Exam 2 Study Materials Prop & Casualty INS
Exam 2 Study Materials Prop & Casualty INS INS 3203
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This 15 page Study Guide was uploaded by Whitney Smith on Saturday February 27, 2016. The Study Guide belongs to INS 3203 at Mississippi State University taught by Priscilla King in Winter 2016. Since its upload, it has received 271 views. For similar materials see Property and Casualty Insurance in Economcs at Mississippi State University.
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INS 3203 Things To Make Sure To Look Over On The Test Chapter 3 part 2 – Property and Casualty Insurance Causes of Loss – Special Form A. Advantages of Special Form a. The Special Form offers these advantages to the insured: i. 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. ii. By covering direct physical losses other than those that are specifically excluded, the Special Form covers losses that the insured might not have anticipated. iii. 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. B. Exclusions and Limitations C. Exclusions and Limitations Unique to the Special Form a. Examples of perils that the Special Form specifically excludes are these: i. Wear and tear ii. Rust, corrosion, decay, deterioration, or hidden or latent defect iii. Smog iv. Settling, cracking, shrinking, or expansion v. Infestations and waste products of insects, birds, rodents, or other animals. vi. Mechanical breakdown vii. Dampness or dryness of atmosphere, changes or extremes in temperatures, or marring or scratching (applicable to personal property only). b. The Special Form also excludes loss covered by these: i. Weather conditions that contribute to other excluded causes of loss. If, for example, covered property is damaged by floodwaters that were driven in part by high winds, the flood damaged will not be covered even though windstorm is not otherwise excluded. ii. 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. iii. Fault or inadequate planning, zoning, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction, materials, or maintenance. c. Loss to these kinds of property is covered only if it is caused by specified causes of loss: i. Valuable papers and records ii. Animals, and then only in the event of their death iii. Fragile articles if broken, such as glassware, statuary, marble, chinaware, and porcelain (but not including building glass and containers of property held for sale) iv. Builders’ machinery and equipment owned or held by the insured unless on or within 100 feet of the described premises. D. TheftRelated Exclusions and Limitations a. Any theft not specifically excluded b. Dishonest or Criminal Acts by Certain Individuals c. Voluntary Surrendering of Property d. Theft of Building Materials E. Additional Coverages and Extensions a. Property in Transit b. Water damages, other liquids, powder or molten material damage INS 3203 Things To Make Sure To Look Over On The Test c. Glass extension F. Case Study INS 3203 Things To Make Sure To Look Over On The Test Chapter 4 – Property and Casualty Insurance A. Specific Insurance vs. Blanket Insurance a. Specific Insurance i. Insurance that covers each building for a specific limit of insurance and personal property for a specific limit of insurance. b. Blanket Insurance i. Insurance that covers either of the following with one limit of insurance 1. One type of property in one or more separately rated buildings 2. Two or more types of property in one or more separately rated buildings. B. Operation of Blanket Insurance a. Coinsurance Requirement for Blanket Insurance (90%) i. The minimum coinsurance clause is 90% but the rates are the same as the 80% coinsurance. b. Advantages of Blanket Insurance over Specific i. An insured with multiple locations would be fully insured for a loss at any one location up to the policy limit as long as the total amount of insurance satisfied the coinsurance requirement. By insuring the business personal property with one blanket limit, the insured can avoid a coinsurance penalty if the inventory at one location increases significantly and a loss occurs. ii. An insured with multiple locations might have a sudden increase in inventory at one of the locations. c. Combining the Agreed Value Option with Blanket Insurance i. Agreed Value Option with blanket insurance is the preferred method to provide property insurance. ii. Agreed Value options avoids any coinsurance penalty iii. Prevents the danger of underinsurance Fluctuating Personal Property Values A. Peak Season Endorsement a. Endorsement that covers the fluctuating values of business personal property by providing differing amounts of insurance for certain time periods during the policy year. B. Value Reporting Form a. A commercial property form that bases the insured’s premium for business personal property on the values that the insured reports to the insurer periodically during the policy period. b. Major features of the Value Reporting Form include these: i. Reporting Requirement 1. Five reporting period options are available. These are the options and code letters used to indicate them: a. DR – daily values reported monthly b. WR – values as of the last day of the week reported monthly c. MR – values as of the last day of the month reported monthly d. QR – values as of the last day of the month reported quarterly e. PR – values as of the last day of the month reported at the end of the policy year 2. MR is the most commonly used. ii. Limit of Insurance 1. Usually, a specific limit of insurance applies to property at each location. The insurer’s obligation is limited by this maximum amount per location unless coverage is written on a blanket basis, in which event the blanket limit can apply at any one location. iii. Penalty for Failure to Submit Required Reports on Time 1. If at the time of loss the first required report of values is due, but has not been received, the insurer will pay no more than 75 percent of the amount that would otherwise have been paid. iv. Penalty for Inaccurate Reports INS 3203 Things To Make Sure To Look Over On The Test 1. The Value Reporting Form replaces the Coinsurance condition of the BPP with a Full Reporting provision, which stipulates that if the last report showed less than the full value of covered property at the affected location on the report date, then the insurer would pay claims according to this formula: a. not Valuereported Insurer’s payment ¿exceedlimit = ) ( X Loss −)eductible. ActualValue v. Provisional Premium 1. Like most other types of property insurance, the Value Reporting Form carries a limit of insurance that is the most the insurer will pay for a loss. 2. However, unlike most other property insurance limits, the limit of insurance for property subject to the Value Reporting Form is usually set for an amount that is higher than the maximum value expected at any one time during the policy term. vi. Specific Insurance 1. Reporting form insurance may be combined with other, nonreporting insurance covering the same property. This other insurance is then referred o as specific insurance. The terminology is confusing because “specific” is also used as the opposite of “blanket.” Commercial Property Coverage Forms: Other Options A. Additional Covered Property a. Examples of items that can be included as additional covered property are these: i. The cost of excavation, grading, backfilling or filling ii. Foundations of buildings, structures, machinery or boilers if their foundations are below: 1. The lowest basement floor 2. The surface of the ground, if there is no basement iii. Underground pipes, flues, or drains iv. Pilings, piers, wharves or docks v. Fences outside of buildings vi. Retaining walls that are not part of the building vii. Bridges, roadways, walks, patios, or other paved surfaces. viii. Vehicles or selfpropelled machines the insured does not manufacture, process, or warehouse (including aircraft or watercraft) that: 1. Are licensed for use on public roads 2. Are operated principally away from the described premises ix. Animals B. Specified Business Personal Property Temporarily Away From Premises a. The Specified Business Personal Property Temporarily Away From Premises endorsement covers business personal property such as electronic devices carried by the named insured’s employees while away from the described premises but within the regular coverage territory of the United States, its territories or possessions, Puerto Rico, or Canada. The endorsement provides coverage that is more flexible in some respects than the Property OffPremises extension found in the BPP and in other commercial property coverage forms. b. The endorsement covers the types or items of property scheduled in the endorsement for up to the each occurrence limit shown, which could be more or less than the $10,000 limit that applies to the Property OffPremises extension. c. To e covered by the endorsement, the scheduled property must be temporarily away from the described premises in the course of the named insured’s daily business activities, and in the care, custody, or control of the named insured or an employee of the name insured. C. Manufacturer’s Consequential Loss Assumption a. If stock in the process of manufacture is damaged or destroyed, the physical loss can decrease the value of other stock that is undamaged. D. Brands and Labels INS 3203 Things To Make Sure To Look Over On The Test a. After an insurer pays for loss to covered property, it has the right to take any salvage, such as smoke damaged merchandise. This can pose a problem for an insured that bases its marketing appeal on a brandname reputation for high quality. b. To help protect the reputation of the insured’s goods when the insurer takes any part of the property as salvage, the Brands and Labels endorsement permits the insured to take these actions: i. Stamp “salvage” on the merchandise or its containers, if the stamp will not physically damage the merchandise; OR ii. Remove the brands or labels, if doing so will not physically damage the merchandise or its containers to comply with the law. E. Green Upgrades a. If the insured wishes to replace damaged protery with more environmentally friendly materials following a covered loss, the Increased Cost of Loss and Related Expenses for Green Upgrades endorsement can be used to accomplish this. Three coverages are available under this endorsement: i. The first provides an additional limit of insurance to cover the increase cost of replacing damaged property with more environmentally sound materials or methods. ii. The second coverage provides an additional amount for expenses related to green updates. iii. The third coverage applies only if business income or extra expense coverage is included in this policy. F. Increase in Rebuilding Expenses Following Disaster a. The endorsement for Increase in Rebuilding Expenses Following Disaster covers the higher costs incurred as a result of labor and materials being in short supply after a widespread disaster and the total cost of repair or replacement exceeding the limit of insurance. Endorsement for Modifying Commercial Property Causes of Loss Forms A. Ordinance or Law Coverage a. Endorsement that covers three types of losses resulting from the enforcement of building ordinances or laws: (1) the value of the undamaged portion of a building that must be demolished, (2) the cost to demolish the building’s undamaged portion and remove its debris, and (3) the increased cost to rebuild the property. B. Utility Services Coverage a. A commercial property endorsement that covers damage to covered property caused by the interruption of utility services (water, communications, or power) to the insured premises. C. Spoilage Coverage a. Endorsement that covers damage to perishable stock due to power outages; onpremises breakdown; or contamination of the insured’s refrigerating, cooling, or humidity control equipment. D. Radioactive Contamination Endorsement a. A commercial property endorsement for organizations that have a radioactive contamination exposure on their premises, other than a nuclear reactor or fuel for a nuclear reactor; covers physical loss to covered property caused by sudden and accidental radioactive contamination. E. Discharge for Sewer, Drain, or Sump F. Theft of Building Materials and Supplies (Other than Builders Risk) G. Equipment Breakdown Cause of Loss Endorsement for Modifying Valuation Methods A. Manufacturer’s Selling Price a. A commercial property endorsement that values finished stock manufactured by the insured at selling price, less any discounts and expenses that the insured otherwise would have had. B. Functional Building Valuation a. A commercial property endorsement that provides modified replacement cost coverage on buildings; may be appropriate when insuring a building with a replacement cost far in excess of its market value. C. Functional Personal Property Valuation D. Limitations on Coverage for Roof Resurfacing INS 3203 Things To Make Sure To Look Over On The Test INS 3203 Things To Make Sure To Look Over On The Test Assignment 4 1. Explain how an insured with blanket insurance would meet coinsurance requirements. a. The insured with blanket insurance must insure to 90 percent of value to avoid a coinsurance penalty but does not receive the 5 percent discount that applies to specific insurance with a 90 percent coinsurance requirement. Thus, to meet coinsurance requirements, the insured with blanket insurance must buy more insurance than otherwise would be required. 2. In what circumstances might the Functional Building Valuation endorsement be an appropriate addition to a BPP? a. The Functional Building Valuation endorsement is appropriate when the insured building has a replacement cost that is far in excess of its market value. This is typically an old building that was constructed using materials and techniques that are now prohibitively expensive to reproduce. 3. In what circumstances might the Functional Personal Property Valuation endorsement be an appropriate addition to a BPP? a. The Functional Personal Property Valuation endorsement might be appropriate when insuring old machinery or equipment that is no longer available, such as a machine that has been superseded by a newer, more efficient, lessexpensive model. 4. What is a major advantage of blanket insurance? a. An advantage of blanket insurance is that the full blanket limit can be applied to any one loss. The minimum amount of blanket insurance to comply with coinsurance would fully protect property at each location. 5. What basic problem is addressed by both the peak season endorsement and the Value Reporting form? a. The Peak Season Limit of Insurance endorsement and the Value Reporting Form addresses the fluctuation in personal property values during the policy period. In different ways, these two options reduce the premium that the insured must pay to cover actual values at risk. The insured does not have to pay for unneeded insurance when property values are reduced. 6. Explain how an insurer's taking a salvage can pose a problem for an insured. a. 7. How does the peak season endorsement modify the BPP? a. The peak season endorsement provides differing amounts of insurance for selected time periods during the policy term, as indicated by specific dates shown in the endorsement. 8. How does specific insurance, as defined in the Value Reporting Form, affect a loss settlement? a. Coverage under the Value Reporting form is excess over the amount recoverable under specific insurance (plus the amount of the deductible under the specific insurance). 9. Explain the three coverages provided by the Ordinance or Law coverage endorsement. a. Coverage A covers the reduction in value of the undamaged portion of the building that must be demolished to comply with an ordinance or a law. b. Coverage B covers the cost to demolish the undamaged portion of the structure and remove its debris. INS 3203 Things To Make Sure To Look Over On The Test c. Coverage C covers the increased cost to repair or reconstruct damaged property, or to reconstruct or remodel undamaged portions of the property, in conformity with the minimum requirements of an ordinance or a law. 10. Identify four types of property that can be covered under the Additional Covered Property endorsement. a. The Additional Covered Property endorsement can cover the cost of excavation, grading, backfilling or filing; foundations of buildings, structures, machinery or boilers; underground pipes, flues, or drains; pilings, piers, wharves or docks; fences outside buildings; retaining walls that are not part of a building; bridges, roadways, walks, patios or other paved surfaces; and vehicles or selfpropelled machines that the insured does not manufacture, process, or warehouse; and animals. 11. If the insured makes timely and accurate reports of values, will the Value Reporting Form limit recovery for a loss that occurs today to the amount last reported? Explain. a. No. The value reporting form will cover the actual amount of the loss, even if it is greater than the amount last reported. However, the insurer will pay no more than the applicable limit of insurance. 12. Explain how losses are valued under the Business Personal Property Limited International Coverage Endorsement. a. They must meet the following criteria: i. Temporarily in the foreign coverage territory specified in the schedule. ii. Used in the insured's business in the foreign coverage territory iii. Located at a business location the insured owns, operates, or leases; or in the care, custody, or control of the insured or its authorized representative. INS 3203 Things To Make Sure To Look Over On The Test Chapter 5 – Property and Casualty Insurance C. Basic Concepts a. Condominium i. A real estate development consisting of a group of units, in which the air space within the boundaries of each unit is owned by the unit owner, and all remaining real and personal property is owned jointly by all the unit owners. b. Condominium Unit i. The portion of a condominium owned solely by a unit owner. c. Condominium association i. An entity composed of the unit owners in a condominium to manage the condominium and to own the common elements. d. Common elements i. Areas of a condominium that are jointly owned by all unit owners, including the land on which the buildings are located. D. Enabling Statutes and Documents a. Condominium association agreement i. A document that describes what each condominium unit owner has purchased and clarifies the rights and responsibilities of the unit owners and the association. E. BareWalls, SingleEntity, and AllIn Concepts a. An important issue in assessing condominium loss exposures involves the dividing line between the unit owners’ property interests and the association’s interests. Three general approaches appearing in condominium statutes and agreements are the barewalls concept, the singleentity concept, and the allin concept. i. BareWalls Concept 1. A concept of condominium ownership in which the association has no ownership interest within the bare walls of each unit. ii. SingleEntity Concept 1. 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. iii. AllIn Concept 1. A concept of condominium ownership that is similar to the singleentity concept except that the allin concept includes improvements made by the unit owner, not just the original installations or replacements of like kind and quality. F. Arranging the Appropriate Coverage a. Some states have condominium statutes that specify the basis of coverage required. In states without such statutes, the condominium association agreement, the master deed, or the declaration may specify the basis of coverage required. b. However, if unit owners adopt a similar strategy and insure as broadly as possible, they may be obtaining expensive and unnecessary duplicate coverage. G. Other Forms of Combined Ownership a. Two additional forms of combined ownership of real property by the occupants – cooperative corporations and planned unit developments – are similar to condominiums. b. Cooperative corporation i. A form of real property ownership in which the real property is owned by a corporation whose shareholders are the tenants of the property. c. Planned Unit Development i. 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. H. Condominium Insurance Requirements INS 3203 Things To Make Sure To Look Over On The Test a. Ideally, the applicable statute or the condominium agreement is clear enough to indicate what insurance the association should carry. However, this is not always the case. b. Two ISO commercial property forms have been designed especially for condominium property exposures: i. Condominium Association Coverage Form ii. Condominium Commercial UnitOwners Coverage Form A. Condominium Association Coverage Form a. Building i. 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). b. Your Business Personal Property i. A condominium association might need insurance to cover personal property that does not already fall within the scope of building coverage. c. Personal Property of Others i. The Condominium Association Coverage Form’s coverage for personal property of others is the same as that of the BPP. d. Conditions i. There are several important differences between the Condominium Association Coverage Form conditions and the BPP’s conditions, which include these: 1. Loss Payment a. 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. 2. UnitOwner’s Insurance a. The UnitOwner’s Insurance condition states that the association’s policy is primary if a unit owner also has coverage applying to the same property. 3. Waiver of Rights of Recovery a. In the Waiver of Rights of Recovery condition, the insurer agrees not to subrogate against any unit owner. e. Condominium Addition Provisions Endorsement i. Act or Omission 1. No act or omission by any unit owner will void the policy r bar recovery unless the unit owner acts on behalf of the association. ii. Expanded Waiver of Right of Recovery 1. Rights of recovery are waived, beyond the condition in the coverage form, to include members of unit owners’ households and members of the board of directors when acting within the scope of their duties. iii. Notice of Cancellation or Nonrenewal 1. The insurer will provide at least thirty days’ written notice to the first named insured of policy cancellation or nonrenewal. iv. Additional Protection for Mortgage holders 1. The insurer will give thirty days’ advance notice of cancellation or nonrenewal to each of the mortgage holders. If the condominium is terminated, the insurer will pay covered loss to buildings or structures to each mortgage holder shown in the declarations in their order of precedence. B. Condominium Commercial UnitOwners Coverage Form a. Form that covers business personal property exposures of commercial (nonresidential) condominium units. b. Loss Assessment Coverage INS 3203 Things To Make Sure To Look Over On The Test i. Coverage for a commercial condominium unitowner’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. c. Miscellaneous Real Property Coverage i. 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. d. Covered Property i. A condominium unit owner generally has no need for full building insurance in its own name, so the form includes coverage only for You Business Personal Property and Personal Property of Others. e. Coordination With Association Coverage i. The Condominium Commercial UnitOwners Coverage Form contains an exclusion that coordinates the unit owner’s coverage with the condominium association’s coverage. f. Optional Coverages i. The Condominium Commercial UnitOwners Coverages endorsement contains provisions for two optional coverages often needed by condominium unit owners: loss assessment coverage and miscellaneous real property coverage. The insured can select either or both of these optional coverages. C. Builders Risk Coverage Form a. Eligible Property and Insureds i. Under the Commercial Lines Manual (CLM) rules, the BRCF may be used to insure any building in the course of construction, including buildings such as farm buildings and dwellings that will not be eligible for coverage under the BPP when construction is completed. b. Covered Property i. The BRCF covers the building or structure being built, building materials and supplies intended to become a permanent part of the building, and temporary structures such as scaffolding and forms. c. Additional Coverages i. The BRCF contain four of the six additional coverages of the BPP – debris removal, preservation of property, fire department service charges, and pollutant cleanup and removal. d. Covered Causes of Loss i. Like the BPP, the BRCF must be combined with an ISO causes of loss form (Basic Form, Broad Form, or Special Form), plus any necessary endorsements, to be a complete policy. e. Completed Value Approach i. The BRCF is designed to be issued, at policy inception, for an amount of insurance equal to the building’s fullcompleted value. This method of providing builders risk coverage is referred to as the completed value approach. f. Need for Adequate Insurance i. The Need for Adequate Insurance condition is, in effect, a 100 percent coinsurance clause in which the amount of insurance that should be carried is based on the value of the building on the date it will be completed. The formula is as shown: Limitof insurance Amount payable= X Loss −Deductible ( Completedvalue ) g. Valuation i. The BRCF contains a standard valuation condition that provides coverage on the h. Builders Risk Reporting Form i. Another method, less commonly used, is to write builders risk coverage on a value reporting basis. By adding the Builders Risk Reporting Form endorsement, the BRCF can be changed to a value reporting basis. i. When Coverage Ceases INS 3203 Things To Make Sure To Look Over On The Test i. The BRCF is intended to cover buildings during the course of construction only. When the work is completed, another policy, such as the BPP or a homeowners policy, is needed. The BRCF therefore contains an explicit condition of when coverage ceases. ii. Coverage ceases immediately when any of these events occur: 1. The named insured’s interest in the property ceases. 2. The property is accepted by the purchaser. 3. The named insured abandons the project with no intention of completing it. D. Standard Property Policy a. A commercial property policy form for covering buildings and business personal property on restricted terms. b. Covered Property i. The declarations indicate what limits of insurance, if any, apply to buildings, business personal property, and property of others. ii. Coverage applies on an actual cash value basis. c. Covered Perils i. Considering the fact that the SPP is used to insure distressed property risks, flexibility in limiting the covered perils is an important feature of the policy. d. Conditions i. The SPP contains three conditions that result in more restrictive coverage than under the BPP 1. Vacancy and unoccupancy 2. Increase in hazard 3. Cancellation E. Legal Liability Coverage Form a. 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. b. Insuring Agreement i. The insurer agrees to pay those sums that the named insured becomes legally obligated to pay as damages because of direct physical loss or damage, including loss of use, to covered property caused by accident and arising out of any covered cause of loss. c. Exclusions i. An applicable causes of loss form, shown in the declarations, expresses the covered causes of loss, exclusions, and limitations for the Legal Liability Coverage Form. ii. All of the other exclusions of the causes of loss forms apply to the Legal Liability Coverage Form, except these: 1. Ordinance or Law 2. Governmental Action 3. Nuclear Hazard 4. Utility Services 5. War and Military Action d. Legal Liability Coverage Form Versus CGL Coverage i. The commercial General Liability Coverage Form excludes coverage for damage to property of others in the insured’s care, custody, or control. e. Premium Rates i. The rate for the Legal Liability Coverage Form is lower than the rate for direct property insurance because the insurer is obligated to pay only when the insured is liable for the damage. f. Additional Insureds i. These types of entities cannot be added to the Legal Liability Coverage Form as additional insureds: 1. Tenants, lessees, concessionaires, or exhibitors in policies covering general lessees, managers, or operators of premises. 2. Contractors or subcontractors, in policies covering tenants or lessees of premises. g. Insurance to Value INS 3203 Things To Make Sure To Look Over On The Test i. The Legal Liability Coverage Form has no coinsurance condition. This omission is appropriate because the insured frequently does not know the value of property of others in its care, custody, or control. F. Leasehold Interest Coverage Form a. A commercial property coverage form for insuring 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. b. Examples of Loss Exposure i. Cancellation of a lease may cause a lease (tenant) to suffer a financial loss in any of these circumstances: 1. The lease has a lease at a rental rate much lower than the current rental value of comparable premises. 2. 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. 3. The lessee paid a bonus to acquire the lease. 4. The lessee has paid advance rent that is not recoverable under the terms of the lease in the event of cancellation. 5. The lessee has installed improvements and betterments. c. Characteristics of the Coverage Form i. The Leasehold Interest Coverage Form covers the total amount of net leasehold interest of the insured for the unexpired period of the lease. d. Why Leasehold Interest Is Seldom Insured i. Although leasehold interest insurance fills a need for some insureds, such insurance is seldom bought, perhaps because many risk managers and producers are unaware it exists. INS 3203 Things To Make Sure To Look Over On The Test Assignment 5 1. In addition to determining who owns what in a condominium, what are two other problems that may arise when arranging insurance for condominiums? a. Two other problems that may arise include (1) the valuation of property to be insured and (2) the types of coverage to be obtained. 2. In terms of ownership, how does a planned unit development (PUD) differ from a condominium? a. In a PUD, the occupants have exclusive ownership of their own units in the same way that individual homeowners own their property. In contrast, a condominium unit owner owns only the interior of the unit. Additionally, the PUD occupants also individually own the land below their structures. In a condominium, the unit owners do not have individual ownership of any of the land. 3. Describe the terms used in the Condominium Additional Provisions endorsement for the Notice of Cancellation or Nonrenewal. a. The insurer will provide at least thirty days' written notice to the first named insured of policy cancellation or nonrenewal. 4. Describe how the Builders Risk Renovations endorsement, used for insuring additions or alterations to existing buildings, values the existing property. a. The Builders Risk Renovations endorsements excludes the value of the existing property, covering only the renovations under construction. The endorsements includes space to add the name of a loss payee. 5. Explain why the Insurance Services Office, Inc. (ISO) Builders Risk Coverage Form (BRCF) does not contain optional replacement cost coverage provisions. a. 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. 6. Describe what the Builders Risk Reporting Form requires the insured to report to the insurer. a. The endorsement requires the insured to report to the insurer the actual cash value of covered property as of a specified date each month during the policy period. 7. Explain why the Standard Property Policy (SPP) cannot be part of a package policy. a. The SPP is a selfcontained 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. 8. Describe what other covered perils are included in a SPP that has vehicles as a covered peril. a. Fire, lightning, and explosion. (All are mandatory) b. Windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, sinkhole collapse, and volcanic action can be added by making an appropriate entry in the declarations (and windstorm and hail can be omitted from this combination). c. Vandalism and sprinkler leakage can also be triggered by marking the declarations page accordingly. 9. Explain why an insured may prefer to use the Legal Liability Coverage Form instead of the Building and Personal Property Coverage Form, also referred to as the BPP, to cover property of others. INS 3203 Things To Make Sure To Look Over On The Test a. The Legal Liability Coverage Form differs from other commercial property forms, such as the Building and Personal Property Coverage Form, also referred to as the BPP, in that it provides liability coverage on buildings or personal property of others in the insured's care, custody, or control. The BPP includes coverage for personal property of others regardless of whether the insured is legally liable to pay for the loss. Because the Legal Liability Coverage Form covers losses only if the insured is legally liable, the rate charge for that form is lower than the usual commercial property contents or building rate. 10. Describe the classifications of individuals that are charged an extra 25 percent if they are named as additional insureds on the Legal Liability Coverage Form. a. These types of entities cannot be added to the Legal Liability Coverage Form as additional insureds, and an additional premium charge of 25% applies when anyone in these classifications is named as an additional insured: i. Tenants, lessees, concessionaires, or exhibitors, in policies covering general lessees, managers, or operators of premises. ii. Contractors or subcontractors, in policies covering tenants or lessees of premises. 11. Explain how a landlord can terminate a lease if the building or premises are damaged by fire or other peril? a. Many leases of premises allow the lessor (landlord) to terminate the lease if the building or premises are damaged by fire or other perils to a stipulated percentage of the value of the building or premises. 12. Explain why, despite the fact that leasehold interest insurance fills a need for some insureds, such insurance is seldom bought. a. Although leasehold interest insurance fills a need for some insureds, such insurance is seldom bought, perhaps because many risk managers and producers are unaware it exits. Even when risk managers are aware of the leasehold interest exposure they may choose to retain it because it is relatively small exposure for most tenants. b. Another reason the Leasehold Interest Coverage Form is not used is that lessees find it difficult to conceptualize the exposure even when it is brought to their attention. If, in an area where rents have risen sharply, the lessee considers the potential gain it could realize by subletting the premises to another firm at the market rate, the lessee may be able to see that the cancellation of a longterm lease can also pose a substantial loss exposure.
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