QMB3200 HW Q's

Lance borrows Al's car and negligently injures another person while driving Al's car. Lance has an auto liability policy with a limit of $100,000 per person for bodily injury liability. Al also has an auto liability policy with a limit of $50,000 per person. How much will each insurer pay if the injured person is awarded: (a) $75,000? (b)$200,000?

(a) $75,000? Al's policy: $50,000 (primary) Lance's policy: $25,000 (excess) (b) $200,000? Al's policy: $50,000 (primary) Lance's policy: $100,000 (excess) The remaining $50,000 of this loss is not covered by insurance since both policies have paid (exhausted) their respective coverage limits.

Al purchased another laundromat on the other side of town to use as a second location. Two weeks after making the purchase and before Al had a chance to inform his insurer of the new location, operations were interrupted when the building was damaged by a fire. It took six months to repair the damage to the new location. Al's loss of business income was $120,000 as a result of this loss. How much, if anything, will Al's insurer pay him for this loss?

Answer: $100,000. 6. Coverage Extension, Newly Acquired Locations, b. $100,000 coverage limit per location, pg. 4/9.

While in route to deliver the cargo, the truck driver (employee of Big Wheels Trucking Company) stopped at a truck stop to refuel and get something to eat. When the driver returned to the truck, he discovered the entire cargo had been stolen.

Answer: Covered loss; no exclusions apply.

The truck driver (employee of Big Wheels Trucking Company) was in desperate need of cash. When enroute to this destination and after being entrusted with the goods by Trager Manufacturing Company, the driver decided to sell the cargo to an unauthorized buyer. He then reported the goods as stolen to his supervisor and Trager Manufacturing Company.

Answer: Loss not covered per B. Exclusions, 2.d.(1) - dishonest or criminal act (including theft) by an employee is excluded from coverage.

Heavy ice accumulated on Al's roof during an ice storm, causing the roof to collapse and damaging a number of Al's washing machines. The actual cash value of the building damage was $25,000, and the actual cash value of the damaged washing machines was $5,000.

Building - Covered for $25,000 since it meets the policy definition of covered property (A.1.a. Building, meaning the building or structure described in the Declarations). Washing Machines - Covered for $5,000 since they meet the policy definition of covered property (A.1.b. Your Business Personal Property, (1) Machinery and equipment)

An explosion at Al's business destroyed his accounting records. Al did not keep any duplicates, so the labor cost to reconstruct the records is estimated to be $10,000.

$2,500 - Accounting Records (Coverage Limit) IF Paper - B&PP, Coverage Extensions c. Valuable Papers and Records, p. 8/16 IF Electronic - B&PP, Additional Coverages f. Electronic Data, p. 6/16

The Big Wheels Trucking Company vehicle transporting goods shipped by Trager Manufacturing caught fire and was completely destroyed, including all of the Trager cargo the truck was hauling. Additionally, the buyer of the Trager goods cancelled its contract with Trager due to the delay in receiving the goods, which resulted in a loss of income and market share to Trager.

Cargo - covered loss; no exclusions apply. Truck - not covered per A. Coverage, 2. Property Not Covered, f. The vehicle(s) carrying the property. Loss of income/market share - not covered per B. Exclusions, 2.b. (no coverage for losses resulting from delay, loss of use, loss of market or any other indirect loss).

The above-referenced explosion caused an interruption of ABC's manufacturing process for one week. The resulting loss of income was estimated at $25,000.

No coverage; insured did not purchase Business Income And Extra Expense coverage.

The Guru of Good Times Brewing Company is insured under an unendorsed BPP policy. The building housing Guru's brewing equipment is insured for $120,000 with a $1,000 deductible. A fire (covered peril) causes $100,000 worth of damage to this building. Additionally, Guru incurred debris removal expenses totaling $50,000. How much of the $50,000 debris removal expense will Guru's insurer pay? You must show your calculations in your answer in order to receive full credit.

The answer to this question is illustrated by debris removal expenses payable "Example 2" found on pg. 4/16, of the BPP. Just change the figures in "Example 2" to the figures provided in this question: Limit of Insurance: $120,000 Amount of Deductible: $1,000 Amount of Loss: $100,000 Amount of Loss Payable: $99,000 ($100,000 - $1,000) Debris Removal Expense: $50,000 Basic Amount: $21,000 Additional Amount: $25,000 Debris Removal Expense Payable: $46,000 Step 1: Multiply $100,000 (amount of loss) by .25 (25 percent) to get the maximum basic amount of debris removal expense payable for this loss ($25,000). Step 2: Subtract the amount of loss payable ($99,000) from the policy limit ($120,000) to get the basic amount payable for debris removal for this loss ($21,000). Note: we can't pay $25,000 for the basic amount of debris removal expenses because the amount of the payable loss ($99,000) plus $25,000 would exceed the $120,000 policy limits. Step 3: Add $25,000 (maximum additional amount available for debris removal in excess of policy limits) to the basic amount of debris removal expenses payable for this loss ($21,000) to get the total amount of debris removal expenses payable for this loss ($46,000).

Three of Al's top of the line industrial washing machines (with an actual cash value of $15,000) were taken to a repair shop not owned, leased or operated by Al for servicing. While there, the washing machines were completely destroyed by a fire at the repair shop.

Washing Machines covered for $10,000. B&PP, Coverage Extensions d. Property Off-premises (p. 8/16) limited to $10,000 per occurrence.

Al didn't want the hassle of complying with the coinsurance provision of his Business Income (And Extra Expense) Coverage Form; consequently, he chose the Maximum Period of Indemnity optional coverage to eliminate any coinsurance penalty. How much will Al collect from his insurer under each of the following scenarios? (a) Al's policy limit is $120,000. His business income loss was $35,000 per month for a period of restoration that lasted 90 days or three months. b) Al's policy limit is $500,000. His business income loss was $50,000 per month for a period of restoration that lasted 180 days or six months.

A. Answer: $105,000. The entire loss is payable since the period of indemnity was less than 120 days and the 3 months of business income loss is less than the $120,000 policy limit. 3 months x $35,000 = $105,000. See, E. Optional Coverages, 1. Maximum Period of Indemnity, pg. 7/9. B. Answer: $200,000. Only the first 4 months of the business income loss is payable since this coverage option is limited by time: it only provides coverage for 120 days of business income loss immediately following the beginning of the period of restoration. 4 months x $50,000 = $200,000. See, E. Optional Coverages, 1. Maximum Period of Indemnity, pg. 7/9.

To cover his business income and extra expense exposures, Al purchased a Business Income (And Extra Expense) Coverage Form with a policy limit of $100,000 and the Extended Period of Indemnity (EPI) optional coverage. The EPI optional coverage extended the standard 60 days of EPI coverage to 90 days. During the policy period, Al's suffered a fire that resulted in a total suspension of operations resulting in $80,000 of business income loss during the period of restoration. After the laundromat/bar resumed operations, it experienced a reduction of normal business income amounting to $10,000 per month for the next 6 months. Assuming no coinsurance issues, what additional amount, if any, will Al's insurer pay him for the reduction in business income he experienced after the period of restoration ended?

Answer: $20,000. Al is eligible to receive up to 90 days (3 months) of EPI benefits, or $30,000. However, $80,000 of the available $100,000 in policy limits were previously paid during the Period of Restoration leaving only $20,000 in available coverage to pay Al's EPI loss. See, B. Limits of Insurance: Payments under the following coverages will not increase the applicable Limit of Insurance: 4. Extended Business Income, pg. 5/9. See, E. Optional Coverages, 4. Extended Period of Indemnity, pg. 8/9.

1. To cover his business income and extra expense exposures, Al purchased a Business Income (And Extra Expense) Coverage Form with a policy limit of $75,000. Al's business suffered a covered business income loss. It will take Al two months to resume operations. The net profit Al would have earned during this time period was $20,000 (after the 72-hour waiting period). Al continued to pay rent, taxes and insurance premiums totaling $5,000 during the two month period of restoration. How much will Al's insurer pay him for this business income claim? You may assume no coinsurance condition applies to this loss.

Answer: $25,000. $20,000 (net income that would have been earned) + $5,000 (continuing normal operating expenses). See, A. Coverage, 1a. and 1b., pg. 1/9.

The Edison letter was damaged by fire while located within the interior premises of the building shown on the Declarations. Its estimated value was $400,000

Answer: $250,000. Covered loss paid up to $250,000 coverage limit.

The Johnson memo was on loan to the Getty Museum located in Los Angeles, California, when it was destroyed by vandals. The estimated value of the memo was $150,000.

Answer: $5,000, 5. Coverage Extensions, b. Away From Your Premises. Loss or damage to covered property while away from your "property" paid up to $5,000 (unless a higher limit specified in the Declarations).

To cover his business income and extra expense exposures, Al purchased a Business Income (And Extra Expense) Coverage Form with a policy limit of $60,000 and a 50% coinsurance clause. On the first day of the year, Al's business was struck by a tornado causing damage to his building. As a result of the building damage, Al was unable to operate his business for one month. But for the tornado, Al's net income and operating expenses for the twelve months following the policy inception date would have been $180,000. For the month Al's was closed, the business loss (net income plus continuing operating expenses) was $12,000. Based on the above information, how much will Al collect from his insurer for this business income loss? Do not overlook coinsurance. Show your calculations to receive full credit for your answer.

Answer: $8,000. Step 1: Determine whether Al has met the 50% coinsurance requirement: $180,000 x .5 = $90,000 (amount of insurance coverage required to meet 50% coinsurance requirement). $60,000 (amount of coverage)/$90,000 (amount of coverage required) = .67 (coinsurance penalty) Step 2: Multiply loss amount ($12,000) by the coinsurance penalty (.67) [$12,000 x .67 = $8,000] See, D. Additional Condition - Coinsurance, pg. 6/9.

ABC Manufacturing Company has an Equipment Breakdown Protection Coverage Form with the following limits of insurance indicated on the policy Declarations: Property Damage $200,000 Expediting Expense $ 50,000 Extra Expense Only $ 50,000 Brands and Labels $ 25,000 Indicate what coverage, if any, ABC would have under their policy for each of the following losses. Treat each loss as a separate incident and cite specific policy provisions/language in support of your answers in order to receive full credit. 6. One of ABC's steam boilers exploded, causing $50,000 damage to the boiler itself, $30,000 property damage to an adjacent building owned by a neighboring business, $15,000 in medical expenses to a customer who was near the steam boiler at the time of the explosion, and $100,000 in property damage to a customer's goods (on which ABC was working at the time of the explosion).

Boiler - Covered loss; $50,000 paid. Boiler meets policy definition of "covered equipment." Adjacent Building - No coverage; this building doesn't meet the policy definition of "covered property" since it isn't owned by the insured or in the insured's care, custody, or control. Medical Expenses - Not covered as there is no insuring agreement under this coverage form that pays medical expenses. Customer Goods - Covered loss paid in full ($100,000) since the customer goods meet the policy definition of "covered property" and the loss is within the $200,000 coverage limit.

One night, after many loads of laundry and many glasses of beer, an intoxicated patron slammed his car into Al's detached sign. The sign flew 10 feet from the front sidewalk and slammed into the wall of Al's building. The sign cost $1,200 to replace. The actual cash value of the damage to the building was $2,000, but it will cost $3,000 to replace the damaged part of the building.

Building - Covered (meets definition of covered property per A.1.a.) for $2,000. ACV paid per E. Loss Conditions, 7. Valuation, p. 12/16. [Note: Since replacement cost of the building is $3,000, E. Loss Conditions, 7.b. is not applicable]. Sign - Covered (meets policy definition of business personal property per A.1.b.). Coverage for outdoor signs limited to $2,500 per sign per occurrence per C. Limits of Insurance, p.9/16.

Al's business was thriving, so he acquired a new location which was also to be used as a "Suds & Duds". The building and the personal property at the new location were totally destroyed by a fire only two weeks after being purchased by Al. He had not yet had the opportunity to notify his insurer of the purchase of the building at the time of the fire. The value of the building at the new location was $200,000, and it contained $150,000 of business personal property.

Building - Covered for $200,000 Business Personal Property - Covered for $100,000 (coverage limit). B&PP, Coverage Extensions a. Newly Acquired or Constructed Property, p. 7/16 [Note 30-day maximum time limit applicable to this coverage]

An accident to covered equipment located at ABC's manufacturing plant resulted in $10,000 damage to the piece of equipment and caused ammonia to leak from the covered equipment. The ammonia contaminated some of the insured's other property on premises, causing $30,000 damage to this property. Additionally, the water damaged a large number of flattened cardboard boxes (valued at $5,000) which ABC uses to ship its products. Finally, the damage to the equipment resulted in $10,000 of refrigerated goods to spoil.

Equipment: Covered in full ($10,000) as it's "covered equipment" damaged as a result of "breakdown" Other Property: Covered loss up to $25,000; see C. Limits of Insurance, 5a. Ammonia Contamination Cardboard boxes: Covered in full; see C. Limits of Insurance, 5e. Water Damage Refrigerated goods: No coverage as insured did not purchase Spoilage Damage coverage

On his way to work, Al stopped at the dry cleaners to pick up his Armani suit, which had an actual cash value of $2,000. He was concerned about leaving it in the car all day, so he took it into the store and hung it on the back of his office door. When he stepped out of his office, the suit had been stolen.

Suit - $0. Not covered per B&PP, Coverage Extensions b(1) Personal Effects and Property of Others, p. 8/16: no coverage for loss or damage due to theft.

A commercial building is insured for $100,000 under a commercial property insurance policy with an 80 percent coinsurance clause. The building is damaged by fire and the loss is $50,000. The actual cash value of the building at the time of the loss is $250,000. Assume there is no deductible applicable to this loss. (a) How much of this loss will the insurer pay? Show your calculations. (b) Assume that the amount of insurance on the building at the time of the loss is $200,000. How much of the loss will the insurer pay in this case?

a. Step 1: $250,000 x .8 = $200,000 (amount of coverage insured needed to purchase in order to comply with the coinsurance requirement). Step 2: $100,000/$200,000 = .5 (amount of insurance insured purchased divided by the amount of insurance they should have purchased in order to satisfy the policy's coinsurance requirement). Step 3: $50,000 (amount of partial loss) x .5 (coinsurance penalty) = $25,000 (amount of partial loss payable). b. Step 1: $250,000 x .8 = $200,000 (amount of coverage insured needed to purchase in order to comply with the coinsurance requirement). Step 2: $200,000/$200,000 = 1 (amount of insurance insured purchased divided by the amount of insurance they should have purchased in order to satisfy the policy's coinsurance requirement). Step 3: $50,000 (amount of partial loss) x 1 (coinsurance penalty) = $50,000 (amount of partial loss payable).