy.

Answer 198

A commercial property coverage form that provides legal liability coverage on buildings or personal property of others in the insured’s care, custody, or control. covers losses only if the insured is legally liable Coverage for loss of use is an important advantage of the Legal Liability Coverage Form. The BPP can be arranged to cover direct damage to property of others regardless of fault, but it does not cover claims for loss of use of the damaged property. The insurer agrees to pay related defense costs and make other supplementary payments in addition to the limit of insurance. No deductible applies. Each causes of loss form contains an exclusion that applies only to the Legal Liability Coverage Form and eliminates coverage for damages that the insured is legally liable to pay solely by reason of the insured’s assumption of liability in a contract or an agreement. The test for applying this exclusion is answering the question, “Would the insured have been liable in the absence of the assumption of liability?” If so, the exclusion does not apply, even though the insured has assumed liability. All of the other exclusions of the causes of loss forms apply to the Legal Liability Coverage Form, except these: ``` Ordinance or Law Governmental Action Nuclear Hazard Utility Services War and Military Action ``` The Nuclear Hazard exclusion is replaced with an exclusion of defense costs and payment of damages for all loss resulting from nuclear reaction or radiation or radioactive contamination, however caused.

Answer 199

The Commercial General Liability (CGL) Coverage Form excludes coverage for damage to property of others in the insured’s care, custody, or control. However, by exception to its exclusions, the CGL form provides limited coverage for liability arising out of damage to that part of a building rented to or temporarily used by the insured. This coverage, generally referred to as either “fire legal liability” or “damage to premises rented to you,” covers liability for fire damage to the part of the building occupied by the insured. ISO rules call for a minimum limit of $100,000 for this coverage, which can be increased for an additional premium. The CGL form also provides coverage for damage, by perils other than fire, to premises (and their contents) rented to the named insured for no longer than seven consecutive days, for the same limit that applies to fire legal liability coverage. A major advantage of the Legal Liability Coverage Form is the broader range of perils that can be insured when the property is rented for longer than seven consecutive days. Also, fire legal liability coverage applies only to real property, whereas the Legal Liability Coverage Form can apply to both real and personal property.

Answer 200

The legal liability rate that an insurer charges for real property is generally 25 percent of the 80 percent coinsurance building rate that would otherwise apply, and the legal liability rate for personal property is generally 50 percent of the 80 percent coinsurance contents rate. For example, if the 80 percent coinsurance contents rate is $0.20 per $100 of coverage, the legal liability rate for personal property at the same location would be $0.10 per $100.

Answer 201

Tenants, lessees, concessionaires, or exhibitors, in policies covering general lessees, managers, or operators of premises Contractors or subcontractors, in policies covering tenants or lessees of premises All other additional insureds may be added without charge, except for general lessees, managers or operators of the premises, and employees other than executive officers and partners. An additional premium charge of 25 percent applies when anyone in those classifications is named as an additional insured.

Answer 202

A commercial property coverage form insures a tenant’s financial losses resulting from the cancellation of the tenant’s lease because of damage to the premises by a covered cause of loss. The amount of insurance is automatically reduced each month during the life of the lease.

Answer 203

The lessee has a lease at a rental rate much lower than the current rental value of comparable premises. If, as is likely, the lessee would be unable to obtain as favorable a lease upon cancellation, the loss would be the additional cost to rent equivalent premises for the duration of the current lease. The lessee has sublet the premises to another at a profit. The loss would be the loss of the profit margin for the duration of the lease. The lessee paid a bonus to acquire the lease. The loss would be the unamortized value of the bonus. If, for example, the bonus was $50,000 for a five-year lease and the lease was canceled with three years remaining on the lease, the unamortized value would be three-fifths of the $50,000, or $30,000. The lessee has paid advance rent that is not recoverable under the terms of the lease in the event of cancellation. The loss would be the unused value of the advance rent. The lessee has installed improvements and betterments. The tenant’s use value of the improvements and betterments would be lost as a result of the cancellation of the lease. This exposure is distinct from the improvements and betterments exposure covered by the Building and Personal Property Coverage Form, also referred to as the BPP. The BPP exposure involves physical damage to the improvements by a covered cause of loss. In a contract, a leasehold interest loss involving improvements and betterments is caused by cancellation of the lease because of damage by an insured peril at the insured premises; the improvements and betterments themselves need not be damaged at all.

Answer 204

The first provision states that the Ordinance or Law exclusion does not apply to leasehold interest coverage. For example, coverage is provided even if the lease is canceled because a local ordinance prevents the owner from rebuilding. The second provision is an exclusion of loss caused by the named insured’s canceling the lease; the suspension, lapse, or cancellation of any license; or any other consequential loss.

Answer 205

Just 1 day

Answer 206

an interruption of operations caused by property damage from a covered peril to property at locations or situations described in the policy resulting in a loss of business income and/or extra expense.

Answer 207

The Business Income (and Extra Expense) Coverage Form covers both business income and extra expense losses (even if the extra expenses do not reduce the business income loss). The Business Income (Without Extra Expense) Coverage Form covers business income loss but covers extra expenses only to the extent that they reduce the business income loss.

Answer 208

Business income including rental value Business income other than rental value Rental value only

Answer 209

Net profit or loss that would have been earned or incurred if the suspension had not occurred Normal operating expenses, including payroll, that continue during the suspension

Answer 210

Business income coverage starts 72 hours post | Extra Expense starts immediately post

Answer 211

Actual loss of business income you sustain resulting from the necessary suspension of your operations during the period of restoration caused by direct physical loss of or damage to property at the described premises Loss or damage caused by a covered cause of loss

Answer 212

With the exception of extra expense to repair or replace property, these expenses are not limited to the amount by which they reduce the extra expense loss; coverage applies even if the business income loss is not reduced at all. Even with the BIC and extra expense coverage form, extra expenses to repair or replace property are treated differently. Such expenses are covered only to the extent that they actually reduce the business income loss. For example, a business owner may pay a contractor at an overtime rate to work around the clock to repair damaged property so that the business can reopen promptly. The additional cost paid to do so would be payable as extra expense, but only to the extent that it actually reduced the business income loss. Thus, if reopening earlier reduced the business income loss by $20,000, the insurer would pay the overtime charges up to that amount (and subject to the limit of insurance).

Answer 213

``` Expenses to reduce loss (BIC withOUT extra expense) Civil Authority Alterations and New Buildings Extended Business Income Interruption of Computer Operations ```

Answer 214

If damage to the other premises resulted from a cause of loss covered by the insured’s policy, the resulting income loss at the insured’s premises would be covered for the period of suspension, beginning seventy-two hours after the time of the action by civil authority, up to a maximum of four consecutive weeks after the time of the action. The maximum period of coverage can be increased to 60, 90, or 180 days by endorsement. If the seventy-two hour period in the definition of “period of restoration” is reduced or eliminated in the BIC, the endorsement makes the same change in the Civil Authority additional coverage.

Answer 215

The period of restoration for losses to new or altered buildings begins on the date that operations would have begun had the damage not occurred.

Answer 216

The coverage begins when the damaged property has been restored and ends when the insured’s business returns to normal, subject to a maximum of sixty days.

Answer 217

The additional coverage provides $2,500 of coverage for loss of business income or extra expense when business operations are suspended because of an interruption of computer operations resulting from the destruction or corruption of electronic data caused by a covered cause of loss. The $2,500 is an aggregate limit for all losses sustained in any one policy year that applies in addition to the regular limit of insurance. If the insurer is willing to provide a higher limit, it is shown in the declarations. The Interruption of Computer Operations additional coverage does not apply when loss to electronic data involves only electronic data that are integrated in and operate or control a building's elevator, lighting, heating, ventilation, air conditioning, or security system. This type of loss is specifically excepted from the Additional Limitation—Interruption of Computer Operations and is therefore covered by the business income insuring agreement without any of the restrictions of the additional coverage, such as the $2,500 aggregate limit and the limitation to specified causes of loss.

Answer 218

The BIC forms’ only coverage extension expands coverage to property at premises acquired during the policy period if a coinsurance of 50 percent or more is shown in the declarations. Titled Newly Acquired Locations, this optional coverage for insureds does not include property at fairs or exhibitions. The coverage at any newly acquired location is limited to $100,000. This is an additional amount of insurance above the limit stated in the declarations and is not subject to the Coinsurance condition. An additional premium is charged for the automatic coverage from the date of acquisition of the new property. The Newly Acquired Locations coverage terminates on the earliest of (1) the expiration date of the policy, (2) the date on which the insured reports the acquisition to the insurer, or (3) thirty days after the date of acquisition. This extension is intended to provide temporary protection until the insured obtains permanent coverage.

Answer 219

The largest loss that an insured is likely to sustain.

Answer 220

The numerator of the fraction in this calculation is the amount of insurance carried. The denominator is the amount of insurance required; it is determined by multiplying the coinsurance percentage by the sum of the insured’s net income (whether profit or loss) plus all operating expenses (less certain expenses specified in the form) that would have been incurred in the absence of a loss for the twelve-month period beginning at the inception or latest anniversary date of the policy.

Answer 221

``` Maximum Period of Indemnity Monthly Limit of Indemnity Business Income Agreed Value Extended Period of Indemnity The first three optional coverages eliminate or suspend the Coinsurance condition, and the fourth optional coverage covers loss of business income that continues after the Extended Business Income additional coverage ends. ```

Answer 222

The Maximum Period of Indemnity optional coverage negates the Coinsurance condition while limiting loss payment to the lesser of (1) the amount of loss sustained during the 120 days following the start of restoration or (2) the policy limit. The Maximum Period of Indemnity is not an additional coverage: It is a restriction of the period of restoration provided by the BIC, which, from the insured's point of view, has the advantage of avoiding any coinsurance penalty.

Answer 223

Activated by inserting a fraction in the appropriate space in the declarations, the Monthly Limit of Indemnity optional coverage negates the Coinsurance condition while limiting the amount recoverable during any month of business interruption to the noted fraction of the insurance amount. This optional coverage applies only to business income coverage. Therefore, in the Business Income (and Extra Expense) Coverage Form, this optional coverage does not limit recovery for extra expense. The Coinsurance condition does not apply to any location at which the monthly limit of indemnity is applicable. But this optional coverage is sometimes chosen because the insured does not want to disclose financial information to prove compliance with the Coinsurance condition or because the Coinsurance condition requires more insurance than the insured deems necessary.

Answer 224

helps the insured avoid a potential coinsurance penalty—must take two steps to activate it. First, the insurer must secure from the insured a completed business income report/worksheet showing this information: The insured’s actual data for the most recent twelve-month accounting period before the date of the worksheet Estimated data for the twelve months immediately following inception of the coverage

Answer 225

The Extended Period of Indemnity optional coverage extends the duration of the Extended Business Income (EBI) additional coverage to include business income losses that continue for more than sixty days after the property is restored. The period of indemnity can be extended up to 730 days, or two years. The actual number of days selected depends on the insured’s estimate of the amount of time it would take for revenues to return to normal after the property is restored.

Answer 226

Form that covers losses during the policy period even though they may have occurred before the policy period

Answer 227

Form that covers loss actually sustained during the policy period and discovered no later than one year after policy expiration

Answer 228

The most widely used financial institution bond is Standard Form No. 24 Financial institution bonds were developed by the Surety & Fidelity Association of America (SFAA) and are called “bonds” because one of the key coverages that they provide is employee dishonesty insurance, which was traditionally called a “fidelity bond.”

Answer 229

Financial institution bond

Answer 230

Employee Theft Forgery or Alteration Inside the Premises—Theft of Money and Securities Inside the Premises—Robbery or Safe Burglary of Other Property Outside the Premises Computer and Funds Transfer Fraud Money Orders and Counterfeit Money

Answer 231

Theft committed by any employee money securities and other property Covered territory is the U.S. Puerto Rico and Canada. Coverage also applies to loss caused by an employee who is temporarily outside the covered territory for not more than ninety consecutive days. “theft” includes forgery Computer programs, electronic data, and other specified property are excluded. Copyrights, patents, intellectual property, and other intangible items are not covered property under the crime coverage form. The Employee Theft insuring agreement extends the coverage territory to include loss caused by any employee while temporarily outside the regular policy territory (the United States, including its territories and possessions, Puerto Rico, and Canada) for up to ninety consecutive days.

Answer 232

“forgery” or alteration of checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in “money” that are: (1) Made or drawn by or drawn upon you; or (2) Made or drawn by one acting as your agent; or that are purported to have been so made or drawn.1 This insuring agreement does not pay losses resulting from the insured’s knowing acceptance of instruments that have been forged or altered by others. Worldwide coverage

Answer 233

“Premises” means the interior of any commercial building the named insured occupies. "Financial institution premises" means the interior of that portion of any building occupied by a financial institution. The insuring agreement covers loss or damage to the premises if the insured is the owner or is liable for the damage, and to containers that hold covered property if damage is caused by safe burglary or attempted safe burglary.

Answer 234

The property must be inside the premises when taken from the named insured, the named insured’s partners, or any employee who is a custodian as defined in the policy. A custodian may be a salesperson or cashier working inside the insured’s store but cannot be a watchperson (hired exclusively to have care and custody of property inside the premises with no other duties) or janitor (a doorkeeper or person who cleans or maintains the premises). The other covered peril, “safe burglary,” is the unlawful taking of a safe or vault from inside the premises or of property from within a locked safe or vault by a person unlawfully entering the safe or vault as evidenced by marks of forcible entry. In an actual or attempted robbery or safe burglary, coverage applies to resulting damage to the premises and for loss of or damage to a locked safe or vault located inside the premises.

Answer 235

Insuring Agreement 5 covers money, securities, and other property while outside the premises and in the care and custody of either a “messenger” or an armored vehicle company. The policy defines “messenger” as the named insured, a relative of the named insured, any partner or member of the named insured, “or any ‘employee’ while having care and custody of property outside the ‘premises.’”3 For example, an employee who takes cash and checks to the bank for deposit in the insured’s account is a messenger. The perils insured against vary by the type of property involved in the loss. Money and securities are covered against theft, disappearance, or destruction. Other property is covered against actual or attempted robbery.

Answer 236

Worldwide coverage Insuring Agreement 6 covers computer and funds transfer fraud. Specifically, the first part of this insuring agreement covers loss resulting directly from fraudulent entry of electronic data or computer program into, or change of electronic data or computer program within, a computer system owned, leased, or operated by the named insured. The fraudulent entry or change must cause either of these results: Money, securities, or other property to be transferred, paid, or delivered The named insured's account at a financial institution to be debited or deleted For purposes of this insuring agreement, the form defines "financial institution" as "(1) A bank, savings bank, savings and loan association, trust company, credit union, or similar depository institution; (2) an insurance company; or (3) a stock brokerage firm or investment company."4 The second part of the insuring agreement covers loss resulting directly from a fraudulent instruction directing a financial institution to debit the named insured's transfer account and transfer, pay, or deliver money or securities from that account.

Answer 237

Coverage @ US, PR and Canada Insuring Agreement 7 covers loss from money orders that are not paid when presented and “counterfeit money” that the insured has accepted in good faith in exchange for merchandise, money, or services.

Answer 238

Inside the Premises—Robbery or Safe Burglary of Other Property is subject to a special limit of $5,000 per occurrence for these types of property: (1) Precious metals, precious or semiprecious stones, pearls, furs, or completed or partially completed articles made of or containing such materials that constitute the principal value of such articles; or (2) Manuscripts, drawings, or records of any kind or the cost of reconstructing them or reproducing any information contained in them.3 Outside the Premises coverage is subject to a special limit of $5,000 per occurrence for the types of property listed in items (1) and (2). Computer and Funds Transfer Fraud coverage is subject to a special limit of $5,000 per occurrence for loss of or damage to the types of property listed in item (2).

Answer 239

General exclusions Exclusions applicable only to employee theft Exclusions applicable to inside the premises and outside the premises Exclusions applicable only to computer and funds transfer fraud

Answer 240

Acts Committed by You, Your Partners or Your Members Acts Committed by Your Employees Learned of by You Prior to the Policy Period Acts Committed by Your Employees, Managers, Directors, Trustees or Representatives Confidential or Personal Information Data Security Breach Governmental Action Indirect Loss Legal Fees, Costs and Expenses Nuclear Hazard Pollution Virtual Currency War and Military Action

Answer 241

Inventory Shortages Trading Warehouse Receipts

Answer 242

Accounting or Arithmetical Errors or Omissions Exchanges or Purchases Fire Money Operated Devices Motor Vehicles or Equipment and Accessories Transfer or Surrender of Property Vandalism Voluntary Parting With Title to or Possession of Property

Answer 243

Authorized Access Credit Card Transactions Exchanges or Purchases Fraudulent Instructions Inventory Shortages

Answer 244

The condition that appoints the first named insured as agent for all other insureds is called

Answer 245

The essential difference between these two conditions concerns the available limits. If the loss is covered by both the current insurance and prior insurance issued by the same or an affiliated company, the highest limit in force under any of the policies covering the loss will be available to the insured. If the loss occurred under prior canceled insurance issued by another insurer, recovery is limited to the lesser of the applicable limits of insurance.

Answer 246

loss sustained includes 1 year PRIOR | discovery is only policy period

Answer 247

explains how employee theft coverage applies when the policy includes one or more employee benefit plans as insureds for the Employee Theft insuring agreement. This condition modifies the Employee Theft insuring agreement and adds other provisions to the Commercial Crime Coverage Form to make its coverage compliant when this form is used to satisfy the fidelity bonding requirement of the Employee Retirement Income Security Act of 1974 (ERISA). ("Fidelity bonding" is the traditional term for what is now called employee theft insurance.) In 2017, ISO filed CR 25 47, U.S. Department of Labor—ERISA Plan Coverage Amendments, as a mandatory endorsement for making additional modifications to the Commercial Crime Coverage Form, Commercial Crime Policy or the Employee Theft and Forgery Policy when any of these is used to satisfy the ERISA fidelity bonding requirement.

Answer 248

this policy covers damage to customers’ goods while in the possession of the insured, regardless of whether the insured is legally liable for the damage.

Answer 249

added to the inland marine builders risk form to include incidental expenses such as lease renegotiation

Answer 250

Policy that covers on an “all-risks” basis to fill gaps in the insured’s commercial property coverage, especially gaps in flood and earthquake coverage.

Answer 251

covers photographic equipment and musical instruments used commercially by photographers, motion picture producers, professional musicians, and others. It is not intended for dealers of these types of property. Coverage can be provided on a scheduled or blanket basis.

Answer 252

covers the stock in trade (inventory) of camera dealers or musical instrument dealers and similar property of others in the insured’s care, custody, or control. Coverage can be provided by endorsement for other types of equipment while it is on the insured’s premises.

Answer 253

covers the stock in trade of dealers that sell agricultural or construction equipment. The form also covers similar property of others in the insured’s care, custody, or control. Coverage under a reporting form is available.

Answer 254

covers the professional equipment, materials, supplies, and books of physicians, surgeons, and dentists. It also covers the insured’s office equipment and (if the insured is a tenant) improvements and betterments that the insured has made to a leased building. These coverages can be added by endorsement: Office equipment while off premises for no more than thirty consecutive days Extra expenses following a covered loss Money and stamps on premises Personal effects of the insured or others while on premises Valuable records

Answer 255

covers neon, fluorescent, automatic, or mechanical signs. The covered signs must be scheduled with a limit of insurance shown for each item. This form (or a comparable commercial property endorsement) is used by many businesses because commercial property coverage forms severely limit coverage for signs.

Answer 256

covers stage scenery, costumes, and other personal property used in theatrical productions. It covers similar property of others in the insured’s care as well as property owned by the insured. The insured must have used or must intend to use the property in a production stated in the declarations.

Answer 257

covers exposed motion picture film and magnetic tapes or videotapes, including related soundtracks or sound records. The amount of insurance reflects—and the form covers—the cost of reshooting the film if it is lost or damaged.

Answer 258

covers merchandise that is being held for sale and financed through a floor plan. The Floor Plan Coverage Form may be used to insure the dealer’s interest in the merchandise, the lender’s interest in it, or both. Coverage is written on a reporting form basis. The Nationwide Marine Definition includes policies covering floor plan merchandise, but only for merchandise other than automobiles. Therefore, floor plan insurance on automobiles is not handled as inland marine.

Answer 259

covers the merchandise of retail jewelers, including similar property of others in the insured’s care, custody, or control. It was designed to meet the needs of small retail jewelers. Depending on the nature of the insured’s operations, this can be either a filed or nonfiled coverage. The filed coverage form covers damage to the insured’s stock of jewelry, precious and semiprecious stones, watches, precious metals, and similar merchandise, along with other stock used in the insured’s business.

Answer 260

is written for banks, trust companies, insurance companies, investment brokers, and other financial institutions that frequently ship securities and other valuable items through a government postal service. The form covers the insured against loss of securities (such as bonds, stock certificates, and certificates of deposit) and other negotiable instruments (such as bills of lading and warehouse receipts) while in transit by first-class mail, certified mail, express mail, or registered mail. Valuable items such as bullion, currency, and jewelry are covered property only if sent by registered mail.

Answer 261

covers losses (including uncollectible accounts) resulting from destruction of the insured’s records of accounts receivable. The insurer pays the amount of accounts receivable the insured is unable to collect because of the destruction of records. The form also covers the cost to reconstruct accounts receivable records, interest on loans made necessary by an inability to collect accounts receivable, and increased collection costs resulting from loss of records. Coverage may be written on either a reporting or nonreporting form. Because many businesses keep backup (duplicate) copies of all their computer records, including records of accounts receivable, at a secure off-premises location, they do not buy accounts receivable insurance. However, insurers frequently include a certain amount of accounts receivable coverage in their package policies. An insured may use the inland marine form to obtain a higher coverage limit than the insurer is willing to include in a package policy.

Answer 262

covers printed or otherwise recorded items such as an architect’s blueprints and plans, as well as the cost of necessary research to reconstruct the records. Irreplaceable records, such as original manuscripts or rare books, are scheduled with an agreed value shown for each item.

Answer 263

``` Property Damage Expediting Expenses Business Income and Extra Expense Spoilage Damage Utility Interruption Newly Acquired Premises Ordinance or Law Errors and Omissions Brands and Labels Contingent Business Income and Extra Expense ```

Answer 264

generally, may not exceed 35,000 square feet in total floor area or $6 million in annual gross sales at each location.

Answer 265

the BOP packages basic coverages and uses simplified rating procedures is similar to that of a homeowners policy and offers advantages to the insurer, the producer, and the insured. Packaging several coverages reduces adverse selection and, combined with simplified rating, lowers handling costs for insurers.

Answer 266

The ISO BOP requires separate liability rating for all classes of business. the liability rate is applied to the property insurance amount rather than to a rating basis such as that used to rate commercial general liability (CGL) coverage. Most insurers that write BOPs for eligible contractors rate the liability coverage apart from the property coverages by applying a separate liability rate to the insured’s payroll, receipts, or number of full- and part-time employees.

Answer 267

The description of covered property in the BCF differs from that in the Building and Personal Property Coverage Form (BPP) in these ways: The BCF description of building property includes the named insured’s personal property in apartments or rooms furnished by the named insured as landlord. Such property is not included under building coverage in the BPP. So, for example, an apartment building owner with no personal property to insure other than apartment furnishings can cover both the building and the apartment furnishings under the BOP for a single amount of building insurance. Under the BPP, the building owner would need to purchase a separate limit of coverage for Your Business Personal Property. The BCF covers personal property of others in the insured’s care, custody, or control under the same limit that applies to personal property owned by the named insured. In contrast, the BPP divides coverage for personal property into two sections: (1) Your Business Personal Property and (2) Personal Property of Others. If a BCF written for a tenant shows no limit of insurance for building property, the business personal property description includes exterior building glass owned by the tenant or in the tenant’s care, custody, or control. This description closes a gap under the BPP when a tenant that has not purchased building coverage is responsible for damage to building glass under the terms of its lease.

Answer 268

The BCF’s Property Not Covered section is shorter than the corresponding section in the BPP. As a result, in a given situation, an insured could have significant additional coverage under the BCF. For example, excavations, foundations, and underground pipes and flues, which are susceptible to damage by many insured perils, are covered by the BCF but excluded by the BPP, unless the BPP has been endorsed to cover those items. However, the value of this property, because it is not excluded in the BCF, should be considered when determining whether the insured has met the BCF’s insurance-to-value provision.

Answer 269

The BCF, like the Causes of Loss—Special Form, uses the open perils approach to defining covered causes of loss. Named perils coverage can be substituted for open perils in the BCF by endorsement. The BCF named perils are equivalent to those covered by the Causes of Loss—Basic Form, plus additional perils applicable to covered property in transit. The BCF provides broader coverage than the BPP and the Causes of Loss—Special Form for computers and electronic data and media. The BCF provides this coverage through these exceptions to policy exclusions: The BCF Utility Services exclusion does not apply to loss or damage to computers and electronic data. The BCF Electrical Apparatus exclusion states the insurer will pay for loss or damage to computers resulting from artificially generated electrical current if the loss or damage is caused by or results from (1) an occurrence taking place within 100 feet of the described premises or (2) interruption of electricity, power surge, blackout, or brownout if the cause of the occurrence takes place within 100 feet of the premises. The BCF exclusion of mechanical breakdown does not apply to the breakdown of computers. However, the BCF contains these additional exclusions applicable to computers and electronic data: Errors or omissions in programming, processing, or storing data or processing or copying valuable papers and records Errors or deficiencies in design, installation, testing, or repair of computer systems Electrical or magnetic injury, disturbance, or erasure of electronic data, except as provided for under the additional coverages In addition, the BCF does not contain these exclusions found in the Causes of Loss—Special Form: The exclusion of theft of building materials and supplies not attached as part of the building or structure The exclusion of business income or extra expense losses arising from loss of or damage to antennas or satellite dishes

Answer 270

The Business Income and Extra Expense additional coverages in the BCF differ from the separate ISO business income and extra expense forms in these three ways that can be significant for many insureds: The BCF coverages are subject to a one-year limit instead of the dollar limits in other forms. The Business Income additional coverage insures actual loss of business income sustained during the period of restoration, and the Extra Expense additional coverage insures necessary extra expense incurred during the period of restoration. However, under both coverages, the insurer will pay only for losses or expenses that occur within the twelve consecutive months after the date of direct physical loss or damage. Because most small businesses can restore damaged property in less than a year, a one-year limitation seldom poses a problem for BOP insureds. Because of the possibility of having to pay a large business income loss under a BOP that generates little premium, some insurers impose a specific dollar limit on business income and extra expense coverage in their BOPs. The BCF coverages for business income and extra expense are not subject to coinsurance; therefore, coverage is simplified and any possibility of a coinsurance penalty is eliminated. Coinsurance can be omitted from the regular ISO business income and extra expense forms, but the techniques for omitting coinsurance complicate the coverage and impose restrictions not found in the BCF. The BCF business income coverage provides ordinary payroll coverage for only up to sixty days following the date of the physical loss unless a greater number of days is shown in the declarations. The regular ISO business income forms impose no restriction on coverage of payroll expense unless an endorsement eliminating ordinary payroll or limiting it to 90 or 180 days is added to the policy. As in the separate ISO business income forms, the period of restoration in the BCF begins seventy-two hours after the physical damage occurs. This waiting period in the BCF may be eliminated by endorsement. The ISO Commercial Lines Manual (CLM) calls for a 1 percent increase in the building and personal property coverage premiums to make this change. Most small businesses would probably prefer to have the waiting period eliminated. Even a short interruption can be critical to a small business.

Answer 271

Business Income From Dependent Properties Money Orders and Counterfeit Money Forgery or Alteration Glass Expenses Fire Extinguisher Systems Recharge Expense Electronic Data Interruption of Computer Operations

Answer 272

Like the BPP, the BCF covers, for up to thirty days, newly constructed or acquired buildings (up to $250,000) and newly acquired business personal property or business personal property in a newly constructed or acquired building (up to $100,000). Finally, the BCF does not include the BPP extension for nonowned detached trailers.

Answer 273

The Personal Property Off Premises extension in the BCF has the same $10,000 limit as the comparable extension in the BPP. The BCF extension is broader than the BPP version in that it includes coverage for property while it is in the course of transit. Finally, the BCF does not include the BPP extension for nonowned detached trailers.

Answer 274

The BCF Outdoor Property extension is the same as its counterpart in the BPP except that the limit for outdoor property in the BCF is $2,500, subject to a sublimit of $500 for any one tree, shrub, or plant. The comparable limits in the BPP are $1,000 and $250. Finally, the BCF does not include the BPP extension for nonowned detached trailers.

Answer 275

The limit for personal effects is $2,500 in both forms, but in the BPP, personal effects and property of others are combined in a single extension, and the $2,500 limit applies to the combination of both types of loss in a single occurrence. The BCF has no extension for property of others because it includes personal property of others under its definition of covered business personal property.

Answer 276

The BCF Valuable Papers and Records extension provides broader coverage than the comparable extension in the BPP and does so in two basic ways. First, the BPP extension is limited to “specified causes of loss,” while the BCF extension broadens the scope of Special Form coverage by specifying that only seven of the property exclusions apply to valuable papers and records. Second, the BCF extension has limits of $10,000 on premises and $5,000 off premises, whereas the BPP has a $2,500 limit.

Answer 277

The Accounts Receivable extension in the BCF is similar to the coverage provided by the ISO Accounts Receivable Coverage Form. Under the BCF, accounts receivable coverage for loss or damage at the described premises is limited to $10,000 unless a higher amount is shown in the declarations, and off-premises coverage is limited to $5,000.

Answer 278

The Limits of Insurance provisions that apply to the BCF property section differ from those of the BPP in two ways: The BCF automatically includes a provision titled Building Limit—Automatic Increase. The BPP contains a comparable Inflation Guard provision, but it is optional. The BCF includes a provision titled Business Personal Property Limit—Seasonal Increase, which has no counterpart in the BPP. The Building Limit–Automatic Increase provision increases the stated limit for buildings by an annual percentage shown in the declarations. The annual percentage is applied on a pro rata basis throughout the policy year. The seasonal increase provision automatically increases the business personal property limit to cover increases in inventory values. The limit for business personal property is automatically increased by 25 percent (or another percentage if shown in the declarations), but only if the limit for personal property is 100 percent or more of the insured’s average monthly personal property value for the twelve months preceding the date of loss. Although this provision can be helpful in covering moderate seasonal increases, an insured that carries an amount of insurance equal to the average value for the preceding twelve months still may not have adequate coverage for peak periods. For example, the value of personal property in Grandma’s Gift Shop for January through October was $100,000 each month, rising to $150,000 in November and $200,000 in December, as more inventory was added for the busy holiday season. The average monthly value for the year was $112,500. If Grandma’s Gift Shop carried a business personal property limit of $112,500, a loss up to 25 percent greater than the policy limit (or, in this case, $140,625) would be paid in full, but that would not be sufficient to cover a total loss in November or December. Alternatively, Grandma’s Gift Shop could have its personal property limit increased by endorsement in November and December and reduced in January.

Answer 279

Under Commercial Lines Manual (CLM) rules, a basic deductible of $500 applies to most BCF property coverages other than Business Income, Extra Expense, Civil Authority, Fire Extinguisher Systems Recharge Expense, and Fire Department Service Charge. However, higher optional deductibles are available. No deductible applies to the five additional coverages just listed. Windstorm or hail percentage deductibles equal to 1 percent, 2 percent, or 5 percent of the amount of insurance are also available. These deductible options are most likely to be required by insurers for properties in areas subject to frequent or severe windstorm or hail losses.

Answer 280

The property loss conditions of the BCF are comparable in most respects to the loss conditions of the BPP. The major differences concern the Loss Payment condition, which provides for replacement cost valuation if the insured carries insurance equal to at least 80 percent of the insured property’s replacement value. The BCF covers buildings and personal property on a replacement cost basis. The BCF does not have a Coinsurance condition like the BPP but instead has an insurance-to-value requirement that resembles the one included in homeowners policies. Although less stringent than coinsurance, it encourages insureds to insure to at least 80 percent of the covered property’s value. No agreed value option is available with the BCF, but the BCF insurance-to-value requirement can be eliminated by endorsement. The BCF insurance-to-value requirement differs from the BPP Coinsurance condition in several ways, including these: It applies only to replacement cost, not also to actual cash value (ACV) coverage. It does not apply if the insured elects an ACV settlement. Thus, the BCF insured never collects less than ACV for a covered property loss (disregarding the effect of deductibles or limits). For full replacement cost coverage to apply under the BCF, the amount of insurance at the time of the loss must equal at least 80 percent of the full replacement cost of the covered property immediately before the loss. If the amount of insurance is less than 80 percent of the full replacement cost, the insurer will pay the greater of these two amounts, not to exceed the limit of insurance: The ACV of the lost or damaged property. A proportion of the cost to repair or replace, after applying the deductible but without a deduction for depreciation.1 The proportion is the applicable limit of insurance divided by 80 percent of the property’s replacement cost.

Answer 281

The BCF includes provisions for four optional coverages: Outdoor Signs, Money and Securities, Employee Dishonesty, and Equipment Breakdown Protection. These coverages are put into effect by appropriate entries in the declarations. The BCF covers outdoor signs, but with important limitations. Outdoor signs attached to buildings are insured against all covered causes of loss under the policy but only up to $1,000 per sign in any one occurrence. Outdoor signs that are not attached to buildings, although they are listed as Property Not Covered, are covered for up to $2,500 per occurrence under the Outdoor Property extension but are covered only against fire, lightning, explosion, riot, civil commotion, or aircraft. The Outdoor Signs optional coverage allows the insured to purchase a higher amount of insurance on outdoor signs located at the described premises and owned by or in the care, custody, or control of the insured. The insurance applies on a Special Form basis. In the BCF, covered property does not include money or securities except as provided in the Money and Securities optional coverage or the Employee Dishonesty optional coverage. The Money and Securities optional coverage insures money and securities used in the named insured’s business against theft, disappearance, or destruction. The money and securities are covered while at the described premises; at a bank or savings institution; within the living quarters of the named insured or any partner, or of any employee having care and custody of the property; or in transit between any of these places. This optional coverage applies only to money and securities because the BCF covers theft of property other than money and securities. Under the Employee Dishonesty optional coverage, the insured is covered for direct loss of or damage to business personal property, including money and securities, that results from dishonest acts of any of the insured’s employees, whether acting alone or in collusion with others (not including the named insured or the named insured’s partners). Under CLM rules, various limits are available. The Equipment Breakdown Protection optional coverage insures direct damage to covered property (building and business personal property) caused by a mechanical breakdown or electrical failure to pressure, mechanical, or electrical machinery or equipment, including computers used to operate production machinery. Because the optional breakdown coverage omits the BCF exclusions relating to electrical apparatus, steam apparatus and mechanical breakdown, these perils are covered causes of loss that also trigger the BCF additional coverages for business income and extra expense.

Answer 282

Traditional farms are owned by families who live and work on their own land. Such a farm is both a residence and a business. Accordingly, the package policies used for covering traditional farms—called farmowners policies or simply farm policies—are designed to cover both residential and farming business loss exposures. However, a significant number of farms are owned by agribusiness corporations and are worked by employees who may or may not live on the property. To accommodate both, insurers offer farm insurance policies that use a modular format. Insurance Services Office, Inc. (ISO) and the American Association of Insurance Services (AAIS) both file forms, rules, and loss costs for farm insurance. Some of the leading writers of this line of business have developed their own coverage forms. (Throughout this section "farm" and "farmer" are used to include the terms "ranch" and "rancher.") ``` Insuring Agreements (A Through G) of ISO Farm Property Coverage Forms The ISO farm program includes various forms and endorsements that can be combined into either a separate farm policy or a coverage part in a commercial package policy. The insured can select any combination of three property coverage forms: ``` Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form (FP 00 12) Farm Personal Property Coverage Form (FP 00 13) Barns, Outbuildings and Other Farm Structures Coverage Form (FP 00 14) The Causes of Loss Form—Farm Property (FP 10 60) contains provisions for basic, broad, and special causes of loss. The Other Farm Provisions Form (FP 00 90) contains provisions for various additional coverages, conditions, and definitions that are common to more than one of the other farm forms. Farm Dwellings, Appurtenant Structures and Household Personal Property The Farm Dwellings, Appurtenant Structures and Household Personal Property Coverage Form contains these four coverages: Coverage A—Dwellings Coverage B—Other Private Structures Appurtenant to Dwellings Coverage C—Household Personal Property Coverage D—Loss of Use Coverage B excludes structures, other than private garages, that the named insured uses principally for farming purposes. Thus, Coverage B does not cover farm structures such as barns and silos, which can be covered under the Barns, Outbuildings and Other Farm Structures Coverage Form. Similarly, Coverage C insures only household personal property and excludes "farm personal property" other than office fixtures, furniture, and office equipment. "Farm personal property" is defined as "equipment, supplies and products of farming or ranching operations, including but not limited to feed, seed, fertilizer, ‘livestock’, other animals, ‘poultry’, grain, bees, fish, worms, produce and agricultural machinery, vehicles and equipment." Farm Personal Property The Farm Personal Property Coverage Form contains Coverage E—Scheduled Farm Personal Property and Coverage F—Unscheduled Farm Personal Property. The insured can choose either or both coverages. Coverage E applies only to those classes of farm personal property for which a specific limit of insurance is shown in the declarations. There is no coinsurance requirement. Property that can be insured under Coverage E includes (but is not limited to) these types: Farm machinery (individually described) Rented or borrowed farm machinery, vehicles, and equipment Livestock (limited to cattle, sheep, swine, goats, horses, mules, and donkeys) Poultry Bees, worms, and fish Grain and feed Hay, straw, and fodder Farm products, materials, and supplies Computers In addition, Coverage E can be used to cover individually scheduled items of farm personal property, such as a tractor, a combine, or irrigation equipment owned by the insured. Coverage restrictions and sublimits apply to some of the eligible classes. For example, a $2,000 limit applies to the loss of any one head of livestock, and a $10,000 limit applies to any one stack of hay, straw, or fodder. The scheduled classes or items of property are insured up to their specified limits while at the location described in the policy. An extension insures most classes of scheduled property while away from the insured premises but within the coverage territory (the United States, Puerto Rico, and Canada) for up to 10 percent of their specified limits. However, livestock and individually described farm machinery, vehicles, and equipment while off premises are covered for their full specified limits. Coverage F insures unscheduled farm personal property under a single limit subject to an 80 percent Coinsurance condition. For property at the insured location, all items of "farm personal property" (as defined in the form) are covered unless excluded. Coverage for property away from the insured location is limited to livestock; farm machinery; equipment, implements, tools and supplies; and grain, ground feed, fertilizer, fodder, hay, herbicides, pesticides, and similar items. Off-premises coverage (under both Coverage E and F) is subject to some restrictions. For example, no property that falls under any of the three listed classes is covered while in the custody of a common or contract carrier. However, the form provides an extension that covers property in the custody of a common or contract carrier, subject to a $1,000 limit that can be increased by an entry on the declarations page. Coverage F is written with a single limit. This approach is often preferred because it is less complicated to arrange and is less likely to result in underinsured property. However, the 80 percent coinsurance requirement must be met. Despite the advantages of Coverage F, some types of farm personal property are excluded and can therefore be insured only under Coverage E. These types of property include poultry, bees, fish, and worms; other animals not considered livestock under the policy; and portable buildings and portable structures. An insured might choose to schedule certain items of farm personal property under Coverage E and to insure the remaining farm personal property with a blanket limit under Coverage F. Barns, Outbuildings and Other Farm Structures The Barns, Outbuildings and Other Farm Structures Coverage Form contains the provisions for Coverage G, which is designed to insure all types of farm buildings and structures (other than dwellings and private garages) on either a scheduled or a blanket basis. Except for improvements and betterments, Coverage G can be arranged on either a replacement cost basis or an actual cash value basis, as indicated in the declarations. Functional replacement cost provisions are available by endorsement. The Barns, Outbuildings and Other Farm Structures Coverage Form and the Farm Personal Property Coverage Form both include extra expense coverage if the declarations show a limit for that coverage. An ISO farm policy can also be endorsed to cover loss of farm income resulting from damage to farm buildings or farm personal property by a covered cause of loss through the Disruption of Farm Operations (FP 15 01) endorsement. Causes of Loss The ISO Causes of Loss Form—Farm Property (FP 10 60) contains provisions for basic, broad, and special causes of loss. The basic and broad perils covered are shown in the exhibit. The insurer marks the declarations page accordingly to indicate which level of coverage applies. Basic Causes of Loss With the exception of theft and the last three causes of loss listed in the exhibit, the basic covered causes of loss for the farm policy are the same as the causes of loss covered by the commercial property Causes of Loss—Basic Form. The collision peril has three aspects: collision damage to covered farm machinery, death of covered livestock resulting from collision or overturn of vehicles, and collision damage to other farm personal property. Earthquake and flood are covered perils only when they cause loss to covered livestock. Broad Causes of Loss The broad covered causes of loss in the ISO farm program include all the farm basic causes of loss plus twelve additional causes of loss. The first five additional perils listed apply to covered livestock only. The remaining seven perils are comparable to covered perils in either the homeowners broad form or the commercial property Causes of Loss—Broad Form. Perils Covered by Causes of Loss Form—Farm Property Special Causes of Loss The farm special causes of loss correspond to those of the homeowners special form and the commercial property Causes of Loss—Special Form. Livestock, poultry, bees, fish, worms, and other animals are not eligible for the special causes of loss and can only be covered for the basic or broad causes of loss. Grain in the open and hay, straw, and fodder are covered only against limited named perils. If the insured wants to cover eligible farm personal property on an unscheduled basis under Coverage F with the special causes of loss and also wants to insure under Coverage F the types of property that are not eligible for the special causes of loss, an entry can be made on the declarations indicating that the ineligible types of property are covered for the broad (or basic) perils and all other personal property is covered for the special causes of loss. Another approach is to separately schedule the livestock, poultry, or other restricted classes of property under Coverage E for the broad (or basic) perils. Farm Liability The Farm Liability Coverage Form (FL 00 20) covers both personal and farm business liability exposures. The form combines elements of homeowners liability coverage and commercial general liability coverage and contains special provisions that address liability loss exposures unique to farms. The Farm Umbrella Liability Policy (FB 00 01) or Farm Excess Liability Policy (FE 00 01) can be used to provide limits of liability in excess of underlying policies for farm liability, auto liability, farm employers liability, recreational motor vehicle liability, and watercraft liability. The basic difference between the two policies is that in some instances, the umbrella policy provides broader coverage than the underlying policies, while the excess policy does not provide broader coverage than the underlying policies.

Answer 283

Acts of terror are inherently catastrophic because they are predicated on the exploitation of targets that are unprotected from attack (such as office buildings or passenger aircraft) and solely intended to cause widespread death, injury, and property loss. The seemingly limitless and unpredictable means of sowing terror, from crudely implemented explosive devices to the deliberate spread of an infectious biological agent, further complicate quantification of the risk. Because of the unpredictability of terrorism incidents, it is difficult, if not impossible, for insurers to underwrite the potential loss exposures for terrorism. Despite its uninsurable characteristics, terrorism can be addressed as a cause of loss through terrorism insurance. However, insurers generally are reluctant to insure terrorism losses without receiving substantial and often prohibitively high premiums. They also often apply restrictive coverage conditions, such as very low sublimits or very high retentions. To overcome the obstacles presented by terrorism loss exposures and the reluctance of insurers to offer coverage in the immediate aftermath of the terrorist attacks of September 11, 2001, Congress enacted the Terrorism Risk Insurance Act of 2002 (TRIA) to establish a cost-sharing mechanism that allowed the insurance industry and the federal government to jointly pay claims resulting from acts of terrorism. The Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA 2015) reauthorized TRIA through 2020. TRIPRA 2015 is designed to provide continued stability in the insurance market regarding terrorism coverage, gradually increasing the insurance industry’s participation while reducing the federal government’s participation in the payment of future terrorism-related losses. Insurance Services Office, Inc. (ISO) and the National Council on Compensation Insurance, Inc. (NCCI) developed endorsements to assist insurers in complying with the requirements of TRIA and its subsequent amendments. Losses and Lines of Insurance Covered by TRIPRA 2015 TRIPRA 2015 retains many of the provisions of TRIA and its amendments. However, it also makes several significant changes to the original law, many of which are designed to reduce the federal government’s future participation in the program and transfer a larger percentage of the risk for payment of terrorism-related losses to the insurance industry. TRIPRA 2015 requires all commercial property-casualty insurers to make coverage available for losses resulting from acts of terrorism as defined in the act. The term "act of terrorism" means any act that is certified by the United States secretary of the Treasury, in consultation with the secretary of Homeland Security and the U.S. attorney general to meet all these criteria: It is an act of terrorism. It is a violent act or an act that is dangerous to human life, property, or infrastructure. It resulted in damage within the U.S. (except under specific instances). It was committed by an individual or individuals as part of an effort to coerce the civilian population of the U.S. or influence U.S. government policy or conduct through coercion. Any act committed as part of the course of a war declared by Congress or any act that does not result in aggregate insured losses exceeding $5 million cannot be certified as an act of terrorism. Although an act may meet all the criteria for certification as an act of terrorism, it is still not eligible for federal participation in the payment of losses unless the act results in aggregate insured losses in excess of the program trigger. TRIA originally established a program trigger of $5 million. The $100 million program trigger under TRIPRA 2015 increases each calendar year in increments of $20 million, ultimately reaching $200 million in 2020. All commercial lines of insurance are eligible for TRIPRA 2015’s loss-sharing program except crop, private mortgage, financial guaranty issued by monoline financial guaranty insurance companies, medical malpractice, health or life (including group life), federal flood, burglary and theft, professional liability (other than directors and officers liability), commercial auto, farm owners multiperil, surety, and reinsurance. Personal lines of insurance are not eligible. How TRIPRA 2015 Affects Insurers TRIPRA 2015 requires property-casualty insurers to offer terrorism coverage without terrorism-specific exclusions or limitations at the initial offer and at the renewal of a policy. The coverage offered may not differ materially from the terms, amounts, and other limitations applicable to losses arising from nonterrrorist acts. Each individual insurer is responsible for 100 percent of all covered terrorism-related losses incurred by its insureds until such losses exceed 20 percent of the insurer’s direct earned premium for the previous calendar year, at which point the federal government and the insurer share the cost of losses in excess of that figure. The total annual aggregate for government and insurer liability is capped at $100 billion. This means that no federal or private payments will be made to insureds for any certified terrorism losses after the aggregate insured losses under TRIPRA 2015 reach $100 billion. Insurers are required to provide disclosures to insureds regarding certain aspects of TRIPRA 2015, including the premium amount for the terrorism coverage, the federal government’s share of compensation for insured losses, the annual aggregate federal and insurer liability cap, and the fact that the cap may reduce coverage under their policies. All disclosures must be specifically and prominently included in notices to insureds. Providing such notice is the purpose of the ISO disclosure endorsements discussed subsequently. TRIPRA 2015 mandates that insurers retain, through their deductibles and co-pays, an industry retention threshold of $27.5 billion, which gradually increases until 2020 to $37.5 billion. If, in a given year, insured terrorism-related losses exceed the industry retention threshold (thus triggering federal payments), the federal government imposes a surcharge on all commercial property-casualty policies to recoup its expenditures, thereby eliminating potential taxpayer burden. The recoupment amount is the difference between the total industry insured losses—up to the annual industry retention amount—and the total amount paid by the insurance industry. TRIPRA 2015 Endorsements The enactment of TRIA and its subsequent amendments required revisions to insurance policy disclosures and forms to ensure compliance with the federal program and specific state insurance laws and regulations. Key disclosure notices to insureds and endorsements to commercial property-casualty insurance forms were developed by ISO and, for workers compensation policies, by NCCI. Insurers are required by TRIA and its subsequent amendments to notify insureds of their right to purchase or reject coverage for losses resulting from terrorism-related acts, together with the costs and limitations of the coverage, at the time of the initial offer of insurance and at each policy renewal. Disclosure notices must include this information: The portion of the policy premium that is attributed to certified acts of terrorism (as defined in TRIA and its subsequent amendments) and the coverages to which that premium applies The federal share of compensation for certified acts of terrorism, after the insurer’s deductible is met, and the amount of the federal share of losses attributed to certified acts of terrorism, up to the program cap The amount of the program cap and the stipulation that, in the event the program cap is exceeded, the amount of coverage afforded the insured for losses resulting from terrorism-related acts may be reduced ISO Terrorism Endorsements ISO’s terrorism endorsements have been revised as needed since the enactment of TRIA, based on amendments to the law and changes in the marketplace. ISO has filed these categories of endorsements: Program cap endorsements Certified acts exclusion endorsements Limitations endorsements Certified acts of terrorism aggregate limits endorsements Punitive damages exclusion endorsements Other acts exclusion endorsements Automobile endorsements Nuclear, biological, chemical, or radiological endorsements Coverage for losses from terrorist attacks that use nuclear, biological, chemical, or radiological materials (NBCR) is not mandated under TRIA and its subsequent amendments when such coverage is not provided in an insured’s base policy. This type of endorsement excludes coverage for losses caused directly or indirectly by NBCR acts. While NBCR policies are available through the private insurance marketplace, they are generally expensive and provide limited coverage. NCCI Terrorism Endorsements Workers compensation insurance provides coverage to employers in the event they become responsible under a workers compensation law for paying statutory benefits to their employees who have been injured or killed during the course of their employment. Coverage for losses as a result of terrorism-related acts may not be excluded or limited in workers compensation insurance policies. NCCI developed endorsements to assist insurers in complying with the disclosure requirements mandated by TRIA and its subsequent amendments. The NCCI endorsements define certified acts of terrorism and disclose the portion of workers compensation premium that is attributed to certified acts, the federal share of compensation for certified acts under the program, and the amount of the program cap. The endorsements also define an insured loss as any loss resulting from an act of terrorism, and, for purposes of workers compensation coverage, the endorsements include acts of war. Stand-Alone Terrorism Policies Demand also exists for stand-alone terrorism coverage to fill gaps created by the limitations of TRIA and its subsequent amendments. These policies may provide a wider range of coverage, such as coverage for acts worldwide as opposed to only for acts that occur within the country. They may also provide more expansive coverage, such as coverage for acts that are not defined as acts of terror by a government-backed insurance policy—for example, strikes, riot, and civil commotion.

AIC 41 Flashcards

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