Property Insurance and Fire Policy

Concealment and Fraud Condition

(Lines 1-6) Protects the insurer from the insured's dishonesty. Entire policy void if insured willfully concealed or misrepresented a material fact before or after a loss

Loss Payable Clause SFP

(Lines 150-156) Under the SFP, after the insurer has received proof of loss and amount has been agreed upon, the insurer will pay for the loss within 60 days.

Four Distinct Limitations to Recovery Under the SPF

(recovery may not exceed the smallest of the following amounts) -The amount specified - The actual cash value at the time of the loss - The amount that it would cost to repair or replace the property with material similar in quality, within reasonable time. - The amount reflecting the insured's interest in the property at the time of the loss

Property Covered Under the SFP

- Limits coverage to property actually described in the policy. Usually only while in the location(s) described, unless removing to protect from perils insured against (maximum 5 days at another location). -Bullion (bars of silver or gold) or manuscripts are not excluded, but it is required that these items be identified in writing for coverage. - SFP identifies but does not define covered property, which is why at least one additional form defining the type of property must be attached to the contract.

Two Types of Partial Losses

- Partial Average Loss (a loss that does not completely destroy or render useless, the insured property or does not completely exhaust the limits of the policy) - General Average Loss (A voluntary loss taken to save the property from further loss)

The Four Main Sections of the New York Standard Fire Policy

1) Declarations - first page 2) The insuring agreement - first page. States policy inception and expiration date and time. Also includes an "assignment clause" 3) Conditions - Contained in the 165 lines found on page two 4) Exclusions - Contained in the 165 lines found on page two

Concurrent Cause

A claim with multiple causes or perils that are independent of other perils. Neither of the perils are related, and could not have caused the loss alone, but combined to create the loss. (ex: Heavy winds blow open the door to the warehouse, and the rainstorm ends up causing a flood inside)

Pro Rata Liability Clause SFP

Clause in SFP that provides that losses will be paid in the proportion that the amount of the policy bears to the entire amount of insurance on all policies covering the loss. This provides for insurance companies to appropriately share in the loss when more than one policy exists, yet prevents the insured from collecting in total from several insurance companies and making a profit. (ex: for a 50k building, can't collect 50k from 4 different insurers. If each policy is even, 50k, they split evenly 12,500)

Insuring on a Blanket Basis

Insuring properties (usually more than one location) with one limit applied to both the structure and the contents

Insuring on a Specific Basis

Insuring properties with separate limits based on property type. (Structure vs contents)

Insuring on a Reporting Form Basis

Insuring property based on reporting values every month of the insured content. (Allows for paying premium based on product inventory)

Vacancy

Means a building is empty of contents

All Other Policies of Personal Lines

Means any other policy of insurance issued to a natural person for personal or family protection

Coverage Extensions

Means that an existing coverage within the policy is extended in some way. (Ex: Increased Cost of Construction; Also known as "Law and Ordinance" or "Building Ordinance" coverage and provides an extension of coverage for the increased costs to meet newer building codes when rebuilding or repairing a damaged structure. Another example is adding a new vehicle to auto insurance)

Special Cause of Loss Form

Open peril, form provides coverage for all risks of loss from any peril, except those specifically excluded.

Property Not Covered Under the SFP

Specifically excludes coverage for "accounts, bills, currency, deeds, evidences of debt, money or securities". Other special types of policies are available to cover these items.

Obsolescence

Term used in insurance forms that refers to a reduced payment of a claim due to the reduced market value of a property because it has become obsolete

The Coinsurance Formula

The amount of the insurance carried (had), divided by the amount the insured should have carried (should have had), multiplied by the amount of the loss equals the payment amount, minus the deductible

Proximate Cause

The legal cause of a peril that must be covered by the policy in ordered to be paid

Mine Subsidence Insurance Underwriting Association (MSIUA)

This association approves carriers for mine subsidence insurance for some states that require approval.

Partial Average Loss

This is a loss that does not completely destroy or render useless, the insured property or does not completely exhaust the limits of the policy

Valued Policy Law (VPL)

This law requires insurers to pay the full "agreed value" of the policy in the event of a total loss. Currently in place in twenty states.

Agreed Value

This loss valuation method is used when ACV (actual cash value) is difficult to determine. Under this policy, in the event of a total loss the insurer will pay the value agreed upon and scheduled at the time the policy was purchased. This has a more expensive premium. This is supported by VPL (Valued Policy Law)

Stated Value

This loss valuation method states that in the event of a total loss, insurers will pay the value stated in the policy, or the ACV (actual cash value), whichever is less. These have a much lower premium

Efficient Proximate Cause vs Concurrent Cause

Two competing theories that are applied to determine coverage when two or more perils converge to cause a loss, but one or more of those perils is excluded under the policy

Lawsuits Under SFP

(Lines 157-161) Under the SFP, these are limited by restricting the time and conditions under which legal action can be taken. Within 1 Year of the date of loss, and only if all policy requirements have been met.

Other Perils, Subjects, and Provisions

(Lines 38-48) SFP allows for these additions provided that they are in writing and attached to the policy

Loss Payable Clause

A provision in property insurance that is used to cover the interest of a secured lender in personal property. The lender or entity is known as the "loss payee". Common in auto insurance.

Vacancy and Unoccupancy Clause

A provision in property policies stating that coverage will no longer apply if one of these two situations occur for a certain number of days (usually 30 or 60). Number of days and perils no longer covered are set by the state specific provisions of the standardized property insurance forms.

Abandonment Clause SFP

Clause under SFP prohibits abandoning property to the insurer in order to claim/receive payment for a total loss (lines 148-149).

New York Standard Fire Policy

Created in the 1800s to cover property damage brought about by fire. First policy to have its wording standardized by law. This was revised in 1943 and became the foundation for the creation of today's property insurance policies (dwelling, homeowners, & commercial). Great for studying property insurance policies used today.

Nonpayment of Premium

Failure of the named insured to discharge his obligations in connection with payment of premiums. Does not include any payment

Special Provisions

In cases where a homeowner's insurance policy doesn't sufficiently cover certain perils, individual states have composed these forms that modify the standard cause of loss forms to comply with the state requirements.

Whose Policies Are Exempt From the SFP?

Inland Marine policies are exempt from it

Appraisal Cause Lines

Lines 123-140 of the SFP. States both the insurer and insured will have 20 days to elect these impartial people, who will select an impartial umpire. ACV is determined by 2/3 agreement

Direct Loss

Loss that is a result of direct damage to property; for a house fire, the house was directly damaged by the fire

Indirect Loss

Loss that is consequence of a direct loss, such as additional living expenses incurred as a result of a direct loss

Broad Cause of Loss Form

Name Peril losses + additional named peril losses are covered in this form

Basic Cause of Loss Form

Name Peril losses, form covers losses specifically named.

Losses Covered Under SFP

Only covers direct losses caused by the named perils.

Policy Of Fire & Extended Coverage

Policy delivered or issued for delivery in Illinois that covers real property used principally for residential purposes up to and including a four-family dwelling from perils of fire and extended coverage

SFP Does Not Have Deductible Clause

The SFP does not have this, unless attached with coverage forms and endorsements. Only then, would this be applicable and reduce the amount recovered.

Joisted Masonry

These structures have exterior walls constructed from bricks, cinder blocks, precast cement walls, gypsum block, clay tile, or stone. Floors and roof are constructed of combustible materials. This type of construction is less susceptible to fire and wind, but somewhat more expensive. Used by ISO and the AAIS to develop rates for insuring structures

Constructive Total Loss

This is when the cost to repair or restore the damaged property is greater than the policy limit and/or exceeds the value of the property after repairs have been made

Actual Total Loss

This is when the covered property is destroyed beyond repair, and nothing of value remains

80%

To meet the coinsurance requirement, the insured should carry at least this percent of the full replacement cost value to the structure

Two Types of Loss Under Property Insurance Policies

Total Losses and Partial Losses

FAIR plans (Fair Access to Insurance Requirements)

When an individual is having a difficult time acquiring insurance in the standard market (possibly because of a high risk property), they can pursue these "residual market" programs for coverage. They may require certain items to be repaired before coverage granted.

Non-Combustible

With this type of construction, the structure is made entirely of light steel or similar materials. This type of construction is most often used for garages or utility buildings. Much less susceptible to fire than Frame or Joisted Masonry, but the wind resistance can be a variable. Used by ISO and the AAIS to develop rates for insuring structures

Coinsurance Clause

In an insurance policy, insured agrees to maintain insurance equal to some specified percentage (usually 80%) of the property value or otherwise to assume a portion of any loss. Also known as Loss Settlement Cause (Amount insurance carried / Amount Required) x Loss = Payment Amount minus deductible

Certificate Regarding Payment of Taxes and Expenses on Property Sustaining Loss

This certifies an insured property owner has no delinquent property taxes and no unpaid incurred demolition expenses, or one that sets forth the amount of unpaid delinquent property taxes, the amount of unpaid incurred demolition expense, and a direction An Illinois insurer will be breaking the law if they pay a claim to a property owner for $25k or more for a loss cause by "fire or explosion" without first submitting an "intent to pay a claim" to the State's Attorney (of the county where the structure is located) and receiving this certificate from the insured.

Definition of the "Insured" on a Property Insurance Policy

Those that have an insurable interest in the property and would suffer a financial loss if the property were damaged by an insured peril, their family members (named need not be listed), and others such as a lien holder.

Actual Cash Value (ACV)

Traditionally, "Cost of replacement minus appreciation". Recently in courts, "cost of replacement minus depreciation, age, condition, and obsolescence"

3 Cause of Loss Forms

- Basic Form (Name Peril) - Broad Form (Name Peril covered in basic + additional named perils) - Special Form (Open Peril)

General Average Loss

This is a voluntary loss taken to save the property from further loss. (ex: A homeowner intentionally causing water damage to her living room, because she used a garden hose to put out a fire that began on her sofa)

Fire Resistive

This type of construction includes exterior walls, floors, and roof of a masonry, fire resistive material. Has a fire resistance rating of at least two hours. Used by ISO and the AAIS to develop rates for insuring structures

Losses Not Covered Under SFP

(Neglect, theft, knowledge of increased hazard, unoccupied/vacancy, explosion or riot, business interruption) The neglect of the insured to use all reasonable means to save and preserve the property at the time of loss or when property is endangered. Theft, but not that resulting from removal Any loss occurring while the hazard is increased by any means within the control or knowledge of the insured. (coverage suspended during condition but restored once ceases) Any loss occurring while a building intended for occupancy is vacant or unoccupied for more than 60 days (coverage suspended during condition but restored once ceases) Specifically excludes losses resulting from "explosion or riot", but if explosion or riot is followed by a fire, any additional fire damage is covered. Does not include compensation for losses resulting from business interruption, increased costs for repair due to laws regulating construction, but can be covered by purchasing endorsements attached to the SFP

Two Other Options For Settling a Claim Besides ACV Under SFP

(must give notice within 30 days of receiving proof of loss if intending to do either) The insurer either taking possession of the destroyed property, paying the appraised value, and selling the property for its salvage value. OR Insurer has the option of repairing, rebuilding, or replacing the property with material of like kind/quality within a reasonable amount of time.

Abandonment Clause

A clause in property insurance policies that prohibits the insured from abandoning partially damaged property to the insurer for repair or disposal. Arranging for repair/disposal is the duty of the insured, unless the insurance company elects to take possession of the salvage.

Renewal or To Renew

*Any successive policies issued by the same insurer to the same insured, for the same or similar coverage, will be considered a renewal policy* Means: (1) any change to an entire line of business in accordance to state law and (2) The issuance of a policy or certificate superseding or extending the policy previously issued Any policy with term less than 6 months or no fixed expiration date will be considered written for successive policy periods or terms or 6 months for purposes of renewal

Two Loss Valuation and Settlement Methods

- Actual Cash Value (The cost to entirely replace minus depreciation due to wear, tear, or age) - Replacement Cost Value (the current cost to replace new, the item in question)

Two Types of Total Losses

- Actual Total Loss (When the covered property is destroyed beyond repair, and nothing of value remains) - Constructive Total Loss (The cost to repair or restore the damaged property is greater than the policy limit and/or exceeds the value of the property after repairs have been made)

Burglary vs Theft vs Robbery

- An offender entering a structure with the intent to steal - Taking someone else's property without their consent and with intention on keeping it. Also known as Larceny - Taking something from another person using force or threat of force

Troublesome Additions to Property Insurance Typically Amended by State Specific Forms

- Debris Removal (In storm-prone areas, typical $250 isn't reasonably enough) - Pollution Clean-Up and Removal (too many exclusions may be named that the insured really isn't covered) - Increased Cost of Construction (policies sometimes try to have the insured pay the difference for increased cost of construction) - Newly Acquired or Constructed Property and Property Off-Premises (covers personal property when an insured is constructing a new building, but only for limited time)

Perils Not Typically Covered By Property Insurance Policies

- Flood - Earthquake - Mold - Acts of war - Parts of property in disrepair such as worn-out electrical wiring and plumbing, air conditioning Sometimes covered under an extension or purchasing a separate policy. Or covered, but amount is not sufficient for the insured. In these cases, states have composed their "Special Provisions"

Duties of the Insured When Loss Occurs SFP

- Provide Insurer with immediate written notice of loss - Protect the property from further damage - Separate damaged and undamaged personal property (neatly) - Provide complete detailed inventory (showing destroyed, damaged, quantities, costs, ACV, and amount of loss claimed) - Submit a signed proof of loss within 60 days. (Stating date/time, interest of all parties in the property, presence of other insurance, and values of items)

Agreed Value vs Stated Value

- This loss valuation method is used when ACV (actual cash value) is difficult to determine. Under this policy, in the event of a total loss the insurer will pay the value agreed upon and scheduled at the time the policy was purchased. This has a more expensive premium. - This loss valuation method states that in the event of a total loss, insurers will pay the value stated in the policy, or the ACV (actual cash value), whichever is less. These have a much lower premium

Efficient Proximate Cause

A claim with multiple causes or perils that are dependent on other perils. The covered perils instigate, or set in motion, the excluded perils that caused the loss. (Ex: Chemical company has a barrel filled with chemicals outside company door. During storm, wind knocks over barrel and chemicals seep into building causing floor and wall damage. Company insurance covers wind damage, not pollution damage. Judge will decide)

Assignment Clause

A condition in insurance policies that specifies that transferring the policy to another is not valid unless the company consents to it in writing. (when property is sold, policy cannot be assigned to new owner without consent)

Commercial Excess and Umbrella Liability Coverage

A policy written over one or more underlying policies, for an insured that has at least 25 full-time employees at the time this policy is written, and whose a total annual premiums for all property and casualty insurance on all risks is at least $50k

Cancellation of Fire and Extended Coverage Policy

After this policy has been effective for 60 days, or if it is a renewal policy, the company may not exercise its right to cancel except for one or more of the following reasons: (1) Nonpayment of premium (2) When policy was obtained by misrepresentation or fraud (3) Any act which measurably increases the risk originally accepted

No Benefit to Bailee Clause

An Insured's property insurance policy protects the insured. No person or organization having custody of the Insured Property and being compensated for services shall benefit from this insurance.

Lawsuit Against Insurer Period in Illinois

In the SFP, this time frame is one year, beginning at the time of the loss. In Illinois, it is the time period beginning from the date the proof of loss is filed until the date the claim is denied, in whole or in part.

Policyholder's Insurable Interest

In the Standard Fire Policy (SFP), this may limit the insured's amount of recovery. If there is a mortgagee, the insurer would then protect the interest of the mortgagee first. Limits insureds recovery to actual equity interest.

Policy Issued For Delivery In This State

Includes all binders of insurance, whether written or oral, and all applications bound for future delivery by a duly licensed resident agent. A written binder of insurance issued for a term of 60 days or less, will not be subject to the non-renewal requirements

Unoccupied

Means a building is without occupants, but personal property may still be present

Premium

Means an amount that is due for an individual policy which does not include any membership dues or other consideration required to be a member of any organization

Direct Physical Loss

Property policies require this type of loss has occurred for coverage to apply. This is when an event has changed the property so that it can no longer be used purposefully, or that it must be repaired before it can be used again.

Purpose of Illinois Insurance Guaranty Fund

Purpose of this fund is to protect insured's from excessive delay in payment by providing a mechanism for payment of covered claims. Fund is for claims existing prior to the Order of Liquidation against an insolvent insurance company and arising within 30 days after the entry of the order. Maximum payable to any one claim is $500,00

Functional Replacement Cost

This is a loss valuation and settlement method, and is the cost of replacing damaged property with similar property that performs the same function but might not be identical to the damaged property.

Broad evidence rule

This is a method that some courts have ruled in favor of using to calculate the ACV (actual cash value) . This method uses "replacement cost minus depreciation" as well as any evidence that assists in establishing the value.

Replacement Cost Value (RCV)

This is a method used to settle loss valuations; The current cost to replace the item that was lost or damaged with a new one, no deduction for depreciation. If dealing with replacements that no longer exist, the "functional replacement cost" would be used.

Type of Building Material

This is an element of construction and different types of these are taken into consideration by the insurer when determining the premium rate for a policy because: one type might be more susceptible to certain perils than another (ex: one more susceptible to fire but less to wind)

Salvage

This is property that has been damaged by an insured peril and the insurance company has a right to claim if they have paid in full on a total loss.

Appraisal Clause

This is used to resolve a disagreement between the insured and the insurance company on the dollar amount of the loss or damages to property. Each will hire an independent appraiser to review the value of the property loss. If Both appraisers agree, their decision becomes binding. If not, an umpire will finally support one of the two decisions. Whichever the empire supports becomes binding.

Pair and Set Clause

This provision deals with losses involving part of a set or one of a pair. Insurer has two options: Repair/replace or Pay the Difference. In either case, brining the insured back to their original value held.

Standard Mortgage Clause

This provision protects the interest of the bank/financial institution that holds the mortgage on the property, against the loss by the perils insured against. Also grants coverage to the mortgagee, even if the insured intentionally caused the loss. The bank can also provide a proof of loss or pay the insurance premiums in case the insured cannot or refuses to do so. They must be advised if the contract has been cancelled or nonrenewed by the insurer.

Masonry Non-Combustible

This structure uses the same materials for the outer walls as joisted masonry construction (bricks, cinder blocks, precast cement walls, gypsum block, clay tile, or stone), but uses non-combustible materials for the floor and roof. Difficult to burn and holds up to wind better. Used by ISO and the AAIS to develop rates for insuring structures

Modified Fire Resistive

This type of construction includes exterior walls, floors, and roof of a masonry, fire resistive material. Has a fire resistance rating of at least one hour. Used by ISO and the AAIS to develop rates for insuring structures

Mine Subsidence Insurance (MSI)

This type of insurance provides coverage for loss due to the ground movement caused by the collapse of a man-made mine. *Illinois requires that this type of coverage is made available by insurers for residences, living units, and commercial buildings

Frame

This wood is actually supporting the structure and brick, stone, wood, or stucco veneer cover it. This type of construction is the most susceptible to the perils fire and wind, but is cheap and therefore still used very often. Used by ISO and the AAIS to develop rates for insuring structures

Perils Covered Under the SFP

Three named perils are covered for any direct physical damage cause by "fire, lightning, and removal" Two types of fire: (1) Hostile/Unfriendly fire: escapes its intended limits or unintentionally started. (2) Friendly fire: Intentionally started and stays within its intended limits Lightning does not include artificially generated electricity, such as an electrical power surge Removal: If insured removes covered furniture from burning building and some of it is stolen or damaged by rain, the SFP will cover the furniture loss as a removal loss, even though policy excludes theft and rain damage. Removal coverage applied for 5 days after fire or lightning threaten covered property.