Insurance Final

Business Income Insurance

(Formerly called business interruption insurance) is designed to cover the loss because of a covered peril in business income, expenses that continue during the shutdown period, and extra expenses.

Of what importance is the term "covered cause of loss" to the commercial insurance policy?

A causes-of-loss form is part of the complete contract and names the perils that are covered or excluded.

What's a BOP?

A business-owners policy (BOP) is a package policy specifically designed for small- to medium-sized retail stores, office buildings, apartment buildings, and similar firms. A BOP can be written to cover buildings and/or business personal property of the owners of apartments and residential condominium associations; office and office condominium associations; retail establishments; and eligible mercantile, service, or processing firms such as appliance firms, beauty parlors, and photocopy services. Business-owners policy coverage is also available for certain contractors, "limited-cooking" restaurants, and convenience stores. Some business firms are ineligible for a BOP because the loss exposures are outside those contemplated for the average small- to medium-sized firm. They include auto or service stations; auto, motorcycle, or mobile home dealers; parking lots; some bars; places of amusement such as a bowling alley; and banks and financial institutions. The current ISO version of the BOP is a special form that insures property on an open perils basis. The policy pays for direct physical loss or damage to covered property; losses are covered except those losses specifically excluded. However, if desired, named-perils coverage is available by an endorsement to the policy; then only those perils named in the policy are covered. The present BOP form is a self-contained policy that incorporates the property coverages, liability coverages, and policy conditions into one contract. Buildings: The BOP covers the buildings that are described in the declarations, including completed additions, fixtures, and outdoor fixtures, and permanently installed machinery and equipment. The building coverage also includes personal property in apartments or rooms furnished by the named insured as a landlord, and personal property owned by the named insured to maintain or service the premises, such as fire-extinguishing equipment and refrigerating and dishwashing appliances. The limit of insurance on the building is automatically increased each year by a stated percentage shown in the declarations, in an attempt to keep pace with inflation. Business personal property: Business personal property is also covered. It includes property owned by the named insured used in the business; the property of others in the insured's care, custody, and control; tenant's improvements and betterments; and leased personal property which the named insured has a contractual responsibility to insure. The coverage extends to personal property located within 100 feet of the premises or building, whichever is greater. Business personal property also includes exterior building glass if the named insured is a tenant, and no limit of insurance is shown in the declarations for building a property. The glass must be owned by the named insured or in the insured's care, custody, and control. A peak season provision provides for a temporary increase of 25 percent of the amount of insurance when inventory values are at their peak. In addition, business personal property at newly acquired locations is covered for a maximum of $100,000 for 30 days at each premise. This provision provides automatic protection until the BOP can be endorsed to cover the new location. Business personal property in transit or temporarily away from the insured location is covered up to a maximum of $10,000. Covered causes of loss: The latest edition of the BOP insures property against direct physical loss, which means that direct physical losses are covered unless specifically excluded or limited in the form. The BOP can also be issued on a named-perils basis by an endorsement. Covered causes of loss then include fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, volcanic action, and certain transportation perils. The named-perils endorsement also includes optional coverage for burglary and robbery. Additional coverages: The BOP includes several additional coverages that might be needed by the typical business owner: - Debris removal—up to $25,000 - Preservation of covered property after a loss occurs - Fire department service charge—up to $2,500 - Abrupt collapse - Water damage, other liquids, powder, or molten material damage - Business income, extended business income, and extra expense - Pollutant clean-up and removal—up to $10,000 - Loss of business income and extra expense because of action by a civil authority - Money orders and counterfeit money ($1,000 maximum) - Forgery and alteration losses ($2,500 maximum) - The increased cost of construction because of an ordinance or law ($10,000 maximum for each described building insured on a replacement cost basis) - Business income from dependent properties ($5,000 maximum) - Glass expenses incurred to put up temporary plates or board up openings if repair or replacement of damaged glass is delayed - Fire extinguisher systems recharge expense ($5,000 maximum for any one occurrence) - Replacing or restoring electronic data destroyed or corrupted by a covered cause of loss ($10,000 maximum) - Interruption of computer operations ($10,000 maximum) - Limited coverage for "fungi," and wet or dry rot ($15,000 maximum) Optional coverages. The BOP provides several optional coverages to meet the specialized needs of business owners who pay an additional premium: - Outdoor signs - Money and securities - Employee dishonesty - Equipment breakdown Deductible: A standard deductible of $500 per occurrence applies to all property coverages. Optional deductibles of $250, $1,000, and $2,500 are also available. The deductible does not apply, however, to the fire department service charge, business income losses, extra expenses, action by a civil authority, and the recharge expense for a fire extinguisher system. Business liability insurance: The business owners policy also has business liability coverage similar to the commercial general liability policy (CGL). The business owner is insured for bodily injury and property damage liability, and advertising and personal injury liability. Medical expense insurance is also provided.

Monoline Policy:

A policy that provides only one type of coverage

Business floater

An inland marine policy that covers property that frequently moves (floats) from one location to another.

Coinsurance - Commercial Property Insurance

If a coinsurance percentage is stated in the declarations, the coinsurance requirement must be met to avoid a coinsurance penalty. To reduce misunderstanding and confusion, the form contains several examples of how coinsurance works.

Insurable Interest

If more than one party has an insurable interest in the property, the insurer's liability for any one loss is limited to each insured's insurable interest at the time of loss but not to exceed the maximum amount of insurance.

Bailee

Someone who has temporary possession of property that belongs to another. Examples of bailees are dry cleaners, laundries, and computer repair shops.

Why don't private commercial insurers carry flood insurance?

The exposure units (e.g., your house) in a flood plain are not independent risks. A flood (unlike a fire) does not normally destroy just one house and leave the others around it untouched. Insurers cannot afford to cover a catastrophic loss without raising premiums to unaffordable levels. So the risk of flood losses is spread amongst all taxpayers. So even if you live in a place where it is certain that there will never be a flood there (assuming your next-door neighbor is not named Noah and he is building a boat), your federal taxes are paying for the risk that some people choose to build and rebuild homes in places (New Orleans, the Gulf Coast, along the Mississippi, Missouri and the Kentucky rivers, the Atlantic coast, etc.) where floods are a known quantity but they want to live there anyway.`

Obligee:

The person/entity to whom the promise is made. That's Brenda above.

Approaches are used to provide auto insurance to high-risk drivers

- Automobile insurance plan - Joint Underwriting Association (JUA) - Reinsurance facility - Maryland Automobile Insurance - Specialty insurers

Arguments against no-fault auto insurance laws

- Defects of the negligence system are exaggerated. - Claims of efficiency and premium savings are exaggerated. - Court delays are not universal. - Safe drivers may be penalized. - There is no payment for pain and suffering. - The tort liability system needs to be reformed instead.

Arguments for no-fault auto insurance laws

- Difficulty in determining fault - Inequity in claim payments - High transaction costs and attorney fees - Fraudulent and excessive claims - Delay in payments

The major rating factors for determining private passenger auto premiums

- Territory - Age, gender, and marital status - Use of the auto - Driver education - Good student discount - Number and types of cars - Individual driving record - Insurance score

Your text (page 529) lists 8 types of endorsements that can be added to the policy with the effect of providing additional coverage. Some of them are uniquely interesting. Take a look at the explanation of coverage for:

1. Earthquakes Covers direct physical loss to property covered under Section I caused by an earthquake. This coverage includes shock waves and tremors related to a volcanic eruption. A single earthquake is defined as all earthquake shocks that occur within a 72-hour period. A deductible must be satisfied. □ There is a minimum deductible of $500. 2. Scheduled personal property The homeowners policy has limits on the amounts paid for certain personal property losses, such as theft of jewelry and firearms. Also, insureds may desire broader coverage than the homeowners policy provides. If you own valuable jewelry, furs, silverware, cameras, musical instruments, fine arts, antiques, or a stamp or coin collection, you can list the property in a schedule and insure it for a specific amount agreed to by the insurer. The scheduled personal property endorsement (with agreed value loss settlement) provides additional coverage for nine classes of property. Depending on the needs of an insured, individual items are scheduled and insured for a specific amount. The categories are as follows: 1) Jewelry 2) Furs 3) Cameras 4) Musical instruments 5) Silverware 6) Golfer's equipment 7) Fine arts 8) Postage stamps 9) Rare and current coins The endorsement insures property against direct physical loss, which means the property is insured on an open-perils basis. All direct physical losses to scheduled property are covered except those losses specifically excluded. For example, if a diamond ring insured for $25,000 is stolen, the amount paid is $25,000. 3. Personal injury endorsement, and The homeowners policy covers only legal liability arising out of bodily injury or property damage to someone else. Personal injury coverage, which should not be confused with bodily injury coverage, can be added to the homeowners policy through an endorsement. Personal injury means legal liability arising out of the following: □ False arrest, detention, or imprisonment □ Malicious prosecution □ Wrongful eviction, wrongful entry, or invasion of the right of private occupancy of a room, dwelling, or premises □ Any manner of oral or written publication of material that slanders or libels a person or organization, or an organization's products or services9 □ Oral or written publication of material that violates a person's right to privacy 4. Identity Theft. An identity theft endorsement can be added to a homeowners policy. The endorsement reimburses crime victims for the cost of restoring their identity and cleaning up their credit report. To illustrate, one insurer provides expense reimbursement limits from $500 to $25,000 per covered person to restore the victim's credit history. The following expenses are covered: ® Lost wages up to a certain limit because of time off to deal with identity theft ® Loan reapplication fees to reapply for loans turned down because of erroneous credit information that reflects the identity theft ® Phone charges for calling financial institutions, business firms, and law enforcement agencies to discuss the identity theft ® Certified mail and notary costs for completing and delivering fraud affidavits ® Attorney fees incurred with the insurer's prior consent because of the cost of defending suits brought incorrectly by business firms and collection agencies, removing criminal or civil judgments wrongly entered against the insured, and challenging information on a credit report Finally, it should be noted that identity theft insurance covers only expenses incurred and not any dollar amount that the thief may steal.

What's the difference between commercial property insurance and commercial liability insurance?

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Building and Personal Property Coverage Form

A commercial property coverage form that is widely used to cover direct physical damage loss to commercial buildings and business personal property.

Commercial Umbrella Policy

A commercial umbrella policy can provide protection against catastrophic liability judgments that might otherwise bankrupt a firm. Ultimate net loss: The total sum the insured is legally obligated to pay as damages Retained limit: Refers to (1) the available limits of underlying insurance listed in the declarations or (2) the self-insured retention, whichever applies. Self-insured retention: If the loss is not covered by any underlying insurance but is covered by the umbrella policy, the insured must satisfy a self-insured retention (SIR). The SIR can range from $500 for small firms to $1 million or more for large corporations.

Unsatisfied Judgment Funds

A few states have unsatisfied judgment funds to compensate accident victims who have exhausted all other means of recovery. The accident victim must obtain a judgment against the negligent driver who caused the accident and show that the judgment cannot be collected. Problems: - Must sue to prove negligence of the other driver. - Must also prove that the judgment against the other driver is uncollectible.

Surety:

A person or an entity (ACME above) who guarantees that another person/entity (called the principal in your text; aka Alice above) will faithfully perform certain duties for a third person (the obligee; aka Brenda above).

Obligator:

A person/entity that has promised to do something. So they have become obligated. Thus the term obligor.

What is a surety bond?

A promise to be liable for the default of another. It is like malpractice insurance for a doctor.

What's the difference between "replacement cost "coverage and "actual cash value" coverage? Which is better for the insured?

A replacement cost policy does not take into account depreciation and other aspects of a insurable property but pays the cost to simply replace the damages. The actual cash value policy takes into account depreciation and wear/tear and pays only the fair market value which may be significantly lower. Replacement cost is better for the insured.

What is an inland marine floater?

An endorsement to an insurance policy that adds coverage for broad coverage on property frequently moved from one location to another and on property used in transportation and communications. Some of the earliest forms of insurance provided coverage for a ship and its cargo traveling from one port to another. It was called "marine" insurance because it provided coverage only while the insured property was "in transit" and on the water. Before the boat sailed and after it docked the insurance did not provide coverage because the cargo was on land. When wagons, railroads, and trucks (especially railroads) began playing a significant role in the transfer of goods, the overland shippers and the railroads wanted to purchase the same kind of "in transit" coverage that the ocean-going shipowners had been buying to protect their ships and cargo. The insurance industry was glad to provide that coverage. They realized that the policies they used to insure boats carrying cargo across the water (the marine insurance policies) could be adapted with little change to cover trains carrying cargo across the land. So, a marine policy intended to cover trains on land instead of boats on the water was created and named "inland marine policies. Now that you know this history about an inland marine policy, what is an inland marine floater? That, of course, is easy. The word "floater" doesn't refer to water or balloons. A floater is a name given to something that is added to an insurance policy to provide some additional coverage.

Understand the difference between a "claims-made" policy and an "occurrence" policy.

An occurrence is defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. (Eliminating coverage for a known loss) Occurrence" is the easiest to understand. This policy covers claims for losses that happen during the policy period as stated in the Declarations page. Example: "The effective date of this policy is 12:01AM on December 1, 2021 and this policy expires on December 1, 2022." See the similar HO-3 language on page 651 (Appendix B) in your text. The event must occur during the policy period but it is still covered if it is reported after the policy terminates. So, on these facts, a loss which occurred on 5 December 2022 (within the policy period) would be covered even if it was not reported to the insurer until January 2023 (after the policy had expired). The "Claims-made" policy is a little more complex. Covers only claims that are first reported during the policy period, provided the event occurred after the retroactive date (if any) stated in the policy. A "Claims-made" policy provides coverage for losses that are first reported to the insurer during the policy period - even if the loss occurred prior to the inception date of the policy. This means that an unethical business might suffer a loss when it does not have insurance. So, after the loss, it applies for a claims-made policy. After that policy is issued, the business files a claim for the loss. Like an occurrence policy, the claims-made policy has an inception date and a termination date. But to avoid the problem described above, it also has a "retroactive date." The retroactive date is usually the same as the inception date. Any claim occurring before the retroactive date is not covered even if it is first reported during the policy period.

Understand the difference between a "claims-made" policy and an "occurrence" policy.

An occurrence policy covers liability claims arising out of occurrences that take place during the policy period, regardless of when the claim is made. A claims-made policy covers only claims that are first reported during the policy period or extended reporting period, provided that the event occurred after the retroactive date, if any, stated in the policy and before the policy's expiration date. Insurers use claims-made policies in some cases because of the problem of the long tail. The long tail refers to the relatively small number of claims that are reported years after the policy is first written. As a result of these claims, estimating premiums, losses, and loss reserves accurately is difficult. A claims-made policy enables an insurer to estimate premiums and losses more accurately.

Why don't we use the term "all risks"?

Because it can make a contract ambiguous and contradict the "all risks" policy, therefore the jury may side with the insured and make the insurer pay.

What does a FAIR plan do and why?

Beginning in the 1960s and continuing to today, some people in urban areas and on both ends of the political spectrum think it is a good idea to demonstrate (riot) and protest (set fire to or otherwise trash or steal property belonging to their neighbors) perceived injustice, it makes it hard to impossible for those homeowners and small business owners to acquire property insurance. FAIR plans create pools of private insurers who agree to provide basic insurance coverage at higher than normal rates to insureds who would otherwise not be able to get any insurance at all. When a claim is filed, the cost is shared by all insurers in the pool in proportion to the relative amount of FAIR insurance written by each insurer in that state.

For purposes of lost business income, what is a dependent property and why is that important?

Business Income from Dependent Properties In some cases, a loss to someone else's property might cause a loss of income for the insured. For example, some firms depend on a single supplier for raw materials and supplies or on a single customer to purchase most or all of the firm's products. The insured's business may incur a loss because of property damage incurred by the sole supplier or customer. An appropriate endorsement can be added to a business income policy that covers loss of income to the insured resulting from direct damage to property by a covered cause of loss at other locations. The four types of dependent properties situations for which this coverage may be needed are: Contributing location: A contributing location is a location that furnishes materials or services to the insured. For example, the insured may depend on one supplier for raw materials. If the supplier's factory is damaged, the insured's business may be forced to close. Recipient location: A recipient location is a location that purchases the insured's products or services. For example, a specialized cheese manufacturer may sell most of the cheese it produces to a resort hotel. If the hotel is closed because of fire, the cheese factory may have to shut down. Manufacturing location: A manufacturing location is a location that makes products for delivery to the insured's customers. If the manufacturer's plant is damaged, the products cannot be delivered, and the insured would incur a loss. Leader location: A leader location is a location that attracts customers to the insured's place of business. For example, a major department store in a shopping center may have a fire. As a result, a small specialty store in the same shopping center may experience a decline in sales because it relied on the department store to generate customer traffic.

Compulsory Insurance laws

Compulsory insurance laws require motorists to carry auto liability insurance at least equal to a certain amount before the vehicle can be licensed or registered. Problems: - Large numbers of people don't buy the insurance - The mandatory minimum limits are low.

Coverage A: Dwelling

Coverage A covers the dwelling on the residence premises as well as any structure attached to the dwelling. Thus, the home and an attached garage or carport would be insured under this section. Materials and supplies intended for construction or repair of the dwelling or other structures are also covered. Coverage A specifically excludes land. Thus, if the land on which the dwelling is located is damaged from an insured peril—such as an airplane crash—the land is not covered.

Coverage B: Other Structures (Excludes land, Rented Space/Buildings, and Business Storage Space)

Coverage B insures other structures on the residence premises that are separated from the dwelling by clear space. This coverage includes a detached garage, tool shed, or horse stable. Structures connected to the dwelling only by a fence, utility line, or other similar connections are considered to be "other structures." The amount of insurance under Coverage B is based on the amount of insurance on the dwelling (Coverage A). Under the HO-3 policy, 10 percent of the insurance on the dwelling applies as additional insurance to the other structures. For example, if the home is insured for $300,000, the other structures are covered for an additional $30,000.

Coverage D - Loss of Use

Coverage D provides protection when the residence premises cannot be used because of a covered loss. The amount of additional insurance under this coverage is 30 percent of the amount of insurance on the dwelling (Coverage A). Three benefits are provided: additional living expense, fair rental value, and prohibited use. Benefits: Additional Living Expense - The increase in living expenses actually incurred by the insured to maintain the family's normal standard of living. Fair Rental Value - The rental value of that part of the residence premises rented to others or held for rental less any expenses that do not continue while the premises are not fit for habitation. (Reimbursement for rental income loss) Prohibited Use - Loss-of-use coverage also includes prohibited use losses. Even if the covered home is not damaged, a civil authority may prohibit the insured from using the premises because of direct damage to neighboring premises from an insured peril. The additional living expenses and fair rental value can be paid for up to two weeks.

For the HO-3, what is coinsurance and why does the policy have a coinsurance requirement?

Covered losses to the dwelling and other structures are paid on the basis of replacement cost with no deduction for depreciation. Replacement cost insurance on the dwelling is one of the most valuable features in a homeowners policy. If the amount of insurance carried is equal to at least 80 percent of the replacement cost of the damaged building at the time of loss, full replacement cost is paid up to the limits of the policy with no deduction for depreciation. Replacement cost is the amount necessary to repair or replace the dwelling with material of like kind and quality at current prices. A different set of rules applies if the amount of insurance carried is less than 80 percent of the replacement cost at the time of loss. Stated simply, if the insurance carried is less than 80 percent of the replacement cost, the insured receives the larger of the following two amounts: (Actual Cash Value - Depreciation) or (Amount of Insurance Carried/80% of replacement cost) x Loss

HO-3 (special form)

Covers the dwelling and other structures on a risk-of-direct-physical loss basis. All direct physical losses are covered except those losses specifically excluded. Personal property is covered on a named perils basis

Why is there a difference between the boat-owners package policy and the yacht policy?

Designed for larger and more valuable boats, such as cabin cruisers, larger inboard motorboats, and sailboats over 26 feet in length. Yacht policies are not standard, but certain coverages typically appear in all policies. This policy is more expensive and provides more coverage than the package policy. "Open Perils Policy"

What does D&O coverage do?

Directors and officers (D&O) liability insurance provides financial protection for the directors, officers, and the corporation if the directors and officers are sued for mismanagement of the company's affairs.

For purposes of filing a claim under a commercial crime policy, what's the difference between the discovery version and the loss-sustained version?

Discovery Form ISO CR 00 22 05 06 Commercial Crime Policy reads: "A. Insuring Agreements ... applies to loss that you sustain resulting directly from an "occurrence" taking place at any time which is "discovered" by you during the Policy Period shown in the Declarations or during the period of time provided in the Extended Period to Discover Loss Condition E.1.j." Note: The key phrases to consider are "occurrence taking place at any time" coupled with "which is discovered by you during the policy period" ... "or the Extended Period to Discover Loss Condition". Loss-sustained version. The loss is covered if it is sustained (occurred) and discovered during the policy period. It is also covered if the loss occurred during the policy period but is discovered in the "extended period to discover loss condition" which is usually one more year after the policy's termination date. There is also a provision in this version which provides coverage under certain conditions for losses occurring while a prior policy is in effect. Sample "loss-sustained" language: Loss Sustained Form ISO CR 00 23 05 06 Commercial Crime Policy reads: "A. Insuring Agreements ... applies to loss that you sustain resulting directly from an "occurrence" taking place during the Policy Period shown in the Declarations, except as provided in Condition E.1.o. or E.1.p., which is "discovered" by you during the Policy Period shown in the Declarations or during the period of time provided in the Extended Period To Discover Loss Condition E.1.j.:." The key phrases to consider are "occurrence taking place during the policy period" coupled with "which is discovered by you during the policy period" ... "or the Extended Period to Discover Loss Condition". One additional point to consider is the phrase "except as provided in Condition E.1.o. or E.1.p." which addresses prior crime insurance policies maintained by the insured, which is unique to the Loss Sustained policy form. "When one contrasts the "taking place at any time" to "taking place during the policy period"; it is clear that the discovery form can provide much needed historical coverage for an insured that has not purchased coverage previously and/or who purchased amounts of insurance that are less than the current amount; whereas the loss sustained form only provides coverage for an insured during the time they have maintained uninterrupted crime insurance policies and for amounts of insurance that were in force when that portion of the loss occurred." These summaries and the sample language were taken from "Crime Insurance - Discovery Form vs. Loss Sustained Form" an article written by Arthur Proulx and accessed at www.bladesrisk.com.

Why are auto and aviation accidents as well as employee injuries excluded from the standard commercial general liability policy?

Each of these should be insured separately. Specialized liability coverages are available for insuring these exposures.

Peak Season Endorsement

Endorsement that covers the fluctuating values of business personal property by providing differing amounts of insurance for certain time periods during the policy period. Increases the amount of insurance in force during a specified period to reflect higher inventory values.

Financial Responsibility Laws

Financial responsibility laws require motorists to show proof of financial responsibility after an accident involving bodily injury or property damage more than a certain amount, for conviction of certain offenses, and for failure to pay a final judgment resulting from an auto accident. Most motorists meet the financial responsibility law requirements by carrying auto liability insurance limits of a certain amount. Problems: - These are retrospective "solutions." - The mandatory minimum limits are low. - Must sue to force a recovery.

Causes-of-loss broad form

Form that covers basic form perils plus falling objects; weight of snow, ice, or sleet; water damage; and (as additional coverage) collapse caused by certain perils. IT IS A NAMED PERILS COVERAGE

Causes-of-loss basic form

Form that covers fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. IT IS A NAMED PERILS COVERAGE

Why don't we use "all-risks"?

HO-3 is a type of property insurance that we used to call an "all-risks" policy. But there never was a policy that insured against every possible peril or risk. There were always exclusions. But when an "all risks" policy insurer declined to pay a claim because it was caused by an excluded peril, there were lawsuits brought by insureds who asserted that "all risks" meant literally ALL risks. They also claimed not to have read the policy to see the exclusions and besides they relied upon the term "all risks." Plaintiffs won enough of these cases, that the industry abandoned the term "all risks."

What's the difference between a dwelling policy and the HO series?

If one of the homeowners policies (HO-3, etc.) is not appropriate for a person, the insurers offer "Dwelling policies." There are three types of these. They provide less coverage than the HO policies. For example, they do not provide coverage for theft and they do not provide coverage for personal liability. But, they are less expensive. ???

Multi Line / Multiple Line Policy:

If property and liability insurance coverages are combined in a single policy

Why does the Fed gov't back up insurer's losses from terrorist acts?

In response to the terrorist attack on September 11, 2001, many insurers added a terrorism exclusion to their commercial property insurance policies. Congress responded by passing the Terrorism Risk Insurance Act of 2002 (TRIA) to create a federal backstop for insurers offering terrorism coverage and to make terrorism insurance available. This Act has been renewed and revised several times, most recently with the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA). Some businesses—such as the owners of metropolitan office buildings and private venues that attract a concentration of people (for example, sports stadiums, arenas, and shopping malls)—may view their property as an enticing target for terrorists. These property owners can obtain coverage for damage to their property through terrorism coverage. Terrorism insurance covers direct physical damage to the insured's property resulting from an act of terrorism. This coverage can be obtained through an endorsement added to the commercial property insurance policy or through a separate, stand-alone policy. According to a recent study, 62 percent of U.S. companies in 2017 purchased terrorism insurance as part of their property insurance policy, with larger companies and companies in the northeastern part of the U.S. more likely to purchase the coverage.

What kinds of benefits are provided by Workers comp?

Income benefits—Replaces a portion of an employee's salary when work is missed. Medical and rehabilitation costs—Pays necessary medical care to treat work-related injuries or illness. Funeral expenses—In the case of death, funeral and related expenses such as burial or cremation are covered. Death benefits—Paid to a surviving spouse and dependents.

HO-3 Policy

Most Widely Used ISO Homeowners Form This provides coverage for a dwelling from damage caused by any peril not excluded in the policy Insures the dwelling and other structures against direct physical loss to property. This means that all direct physical losses to the dwelling and other structures are covered, except those losses specifically excluded. Losses to the dwelling and other structures are paid on the basis of full replacement cost with no deduction for depreciation if certain conditions (discussed later) are met. Personal property is covered for the same broad form perils listed for the HO-2 policy.

Is the HO-3 a named perils policy?

No it is an open peril policy. That means your insurance company can pay for damage to your home unless it's caused by an event listed in the policy as an exclusion.

If an insured fails to comply with a condition of coverage, does that always entitle the insurer to deny coverage?

No, The insurer has the right to deny coverage for a loss if the insured does not comply with his or her duties, and such failure is prejudicial to the insurer. If it is not prejudicial then they does not entitle the insurer to deny the coverage.

No-Fault Insurance

No-fault auto insurance means that after an auto accident involving a bodily injury, each party collects from his or her own insurer, regardless of fault. There are several types of no-fault plans and no-fault proposals: pure no-fault plan, modified no-fault plan, add-on plan, and choice no-fault plan. a. What is it? In a no-fault state, if there is an auto accident which resulted in a bodily injury, each party collects from his or her own insurer. b. Personal Injury Protection (PIP) is the name for no-fault benefits. Notice that this is NOT property damage protection. c. Advantage: No need to litigate fault. Read the five defects in the "prove liability" system listed on page 476. These are arguments why we should have PIP. d. Disadvantage: Unless the bodily injury damages are above a limit, the injured party can't sue the party who caused the accident.

What's the difference between ocean marine insurance and inland marine insurance?

Ocean marine insurance provides protection for goods transported over water. All types of oceangoing vessels and their cargo can be insured by ocean marine contracts; the legal liability of ship owners and cargo owners can also be insured. Inland marine insurance provides protection for goods shipped on land. It includes insurance on imports and exports, domestic shipments, and means of transportation such as bridges and tunnels. In addition, inland marine insurance can be used to insure fine arts, jewelry, furs, and other property.

Package Policy:

One that combines two or more coverages into a single policy

National Flood Insurance Program (NFIP).

Part of Federal Emergency Management Agency (FEMA) Encourages and allows communities to adopt and enforce floodplain management ordinances to reduce future flood damage. Makes Federally backed flood insurance available to homeowners, renters, and business owners in these communities. Also identifies and maps floodplains to increase awareness and improve plans Note that losses to contents are covered only at an actual cash value level (replacement cost less depreciation) NOT replacement cost. The NFIP program is "funded" by Congress. If Congress were a private, commercial insurance company, it would be seized by state insurance regulators because it is not adequately funded.

What is Gap Insurance

Pays difference between the amount your insurer pays for a totaled car (fair market value) and the amount owed on the lease or loan. GAP contracts are unregulated by the state insurance department. (Unless bought by an insurance company)

Coverage F - Medical Payments to Others

Pays the reasonable medical expenses of another person who is accidentally injured while on an insured location, or by the activities of an insured, resident employee, or animal owned by or in the care of an insured.

Coverage C - Personal Property

Personal property owned or used by an insured is covered anywhere in the world. This provision also includes borrowed property. In addition, after a loss and at the named insured's request, the insurance can be extended to cover the personal property of a guest or resident employee while the property is in any residence occupied by an insured. For example, if you invite a guest to dinner in your home and the guest's coat burns in a fire, the loss can be covered under your policy. Not Covered: - Motor Vehicles: Motor vehicles and their accessories and equipment are specifically excluded. Thus, cars, motorcycles, and motor scooters are excluded under the policy. Likewise, the theft of a car battery or tire rims from a car would not be covered. The exclusion does not apply to portable electronic equipment that reproduces, receives, or transmits audio, visual, or data signals and is designed so that it may be operated from a power source other than the vehicle's electrical system. Motor vehicles not required to be registered for use on public roads that are used solely to service the insured residence or designed to assist the handicapped are exempt from the exclusion. Thus, a garden tractor, riding lawn mower, or electric wheelchair would normally be covered under the policy. - Pet Fish or Bird: Animals, birds, and fish. Pets are excluded because they are difficult to value. Specialized coverages can be used to cover high-value animals, such as thoroughbred horses and pedigreed dogs. - Home insured from damage by tenant: Property of roomers and boarders who are not related to an insured is excluded. Thus, if the insured rents a room to a student, the student's property is not covered under the insured's homeowners policy.

There will be questions about personal (and business) umbrella policies.

Personal umbrella policies: Provides protection against a catastrophic lawsuit or judgment. Most insurers write this coverage in amounts ranging from $1 million to $10 million. Coverage is broad and covers catastrophic liability loss exposures arising out of the home, cars, boats, recreational vehicles, sports, and other personal activities. - The policy provides excess liability insurance over basic underlying insurance contracts. - Coverage is broad and includes protection against certain losses not covered by the underlying contracts. - A self-insured retention must be met for losses covered by the umbrella policy but not by any underlying contract. - The umbrella policy is reasonable in cost.

Coverage E - Personal Liability

Protects an insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured's negligence.

What is title insurance and who is protected by Title insurance?

Protects the owner of property and/or the lender of money for the purchase of property against any unknown defects in the title to the property under consideration. Without a clear title, the owner could lose the property to someone with a superior claim or incur other losses because of an unknown lien, unmarketability of the title, and attorney expenses. Title insurance is designed to provide protection against these losses.

Causes-of-loss special form

Provides OPEN PERILS COVERAGE and insures against direct physical loss to covered property. That is, direct physical damage losses to insured property are covered unless specifically excluded or limited in the form itself Because of the advantages of open-perils coverage, most risk managers prefer the special form.

State-mandated low-cost coverage

Provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance or have limited financial assets to protect. Problems: a. Cost is low but so are the limits. b. Difficult to enforce the purchase by qualifying persons.

No pay; no play laws

Restrict uninsured motorists from suing negligent drivers for noneconomic damages, such as compensation for pain and suffering. Some states are considering the proposal as a method for reducing the number of uninsured drivers.10 Eleven states have enacted such laws. Problems: a. It still has no prospective enforcement mechanism to encourage the purchase of insurance.

The crime policy defines some crimes. Look at those definitions. Why do we define the crimes?

Robbery: People are home and threatened Burglary: Not home Safe Burglary: Must be markings on safe Theft: All are forms of theft

Understand the purpose of the "reporting form" for businesses with fluctuating property values. And the penalties.

Some business firms have wide fluctuations in the value of business personal property during the policy period, especially in the value of inventories held for sale. A reporting form requires the insured periodically to report to the insurer the value of insured business personal property.7 The major advantage of the reporting form is that premiums are based on the actual value of the covered property if the insured reports accurately and on time rather than on the limit of insurance, which may be greater than the value of the covered property on hand. However, coverage is subject to the policy limits even if values in excess of those limits are reported. If the insured is dishonest or careless and underreports the value, the insured will be penalized if a loss occurs. If the insured underreports the insured property value and a loss occurs, recovery is limited to the proportion that the last value reported bears to the correct value that should have been reported. For example, if the actual value of business personal property on hand, including inventory, is $500,000, and the insured reports only $400,000, only four-fifths of any loss will be paid (less the deductible).

Why is replacement cost insurance inappropriate for some mobile homes?

Some mobile homes have depreciated to the point where replacement-cost coverage is inappropriate. An optional actual cash value endorsement can be added. An eligible mobile home typically must be at least 10 feet wide and 40 feet long, must be designed for portability and must be designed for year-round living. These requirements are imposed to eliminate coverage for camper trailers that are constantly being pulled by autos and need to be insured by an auto policy.

Coinsurance - Business Income Coverage

The business income coverage form includes a coinsurance provision. Typical coinsurance percentages available are 50, 60, 70, 80, 90, 100, or 125 percent. The basis for coinsurance is the sum of net income that would have been earned and continuing normal operating expenses, including payroll, for the 12 months following the inception of the policy or the last anniversary date, whichever is later. This sum is then multiplied by the coinsurance percentage to determine the amount of insurance needed to avoid a coinsurance penalty. For example, assume that net income and operating expenses for the 12 months of the current policy term are $400,000, and that the coinsurance percentage is 50 percent; the required amount of insurance would be $200,000. The actual coinsurance percentage selected depends on the expected length of time it will take to resume operations, and on the period of time during which most of the business is done. If the firm expects to be shut down for more than one year, the 125 percent option should be selected. If the firm expects to be shut down for no more than six months and business is uniform throughout the year, a coinsurance percentage of 50 percent should be selected. However, when seasonal peak periods are considered, this percentage may be inadequate, because 50 percent of the firm's business may not occur within a consecutive six-month period. Thus, when business income is seasonal or has peak periods, a coinsurance percentage higher than 50 percent is advisable to provide greater protection during a prolonged shutdown period that continues during the peak period.

What does the term "liability without fault" mean in the context of a workers comp policy?

The employer is held absolutely liable for job-related accidents and diseases regardless of fault.

What do we mean by the statement that an occurrence policy has a long tail problem and what's IBNR?

The long-tail refers to a relatively small number of claims that are reported years after the policy was first written. An insurer who has sold an occurrence policy years ago can be liable for claims that occurred back then but are not discovered and reported for many years. What's an IBNR? Insurers must reserve money to pay for claims that have been incurred but have not yet been reported (IBNR) to the insurer. This period of time after the policy period has ended but with the insurer still on the hook for unreported claims is called a "tail" on the coverage.

Discovery Version:

The loss is covered if it is discovered during the policy period or within 60 days after the policy ends. This is true even if the loss occurred before the policy's inception date. This is still true even if the insured had prior coverage. But it is not true and there is no coverage under this policy if the insured bought similar coverage under a new policy at or after the termination date of this policy. Think of it as full claims-made coverage.

Loss-Sustained Version:

The loss is covered if it is sustained (occurred) and discovered during the policy period. It is also covered if the loss occurred during the policy period but is discovered in the "extended period to discover loss condition" which is usually one more year after the policy's termination date. There is also a provision in this version which provides coverage under certain conditions for losses occurring while a prior policy is in effect.

Excess liability coverage

The personal umbrella policy provides excess liability insurance over underlying insurance contracts that apply. The umbrella policy pays after the underlying insurance limits are exhausted. The insured is required to carry certain minimum amounts of liability insurance on the underlying contracts. Although the required amounts vary among insurers, the amounts shown in Exhibit 24.3 are typical. If the required amounts of underlying insurance are not maintained, the umbrella insurer pays only the amount that it would have paid had the underlying insurance been kept in force.

What is the purpose of professional liability insurance and who is it designed to cover?

The physicians, surgeons, and dentists professional liability coverage form covers acts of malpractice by physicians, surgeons, and dentists. Sometimes called errors and omissions (E&O) insurance or malpractice insurance (Med Mal for doctors) this provides protection for professionals. Errors and omissions (E&O) insurance provides protection against loss incurred by a client because of negligent acts, errors, or omissions by the insured.

For a claim for coverage under the lost business income provision, how is the loss measured?

The suspension of operations must result from direct physical loss or damage to property caused by an insured peril at the described premises. The insured perils are listed in the causes-of-loss form attached to the form. Business income is defined as the net profit or loss before income taxes that would have been earned, and continuing normal operating expenses, including payroll. The business income loss is the difference between expected net income if the loss did not occur and actual net income after the loss. For example, assume that a retail shoe store has a fire that damages part of the store and the owner experiences a reduction in net income during a three-month repair period. Based on past and projected future earnings, the firm expected to earn net income of $75,000 during the three-month period if the loss did not occur. However, because of limited operations following the loss, actual net income was only $25,000. The business income loss is $50,000 ($75,000 − $25,000).

Self-insured retention (same as a deductible?)

The umbrella policy typically contains a self-insured retention or deductible. The self-insured retention, or deductible, applies only to losses covered by the umbrella policy but not by any underlying contract. The self-insured retention is typically $250 but can be higher. Examples of claims not covered by the underlying contracts but insured under an umbrella policy include libel, slander, defamation of character, and a variety of additional claims. To illustrate, assume that Andrea has a $1 million personal umbrella policy and an auto insurance policy with limits of $250,000 per person and $500,000 per accident for bodily injury liability. If she negligently injures another motorist and must pay damages of $650,000, the auto policy pays the first $250,000, its per-person liability limit. The umbrella policy pays the remaining $400,000, because the underlying limit of $250,000 per person under the auto policy has been exhausted. The self-insured retention does not apply here as the umbrella is excess coverage. Now assume that Andrea loses a lawsuit filed by her neighbor for defamation of character and must pay damages of $50,000. If there is no underlying coverage and the self-insured retention is $250, her umbrella policy would pay $49,750. The self-insured retention must be paid by Andrea in this case.

How does a claims made policy solve the coverage problem if a loss occurs on the last day before the policy expires?

There are two "extended reporting periods" which help the insured get coverage. The 5 year extension. Assume a covered injury occurs during the policy period AND the event is reported to the insurer during the policy period (or within 60 days after the policy period ends but no claim against the insured is filed by the injured party. If the claim is filed within 5 years of the end of the policy period, it will be covered. The 60 day extension: This is better understood as a cut-off provision. It applies when there is an "occurrence" as defined in the policy that occurs during the policy period but is not reported to the insurer during the policy period. I.e., the insured knows about a potential claim but does not tell the insurer. In that event, there is no coverage for that claim unless it is reported to the insurer within 60 days after the end of the policy period.

What kind of actions are covered or not covered by an Employment Practices Liability policy provision?

This coverage protects the employer if employees do something stupid. Look at the "wrongful acts" by employees which are covered on page 600. In the HO-3 and the auto policy, the costs the insurer incurs to hire an attorney to defend an insured are paid by the insurer and do not count against the policy limits. That is not the case here. Any costs paid to defend against the claim reduce the amount available to pay the claim.

What is an aviation insurance group and why do they exist?

This insurance is mostly not offered alone by any insurer. Though there are a very few extremely large carriers who will underwrite this risk alone. The potential severity (i.e., both the maximum possible loss and the maximum probable loss) is normally too large for any one carrier to bear. So the coverage is usually provided through insurance groups. Several insurers will create a multicompany aviation pool. This is the only type of coverage of which I am aware that still uses the term "all-risks." I do not know why. Note that for each form of "all risks" coverage there are exclusions. "All-risks" basis, ground and flight. All physical damage losses to the aircraft, including disappearance, are covered except those losses excluded. "All-risks" basis, not in flight. The aircraft is covered on an "all-risks" basis only when it is on the ground and not in flight. Fire or explosion following a crash is not covered. "All-risks" basis, not in motion. The aircraft is covered on an "all-risks" basis only when it is standing still. Fire or explosion after a crash is not covered.

Uninsured/under-insured motorist insurance coverage

Uninsured motorists coverage is another approach for compensating auto accident victims. Uninsured motorists coverage compensates the accident victim who has a bodily injury caused by an uninsured motorist, by a hit-and-run driver, or by a negligent driver whose company is insolvent. Problems: - The injured motorist is paying for the insurance which steps into the place of the lack of insurance by the other driver. - The limits are low. - Injured motorist must prove that the other uninsured driver was negligent. - Property damage is usually not covered by UM/UIM.

Let's look more closely at the HO-3 policy.

Who is considered an insured under the policy? a. Named insured and residents of the household who are your relatives. The named insured is the person or persons named in the declarations page of the policy. The named insured under the policy is also referred to as you. Coverage also applies to the spouse of the named insured if she or he is a resident of the same household. Children and other relatives residing in the named insured's household are covered. b. Other persons under age 21. Other persons under age 21 who are in the care of the named insured or the care of a household resident who is a relative are covered. Examples are a foster child, a ward of the court, or a foreign exchange student. c. Full-time student away from home. The definition of insured includes a full-time student away from home who was a resident of the named insured's household before moving out to attend school, provided the student is under age 24 and a relative of the named insured, or is under age 21 and in the care of the named insured or the care of a household resident who is your relative. In addition to these persons, the definition of insured includes the following persons under the Section II coverages: a. Any person legally responsible for covered animals or watercraft. For example, if you leave your dog with a neighbor, and the dog bites someone, the neighbor has liability coverage under your policy. However, coverage does not apply to a person or organization having custody of animals or watercraft for business purposes, such as an operator of a dog kennel or a marina at a lake. b. With respect to a motor vehicle covered by the policy, coverage applies to persons employed by the named insured or by other insureds, as previously defined, while working for the insured. For example, if an employee mows your lawn with a riding mower that you own and someone is injured, he or she has liability coverage under your policy.

If the Principal fails to perform and the Surety pays out some money, can the surety go after the principal to get its money back?

YES - similar to subrogation

Be able to distinguish between the 5 types of general liability loss exposures listed in the text beginning on page 591.

a. Premises and Operations Liability. i. This applies to injuries incurred by someone ( a business invitee) while on the business' premises. ii. Property owner owes a high standard of care to: 1. Make the premises safe and 2. Warn of any known dangerous conditions. b. Products Liability and Completed Operations Liability. i. These two separate liability risks are usually lumped together as the Products-Completed Operations hazard. ii. This applies after the work has been completed and the product has been placed into the stream of commerce. iii. Refers to the legal liability of manufacturers, wholesalers, and retailers to persons who are injured or incur property damage from defective products. Firms can be successfully sued on the basis of negligence, breach of warranty, and strict liability. iv. Refers to liability arising out of faulty work performed away from the insured's premises after the work or operation is completed. Contractors, plumbers, electricians, repair shops, and similar firms can be held liable for bodily injuries and property damage to others after their work is completed. When the work is in progress, it is part of the operations exposure. c. Contractual (Kual, if you speak legalese) Liability. i. Means that the business firm agrees by a written or oral contract to assume the legal liability of another party. ii. Example: 1. You are a tenant. Your lease requires you to hold the landlord harmless if your actions causes someone to sue the landlord. 2. You have assumed a Kual liability to another party. 3. If someone slips and falls on the floor (owned by the landlord), they might sue the landlord. 4. But you (the tenant) have agreed to defend the landlord (hold him/her harmless). 5. So, your commercial insurance policy will defend you. d. Contingent Liability. i. Refers to liability arising out of work done by independent contractors ii. Usually you are not responsible for the actions of an Independent contractor (IKor). iii. So, usually you don't need insurance coverage for the acts of an IKor. iv. But, there is a contingency where you might be held liable for an IKor. They are: 1. If you hire an IKor to do something illegal. 2. You hire an IKor to do something that is not delegable. This would be something like a surgeon hiring a plumber to do your bladder surgery. 3. You hire an IKor to do something that is inherently dangerous (e.g., demolish buildings using explosives). In one of those contingencies, your commercial insurance policy would provide coverage.