Study 3 - Lines of Insurance: Property-Related Flashcards
Heightened risk to properties containing a grow operation
- Fires are much more likely due to high-intensity lighting needed to grow the plants
- Increased risk of burglary, vandalism, water damage, and mould, among other perils
Alterations to the dwelling to accommodate grow operations
- Holes may be cut into the walls to install illegal wiring
- Windows may be covered or sealed to maintain humidity, which can result in mould
- Water damage from watering the plants and the harmful air quality produced by such activities can make the dwelling uninhabitable
Cannabis related questions that can be added to a company’s online quoting portal
- Is an applicant growing marijuana on the premises?
- How many plants are being grown?
- What is the value of each plant?
- How are plants grown? (details about hydroponics or intense lighting systems)
- What security measures have been taken?
For commercial risks involved in legal growing or retail sales of cannabis, such information can be obtained by questionnaires posing questions such as:
- Has the electrical installation been upgraded for the operation?
- Has the HVAC system been upgraded to high-volume capacity?
- Does the applicant keep stock on the premises?
- Does the applicant have a centrally monitored alarm system? Are all windows, doors, and interior areas connected to the monitored alarm system?
- Are there locked vaults for the storage of cannabis products?
- Does the applicant require criminal background checks of employees?
- Does the applicant have secure loading dock procedures and inventory controls?
All business interruption insurance addresses two aspects of an indirect loss
- The reduction in earnings directly resulting from the interruption of business due to a covered peril
- The necessary expense incurred to reduce the business interruption loss
Business interruption insurance is offered as either an:
- Income restoration coverage (profits and gross earnings forms)
- Coverage for additional expenses incurred to continue business after a loss (extra expense)
British and American approaches to business interruption
- British - Profits form. Indemnifies the insured for as long as it takes until the business interruption has ceased to affect the level of business income
- American - Gross earnings form. Insured is considered indemnified once the product and a place to sell it have been restored
IBC equivalent to Profits and Gross Earnings Forms
- Business Income - Gross Earnings
- Extended Business Income - Profits
Profits and Gross Earnings Forms compared
- Indemnity Period: Max of 12 months after date of loss for both. If a business can be expected to return to its otherwise anticipated level immediately following repair of damaged property, gross earnings form makes more sense
- Coinsurance: In effect, 100 percent under profits, 50 or 80% under gross earnings
- Stock: excluded under gross earnings, no exclusion under profits
- Bylaws: Profits includes coverage for delays caused by the application of bylaws, gross earnings does not
The Actual Loss Sustained Form (ALS)
Common variation on the gross earnings form. 3 distinctive features:
- No coinsurance clause or penalty
- No need to show a limit of insurance on the policy
- The insured is paid only for the amount of business income that would have been earned had the loss not occurred
Stated amount clause on BI policies
- Insurer and insured agree before the inception of coverage on an appropriate amount of insurance
- As long as at least this stated amount of insurance in effect at the time of loss, the insurer will pay the full amount of the loss up to the amount of insurance
- Advantage to insured is there is no coinsurance penalty if a loss occurs during an unexpectantly good year
Contingent Business Interruption Insurance
- Direct loss to an insured’s property not the only way to suffer interruption
- Losses to suppliers and clients can impact an insured
- Need to consider how reliant the insured is on materials from the supplier or sales to the client that has suffered the direct loss
Extra Expense Insurance
- Covers increased costs that exceed the amount by which the loss would thereby be reduced
- Designed for businesses that can continue after a loss by incurring extra costs
- Such businesses are typically found in the service sector
Common exclusions on an all-risks property policy where an equipment breakdown policy fills the gaps
- The explosion, burning, or rupture of boilers and pressure vessels
- Mechanical breakdown
- Electrical arcing
The Equipment Breakdown Policy
Covers loss from a S&A breakdown of an object resulting in physical damage to the object and any resultant property damage directly caused by the breakdown.
An object includes:
1) Pressure vessels such as boilers or hot water tanks
2) Mechanical and electrical equipment such as pumps, blowers, fans, engines, generators, turbines.
