Hayley Kai Fundementals - Chapter 7

Property used or owned for business. Property includes ( for most business ):
1) building
2) stock
3) Equipment
"all property " means all three
"contents" means stock and equipment

Commercial property has two common policy forms:
1) named perils form
2) broad form

eight perils are included in this form :
1) fire
2) lightening ( including loss to electrical devices)
3) explosions ( limited)
4) impact by aircraft , space craft or land vehicle
5)riot , vandalism, malicious acts
6) smoke due to a sudden , usual and faulty operation of any stationary furnace
7) leakage from fire protective equipment
8) windstorm /hail

many advantages to broad :
1)Vehicle impact to building EVEN WHEN CAUSED BY INSUREDS OR EMPLOYEES
2) all sources of smoke damage ( argi/indust)
3)water damage DUE TO FREEZING OR RUPTURED LINES ( not covered: flooding, over flow of body of water, seepage through basement , sewer back up )
4) theft
5) collapse ( NOT covering earthquake, faulty materials or workmanship)
6) all other perils not specifically excluded

to arrive at a premium insurer will first determine basic fire rate.
A fire rate is calculated on basis of cost per $100 of insurance
ie. fire rate of .70 means $0.70 charged for every $100 of insurance purchased against fire
When determining a fire rate:
construction (wood vs brick), protection ( public and private), occupancy ( book story vs night club) , location , claims history

There are two types of protection to consider when calculating fire rate
1) public protection - the protection provided to insureds property from outside forces ( proximity to fire hall/hydrant, fire department ability, water supply )
2) private protection - insureds steps to prevent or reduce loss ( extinguishers, fire alarms/detectors, sprinkler system)

On both broad and named perils there are common clauses such as :
1) description of property insured
2)co-insurance clause
3) Debris removal
4) reinstatement clause
5) suborgation clause
6)Property protection systems

1. building- must be described on from page
- fixed structures on premises, additions/extensions communicating and in contact with building, perm fittings and fixtures ( shelves ,heating , lighting fixtures, carpet ), materials and equip for minor maintenance or repairs growing greenery used for decoration inside
2) stock - all merchandise usual to insureds business, packing/wrapping/advertising material, similar property of others which insured must keep insured
3) equipment- generally means all contents ( furniture, tools, appliances, fittings, utensils) not falling under stock or building definition OR similar property of others which insured must keep insured

In order to keep it fair , for insurers and insureds, partial losses are required to have co- insurance
Many take a gamble and UNDER insurance to avoid paying high premiums as long as that insurance was enough to cover partial loss .
This caused the insurers to be paying for fully losses that only collected partial premium .
this also raised premiums of those insureds who were adequately insured
so they began to require commercial policies to have limits purchased

This comes within the co-insurance clause.
There is now a "penalty" charged for partial losses when insured purchase less than the minimum limit. this limit is usually set by insurers at no less than 80% of the ACV ( stock worth 100,000 x 80% limit = 80,000 min insurance SHOULD be purchased )
this minimum insurance that should be purchased will determine the "penalty " charged when settling claim

After determining the minimum limit of insurance ( no less than 80% of ACV) you can determine the amount of insurance that should be purchased with in the limit.
this will allow you to determine the settlement for partial loss as following

did/should x amount loss =settlement
did = insurance purchased
should = insurance needed determined by limit
The difference between amount loss and the settlement value is the "penalty" for being under insured

this clause states
a) if loss occurs to more than one part of commercial prop ( building , stock , equipment) the co insurance percentage (80%) is applied to all loss amounts separately
b)Coinsurance will only be applied when loss exceeds either 2% of insurance or $5000

covered in broad form for commercial prop

1)will cover debris removal provided insurance limits are not fully used ( left over from claim )
2) when debris is blown onto prop , insurer with indemnify for actual expenses ( ex. tornado blows different building into yard)

this clause states that the limits of insurance will remain unchanged within ENTIRE policy period- regardless of the number and amounts of claims paid

Subrogation is a legal right of insurers to seek recovery from the third party that caused damage to insureds property
however, sometimes this would be unfair to exercise this right.
ex. going after business partner of whom the claim was made to
this clause states that insurers agree not to suborgate against payees, business partners and subsidiary firms

ontop of named peril form or broad form these can be purchased separately
1) property away form insured premises - property in transit ( FOLLOWING LOCKED VEHICLE WARRANTY ) ,
2) glass insurance
3)valuable papers and records insurance
4) crime insurance

5)boiler and machinery policy
6) contractors insurance
7)business interruption insurance

purchased separate from broad or named peril forms
covers :
1) accidental breakage by insured or others
2) due to earth movement
3) caused by thieves
DOES NOT COVER: FIRE, WAR, NUCLEAR ENERGY HAZARD

purchased separate from broad or named peril forms. those two provide basic theft coverage, vandal and riot. this is more indepth
1) Burglary insurance ( force used to enter)
2)robbery insurance ( force used to take from )
3) theft insurance ( taken with out consent)

within crime insurance for commercial prop
must be evidence of force used to take property
1)mercantile stock burglary - must prove :unlawfully taken from withing premises, unlawfully entered/exited, visible signs of force at entry/exit
2)safe burglary - must prove force used to get into safe

within crime insurance for commercial prop
in order for insurers to pay must prove
1) actual or threatened force to take insured prop from person in control of
2) insured prop is taken from custodian who is killed or knocked unconscious
3)custodian witnessed taking of insured prop by some one not authorized to have

within crime insurance for commercial prop
broadest - those who purchase theft do not need robbery or burglary insurance as theft insurance will cover
in order for insurer to pay simply must prove : insured property was taken with out consent of insured

additionally coverage for commercial property .
covers :
1) loss or damage to buildings resulting from explosion of BOILERS or PRESSURE VESSELS (15+ LB)
2) electrical or mechanical breakdown( a/c, compressors , boilers etc)

this falls under commercial property insurance, but because none of the commercial insurance covers while vacant or under construction , contractors insurance is needed. There are three types
1. builders risk- broad form ( separate card)
2.contractors equipment floater- covers all movable equipment owned,leased or rented by contractor. includes mics. tools and bobcat
3.installation floater-for installing machinery or equipment (plumbing or a/c contractors) . covers while in transit , while waiting at job site,during install until accepted or interest of insured ceases

A type of contractors insurance
can be purchased by future owner of building or contractor . decided in their contract
insures : value of all materials owned by insured or those who will form part of the completed project. value of landscaping, temp structures or scaffolding can be added .in transit and other locations coverage can be added
does not cover: contractors tools and equip or faulty workmanship
period: known as "course of construction ( COC ) when building becomes occupied or building is unaltered for 30 days it ceases
limit: insured must purchase insurance for completed value

THERE ARE THREE TYPES OF"BIC' :
1)earnings form-covers earnings from day of loss and continues until rebuilt, repaired of replaced ( usually 12 months unless increased premium)
2)profits form- from time of loss until income is restored to levels that it would have been at had the loss not occurred ( 12 months unless premium is increased
3)extra expense insurance-covers necessary extra expenses incurred in continuing normal operations after loss (over time salaries, temp equip, bonuses for quick service )