P&C Ch. 8 Commercial Property Insurance

A commercial property has a $400,000 Commercial Building and Personal Property policy, and a fire breaks out on the loading dock, causing $80,000 in damage and $20,000 in debris removal. What is the maximum that may be received for the damage?

$100,000 The $80,000 loss plus the entire $20,000 debris removal will pay, since that amount is less than the 25% of coverage limit.

ABC Industries has insured a factory building for $80,000. The replacement value is $150,000. If the commercial property policy insuring the building has an 80% coinsurance clause, how much will ABC's insurer pay for a $12,000 covered loss?

$8,000 The insurer will only pay for $8,000 (two-thirds) of the covered loss. The coinsurance requirement specifies that ABC Industries must maintain insurance equal to 80% of the replacement cost. 80% of $150,000 equals $120,000. Because the amount of insurance the insured holds is only two-thirds of the required amount ($80,000 of the required $120,000), the loss payment is subject to a comparable penalty.

The Causes of Loss - Basic Form applicable to commercial property policies covers direct damage caused by bacteria during what period of time following policy inception?

12 months The Causes of Loss forms provide an Additional Coverage to provide limited coverage for direct losses resulting from fungi, wet or dry rot, or bacteria. The limit of insurance is $15,000, and the limit applies to the 12-month period that begins with the policy's inception date.

A Building and Personal Property Coverage Form will pay up to what percentage of the building loss amount for debris removal expenses incurred after a direct physical loss?

25% The policy will pay up to a maximum of 25% of the loss amount for debris removal. In the event that the physical loss and debris expenses exhaust the limit of insurance, the policy will pay an additional amount for remaining debris removal expenses.

An insured owns a commercial building, insured on a Commercial Package policy using the Building and Personal Property Coverage Form. The building is considered vacant unless at least what percentage of square footage is rented or used to conduct operations?

31% A building owned by the insured is considered vacant unless 31% or more of the total square footage is rented or is used to conduct operations. If the building is vacant for more than 60 consecutive days, coverage is suspended for losses by vandalism, sprinkler leakage, building glass breakage, water damage, or theft.

Under the Vacancy Clause of a Building and Personal Property Coverage Form, losses caused by vandalism are not covered if the damaged property has been vacant for how many days?

60

How long after a loss before the Period of Restoration begins for Business Income coverage?

72 hours

Under the Valuation condition on the Building and Personal Property Coverage Form, which of the following losses would the form pay on a replacement cost basis?

A $2,500 loss to a covered building Losses to awnings, floor coverings, outdoor equipment and furniture, and appliances are always covered on an actual cash value basis, regardless of the amount of the loss. All other losses are typically paid on an actual cash value basis as well, but if a loss to any other type of property (like the building) costs $2,500 or less, that loss is paid on a replacement cost basis. The coinsurance requirement must be met for this to apply.

Which commercial property coverage form provides coverage for an indirect loss?

Business Income Coverage Form The time element coverage forms cover the insured's loss of business income and extra expenses incurred after a loss offer coverage for indirect loss, meaning the financial losses that occur as a result of a direct physical loss to real or personal property. The other commercial property coverages only offer protection against direct physical losses.

Collapse is not covered under which of the following property forms?

Causes of Loss - Basic Form

When added to a commercial property policy, which of the following would not be covered by the Ordinance or Law Endorsement?

Cost of fines due to the enforcement of building codes The Ordinance or Law Endorsement applies if the enforcement of any building, zoning, or land-use law results in a loss of value of the part of the building that is not damaged by a covered loss, costs of demolition and clearance of the undamaged parts of a building, and increased costs of repairing or reconstructing damaged parts of a building. Building code fines are not covered by the policy or by the endorsement.

Which of the following is not found in the Common Policy Declarations page of a Commercial Package Policy?

Exclusions The Declarations page of an insurance policy contains the information that adapts the policy to a specific insured and property. The exclusions are provisions that apply to all policies and policyholders.

The Legal Liability Coverage Form would not cover which of the following losses?

Fire damage to the insured's cash register The Legal Liability Coverage Form covers the insured's legal liability for loss or damage to real or personal property owned by others. For example, if a commercial unit-owner is operating their business and damage occurs to the building itself, then the unit-owner may be legally liable for damages, in which case the Legal Liability Coverage Form activates. The insured's cash register would be considered their business personal property, covered under other insurance.

Choose the false statement regarding the Extra Expense Coverage Form.

It provides coverage for direct losses under the policy Extra Expense coverages pays for the indirect loss of expenses incurred during at the period of restoration following a direct loss.

The Building and Personal Property Coverage Form does not cover:

Liability The Building and Personal Property Coverage Form only provides property coverage, meaning liability is not covered under this form. Insureds with property coverage using this policy would need a separate Commercial General Liability Coverage Form, which could be added as a coverage part to their Commercial Package policy. The three coverages provided by the Building and Personal Property Coverage Form are for buildings, business personal property, and the personal property of others.

Which of the following is not included in the Personal Effects and Property of Others Coverage Extension available under the Building and Personal Property Coverage Form?

Loss by theft of personal effects The Personal Effects and Property of Others Coverage Extension applies to the personal effects of the insured or their partners, members, officers, managers, and employees. However, this coverage does not cover loss by theft. The Coverage Extension also applies to loss to personal property in the care, custody, or control of the insured.

Which of the following is designed to cover the risk of a business that experiences a specified increase in business personal property during a designated period?

Peak Season Endorsement The peak season endorsement is available for businesses that have an annual buildup of inventory during their peak season.

The Causes of Loss - Basic Form applicable to the commercial property coverage part of a Commercial Package policy would not cover losses caused by which of the following?

Steam boiler explosion Commercial property policies commonly exclude coverage for damage caused by steam boiler explosions, as well as physical damage to the steam boiler itself. Separate equipment breakdown insurance is required to provide these coverages.

The Builders Risk Coverage Form will not cover which of the following?

Television antenna located on the roof Builders risk coverage applies to buildings and structures under construction, including foundations, fixtures and machinery, equipment used to service the building, building materials and supplies used for construction, and temporary structures. These items must be intended to be permanently located in or on the described building or within 100 feet of the premises. Coverage does not apply to land, lawns, trees, shrubs, plants, outside antennas, or signs that are not attached to the structure.

All the following are true regarding commercial property coverage, except:

The Basic Causes of Loss Form covers water damage

All of the following are true in regard to commercial property coverage, except:

The Basic Form insures against water damage

Under a commercial property policy with the Value Reporting Form Endorsement, which of the following is NOT correct?

The insured is only required to report 80% of value of the property Reporting of 100% of values is required to guarantee that adequate insurance is being provided and charged.

Which is true of the Personal Property of Others coverage provided by the Building and Personal Property Coverage Form?

The policy covers property of others that is in the care, custody, and control of the insured This coverage extension insures personal effects of the insured and the personal property of others in the insured's care, custody, and control for up to $2,500 at each described premises. Coverage does not include loss by theft.

Which of the following statements regarding Commercial Property insurance is false?

Time element losses and direct losses are the same Time element losses are indirect losses, not direct losses.

The Common Policy Declarations of the CPP contain all of the following, except:

Transfer of Your Rights and Duties Under This Policy Transfer of Your Rights and Duties Under This Policy is found in the Common Policy Conditions section, not the Declarations.

Which of the following conditions under a Building and Personal Property Coverage Form determines how losses will be paid?

Valuation Clause The Valuation Clause sets forth the method of evaluating losses, and treats valuation of unusual property such as stock that has been sold, glass, outdoor equipment, and valuable papers.

Which of the following perils is insured against by a commercial property policy using the Causes of Loss - Basic Form?

Windstorm Windstorm is a basic peril insured against by all Causes of Loss forms. The other perils are covered under the Broad and Special forms.

A building valued at $200,000 is insured for $150,000 with an 80% coinsurance requirement and a $1,000 deductible. After the building is totally destroyed, incurring debris removal expenses of $10,000, how much will the Building and Personal Property Coverage Form pay?

$159,000 After a total loss, the policy will pay the face amount less the deductible, plus up to $10,000 for debris removal. The coinsurance requirement only penalizes the insured for not carrying insurance to value in the case of a partial loss.

Which of the following property is not covered under the Building and Personal Property Coverage Form?

Electronic data Electronic data, including information, facts, and computer programs and the cost to replace or restore the electronic information is not covered.

Under the Common Policy Conditions of the Commercial Package policy, the insurer does not have the right to do which of the following?

Examine the insured's records at any time, up to 5 years after policy expiration The insurer may examine and audit the insured's books and records at any time, including up to 3 years following the expiration or termination of the policy. The insurer's right to these examinations, their right to inspections and surveys, their right to cancel the policy for certain reasons, and the requirement for insurer consent before policy changes are made are all provided for by the Common Policy Conditions.

The Outdoor Property Extension under the Building and Personal Coverage Form insures against which perils?

Fire, lightning, explosion, riot, civil commotion and aircraft The most that is paid under the Outdoor Property Extension is $1,000 per Occurrence, but not more than $250 on any one tree, shrub, or plant. The perils covered by this extension are fire, lightning, explosion, riot or civil commotion, and aircraft.

Under the Earthquake and Volcanic Eruption Endorsement attached to the commercial property coverage part, which of the following statements is correct?

The endorsement's deductibles apply separately for each building, personal property in each building, and personal property in the open The Earthquake and Volcanic Eruption Endorsement includes deductibles, written as percentages of the applicable limit of liability, that will apply separately to each building, to personal property located at each building, and to personal property in the open. Deductibles do not apply to business income and extra expense coverages, which insure against indirect losses. All earthquakes and volcanic eruptions that occur within any 168-hour period is considered a single earthquake or volcanic eruption, but the period must begin prior to the expiration of the policy.

Under the Business Income Coverage Form, the period of restoration for business income coverage begins how long after the time of loss?

72 hours For business income coverage, the period of restoration begins 72 hours after the time of loss. The period of restoration ends on the date the property is repaired, or the date business is resumed at a new location, whichever happens first.

Under the Builders Risk Coverage Form, all of the following are true, except:

Coverage includes trees, plants, outside antennas and signs that are not attached to the building

All of the following statements about coverage provided by the Builders Risk Coverage Form are correct, except:

Coverage is always written on an open perils basis Coverage may be written with any of the Cause of Loss forms (Basic, Broad, or Special), and coverage would only be written on an open perils basis through the Causes of Loss - Special Form. A Vacancy provision, which would suspend or limit coverage for certain perils, is not relevant to the Builders Risk Coverage Form because buildings under construction are not considered vacant. Coverage is not provided for business personal property.

Which of the following kinds of property may be covered under a Building and Personal Property Coverage Form?

Grain stored inside a building Grain, hay, straw, and other crops located outside are considered property not covered, but that which is stored inside a building could have coverage. Property in transit over air or water, property specifically covered under other insurance, and any vehicle licensed for use on public roads are also considered property not covered.

Choose the false statement regarding the Value Reporting Form.

The insured is only required to report up to 80% of value of the property Reporting of 100% of values is required to guarantee that adequate insurance is being provided and charged.

Which of the following would NOT be found in the Common Policy Declarations page of a Commercial Package policy?

Exclusions and limitations The Declarations page of an insurance policy contains the information that adapts the policy to a specific insured and property. The Exclusions and Limitations sections clarify how coverage applies to certain losses, so they will be contained in either the Causes of Loss form(s) relevant to the policy or in the specific coverage forms that make up the policy.

Under the Building and Personal Property Coverage Form, which of the following is correct about the Preservation of Property Additional Coverage?

It provides open perils coverage for 30 days on insured property temporarily stored at another location because of the endangerment of a covered peril The purpose of the Preservation of Property Additional Coverage is to provide open perils coverage for property being moved or temporarily stored at another location because it is endangered by a covered peril. This helps incentivize insureds to protect their property from losses, when possible. The moved property is covered for up to 30 days.

On a commercial property policy, outdoor signs attached to the building are covered up to what amount?

$2,500 The Building and Personal Property Coverage Form provides coverage for signs up to $2,500, whether or not they are attached to the building. Outdoor signs are not included in the coverage provided by the Outdoor Property Coverage Extension, which provides up to $1,000 for outdoor fences, antennas, satellite dishes, trees, shrubs, and plants.

Choose the true statement regarding the Value Reporting Form.

Late reporting or under-reporting will result in a penalty in the event of a loss The insured pays an advance premium at the beginning of the policy period. Reports are filed either daily, weekly, monthly, or quarterly. The final premium is based upon the average values reported and is determined at the end of the policy year. The form may be attached to the Building and Personal Property Form and the Condominium Commercial Unit-Owners Form. The insured is required to report 100% of values with each report. Late reporting or under- reporting will result in a penalty in the event of a loss.

Under a Commercial Package policy, which of the following is correct about the Inspections and Surveys condition included in the Common Policy Conditions?

The insurer has the right, but is not obligated, to make inspections and surveys at any time Inspections and surveys are a reasonable and effective underwriting tool of the insurer. They may be made whenever the insurer believes it to be necessary, including any time up to 3 years after the end of the policy. These inspections and surveys are not safety inspections.

Which of the following is included in building coverage provided by the Building and Personal Property Coverage Form?

Completed additions and outdoor fixtures Building coverage provided by the Building and Personal Property Coverage Form covers loss or damage to commercial buildings or structures, including completed additions, fixtures and outdoor fixtures attached to the building or structure, property used to maintain or service the buildings, additions and alterations in progress, and building materials and supplies within 100 feet of the premises. Machinery and equipment is only included in building coverage if it is permanently attached. Otherwise, machinery, equipment, and other items of business personal property located in the open or in a vehicle within 100 feet of the premises is protected by business personal property coverage.

Which of the following is true of the Transfer of Your Rights and Duties Condition under CPP?

Generally, the insured's rights may not be transferred without written consent of the insurer In most cases, the transfer of the insured's rights and duties must be with the written consent of the insurer. However, if a named insured dies, the insured's right and duties will be transferred to their legal representative.

All of the following are Coverage Extensions under the Building and Personal Property Coverage Form, except:

Inflation Guard

A commercial property is insured on a Commercial Package policy. When considering the insurability of the property for renewal, the insurer can use:

Physical inspection

Endorsements that coordinate Commercial Package policy coverage parts to avoid duplication are called:

Interline

Under the Business Income and Extra Expense Coverage Form, extra expense coverage applies to:

Necessary expenses incurred during the period of restoration to minimize the suspension of business Extra expense coverage is intended to reimburse the insured for expenses incurred in getting back into business as soon as possible after a loss, such as any expenses meant to minimize business suspension, continue operations at the described location, or move operations to a temporary replacement location. Loss of business income is covered by business income coverage, not extra expenses coverage.

Following a large fire that requires several weeks of down time due to rebuilding, the Business Income Coverage Form will pay for:

Net income plus continuing expenses of the business The coverage form options for business income coverage apply to the insured's loss of business income, which refers to the net income (profit or loss before income taxes) that would have been earned had the loss not occurred, as well as normal operating expenses. It covers indirect losses, not direct loss to property itself. The formula of net income plus continuing expenses is intended to restore the insured as nearly as possible to their income status before the loss.

An insured has a commercial property policy with the Replacement Cost Optional Coverage. Replacement cost coverage applies to all of the following types of property, except:

Personal property of others The Replacement Cost Optional Coverage changes the loss valuation basis to replacement cost, except that replacement cost coverage will not apply to loss or damage to the personal property of others, contents of a residence, or works of art or rare articles. Stock is also excluded from replacement cost coverage, unless the stock option is shown in the Declarations. The personal property of others requires the separate Extension of Replacement Cost to Personal Property of Others Optional Coverage to have replacement cost coverage.

Choose the false statement about the Building and Personal Property Coverage Form.

Tenant's improvements that are not legally removable are included in the Personal Property of Others Coverage Tenants Improvements & Betterments are covered under Business Personal Property, not Personal Property of Others Coverage.

Which Causes of Loss form available for the property coverage forms on a Commercial Package policy will cover loss of merchandise due to a burglary?

The Special Form only Theft coverage, such as the theft of merchandise, is excluded by the Vandalism peril named on the Basic and Broad Causes of Loss forms, but theft is not excluded by the Special Form. However, all Causes of Loss forms will protect the building itself if it is damaged by burglars.

Under a Commercial Package policy, which of the following is found in the Common Policy Declarations?

The deductible The Declarations page of any insurance policy will show the premium and deductible amounts. The Declarations will also identify the first named insured, but the provision specifying that the first named insured is responsible for all premiums is found in the Common Policy Conditions. Cancellation rights and the insurer's right to make inspections and surveys are also provisions found in the Common Policy Conditions.

Under the Building and Personal Property Coverage Form, coverage applies to all of the following, except:

Windstorm damage to outdoor signs not attached to the building Outdoor signs not attached to the building are excluded except for limited coverage under Outdoor Property, which does not cover wind losses.