4-A Commercial Property

Acme Boats experiences a devastating fire in their factory. They turn to their Business Income coverage to recover their loss of income due to the fire. When Acme Boats initiated the policy, they chose the Maximum Period of Indemnity coverage option with a policy limit of $150,000. Acme Boats experienced the following loss of business income in the months after the fire: Monthly Income Losses Month Amount Month 1 $20,000 Month 2 $20,000 Month 3 $15,000 Month 4 $15,000 Month 5 $10,000 Month 6 $10,000 How much money might Acme Boats be indemnified for the loss of business income?

$70,000

Preservation of Property

(Removal of Property) applies when the insured removes property to protect it from a covered peril - covered for any cause during the removal and storage - Coverage lasts up to 30 Days

SPOILAGE

** THIS IS NOT INCOME LOSS COVERAGE; DO NOT INCLUDE ANY EXPEDITED PROFIT MARGINS ** INDEMNIFICATION = MRKT SELLING PRICE - ANY DISCS INSURED WOULD EXPECT

What does Commercial Property not cover?

- Farms - 1 to 4 Family Dwellings

Increased Construction Costs

- applies when the insured has to pay extra in order to conform to new building ordinances when repairing or replacing a covered loss Limit: $10,000 - 5% of Coverage A Limit Only applies to building insured on RC basis

Common Additional Coverages

-Debris Removal -Pollution Clean-Up Removal -Preservation of Property -Fire Dept Svc Charge -Increased Construction Costs - Electronic Data

Business and Property Conditions

1. Abandonment - insurer will not pay for damages to these types of property even if listed on the policy 2. Appraisal - establishes guidelines when the insurer and insured disagree on the value of a loss - each party can hire it owns appraiser - appraisers select an impartial umpire 3. Duties in the Event of a Loss 4. Loss Pymt 5. Recovered Property 6. Vacancy - all ins coverage will be reduced by 15% 7. Coinsurance 8. Valuation 9. Mortgagee Clause

Commercial Property Coverage Forms

1. Building and Personal Property Coverage 2. Business Income Coverage 3. Contingent Business Interruption Coverage 4. Builders Risk Coverage 5. Condominium Coverage 6. Leaseholders Interest Coverage 7. Legal Liability Coverage 8. Differences in Conditions Coverage 9. Other Coverage Forms and Endorsements

Conditions Specific to Commercial Policies

1. Cancellation/Non-Renewal - insurer should notify at least 45 days before cancellation - penalty for not giving this notice - insurer must offer 30 more days of coverage at same rates 2. Vacancy Definition - Building is closed for 60 days - Less than 31% of the buildings available floor space is occupied for 60 days 3. Legal Action Against the Insurer - Insured must comply with all policy obligations - insured has 2 yrs from the date of loss to file a lawsuit 4. Liberalization - all current insureds will benefit from increases in coverage that do not raise the premium - applies to changes that go in effect during policy period or up to 45 days before a policy start date

Commercial Policy Conditions

1. Cancellation/Non-Renewal 2. Liberalization 3. Changes to Policy 4. Legal Action Against Insurer 5. Concealment, Misrepresentation, Fraud 6. Subrogation 7. Control of Property 8. No Benefit to Bailee 9. Vacancy 10. Other Insurance

What are the four standard sections in a commercial insurance policy?

1. Declarations Page 2. Conditions 3. Coverage Forms 4. Causes of Loss Forms

In a commercial property policy, the Monthly Limit of Indemnity coverage option for Business Income insurance: a . requires an insured to parcel the stated policy limit into a fractional maximum amount of coverage available per month during the period of restoration. b . automatically raises the policy limit every month, to protect against the effects of inflation. c . requires the insured to maintain at least an 80% level of coinsurance on the insured property. d . establishes a separate aggregate limit for each month of the entire policy period.

A

In what part of a commercial property policy would you look to see if flood damage to your factory is covered? a . Causes of Loss Forms b . Declarations page c . Conditions page d . Coverage Forms

A

Bailee

A business that holds property of others for the purpose of storage, repair, or servicing

What do most Commercial Property Policies insure on?

ACV (Actual Cash Value)

ABC Acoustics builds replica Neumann microphones using tube technology. When a fire takes out the only factory that manufactures these vintage tubes, ABC Acoustics must halt production until their supplier's factory comes back online. Which commercial property insurance coverage option could indemnify ABC Acoustics from lost income due to halted production? a . Extra Expense b . Contingent Business Interruption c . Vintage Replacement d . Electronic Data

B

Ben owns a souvenir shop in a small town. During the winter time, the population consists of about 2,000 locals, but once the summer season hits, it's a mad-house. The island can see over a million travelers during the summer season, and Ben must be ready with enough inventory to handle the demand. Which endorsement to his commercial property policy could temporarily increase Ben's coverage limits during this high-volume time? a . Legal Liability b . Peak Season c . Protective Safeguard d . Tourism Endorsement

B

Veronica is in the process of building an extra structure for the sole purpose of kiln firing her pottery. After 40 days of waiting for it to be completed, she decides to go ahead and begin using it, since the kiln is already set up, even though the interior drywall isn't completely finished. Her Builder's Risk Coverage Form is then terminated because: a . interior drywall isn't covered under a Builder's Risk Coverage Form. b . Veronica has now put the building to its intended use. c . Builder's Risk policies are only good for 30 days. d . the risk of fire voided the policy.

B

Frank found a "favorable lease" for his business two years ago at $10/sq.ft. per year. He ended up leasing a 20,000 sq.ft. space for 6 years to lock in that yearly lease of $200,000. Yesterday, Frank's business was struck by lightning and burned to the ground, forcing him to lease a new building. Unfortunately the going rate now is $15/sq.ft. and Frank still needs 20,000 sq.ft. of space. How much could Frank's Leasehold Interest Coverage pay for the additional costs of leasing a new space for the remaining 4 years? a . $1,200,000 b . $100,000 c . $300,000 d . $400,000

BEFORE: $200,000 A YR TIME LEFT OF LEASE 4 YRS AFTER: ($15 SQ FT)(20,000 NEEDED SQ FT) = 300,000 $300,000 - $200,000 (OLD LEASE) = $100,000 MORE INDEMNIFICATION: 100,000(4 YRS) = $400,000 SO HE WOULD RECEIVE $400,000

1. Building and Personal Property Coverage

Basis of all Commercial Property Policies Coverage A - Buildings and Structures - within 100 feet of insured property, additions, construction equipment, building materials Coverage B - Business Personal Property - covers business not affixed to the structure (inventory or products held for sale - leased business personal property - business owned property for business owned purposes) Coverage C - Personal Property of Others - only applies to locations listed on "Dec Page" - Commonly $2,500 of coverage

In a commercial property policy, Builders Risk coverage is sold based on which of the following values? a . The value of the land underneath the new construction b . The highest value of a building currently insured by the policyholder c . The value of the completed building d . The value of labor and materials used in construction

Builders Risk coverage is sold on the basis of the completed value of the building, and the insured must carry 100% coinsurance on the policy to receive full coverage for partial losses. c . The value of the completed building

ABC Computers experiences a fire overnight at their corporate offices. ABC Computers had purchased an older building to house their offices, and the repair costs include upgrading the old building to adhere to modern fire codes. Which coverage might indemnify ABC Computers for the added expense of these upgrades? a . Legal Liability coverage b . Builders Risk coverage c . Ordinance or Law endorsement d . Extra Expense coverage

C

Mackey Manufacturing signs a five-year lease at a new location, only to have the building burn down one year into their new lease. Now they have to lease a new property, and the rental prices have increased, so the company now has to pay higher rental costs. Which commercial property coverage form might indemnify Mackey Manufacturing for the difference in lease costs? a . Property Off-Premises Coverage Form b . None c . Leasehold Interest Coverage Form d . Preservation of Property Coverage Form

C

After a fire burns through XYZ Condominiums, they have to replace most of the interior. Which of the following WILL be covered under the Condominium Coverage Form of the condo association's commercial property policy? a . Computers used by one of the commercial units b . Upgrades within individual condos c . Personal property of a commercial unit d . Computers used by the condo as a whole

D

After a fire burns through XYZ Condominiums, they have to replace most of the interior. Which of the following will NOT be covered under the Condominium Coverage Form of the condo association's commercial property policy? a . Computers used by the condo b . The common areas of the condo building c . Piping, ductwork, or wire units d . Upgrades within individual condos

D

Thomas runs a computer repair shop. One morning he arrives to find the front glass window broken and a number of his customers' computers stolen. Thomas' Legal Liability Coverage Form would pay for: a . the cost of replacing the front window. b . Thomas' own personal computer. c . cash taken from the register. d . his clients' computers.

D

When a fire destroys a car parts manufacturer in China, USA Motors finds itself without the necessary parts to build its vehicles. Which commercial property insurance coverage option could indemnify USA Motors from lost business due to the damages sustained by its Chinese supplier? a . Inflation Guard b . Order of Civil Authority c . Extra Expense Coverage d . Contingent Business Interruption

D

Fire Dept Fee

Limit Applies to each premises No deductible

Debris Removal

Limit: 25% of total claim for property damage Additional $25,000 of coverage is available if -- the property damage exceeds policy limit; debris removal expense exceeds 25% limit

LEASEHOLD INTEREST COVERAGE EXAMPLES

RENT B4 DAMAGES: $300,000 YR OR $25,000 MTH TIME LEFT? 3 YRS HOW MUCH WILL IT COST TO RENT A NEW PLACE? $450,000 OR $37,500 INCREASE IN LEASE COST: $450,000 - $300,000 = $150,000 INDEMNIFICATIONS: $150,000 * 3 (YRS REMAINING) = $450,000

If you meet a coinsurance premium a ___________ __________ _________ can be added as an endorsement.

Replacement Cost Policy

When Shawn purposefully set fire to Jim's restaurant, Jim was covered under his commercial property policy. Which condition allows Jim's insurer to attempt to reclaim damages from Shawn?

Subrogation

Outdoor Property

Th e Outdoor Property extension provides up to $1,000 in coverage for damage to television and radio antennae, detached signs, and trees, plants, or shrubs. Trees, plants, and shrubs are subject to a maximum of $250 coverage per unit. Outdoor property is cove red from the perils of fire, lightning, explosions, riots and civil commotion, and damage by aircraft.

A storm travels through town, partially destroying Wilma's business, which is covered by a commercial property policy. Wilma maintains Business Income Coverage with a $100,000 limit, and the Maximum Period of Indemnity coverage option. Wilma's business incurred the following losses: Monthly Losses Month Amount Month 1 $19,000 Month 2 $16,000 Month 3 $14,000 Month 4 $11,000 Month 5 $6,000 How much would her policy pay for lost income?

The Maximum Period of Indemnity coverage option pays for the actual loss to business income and any extra expenses incurred, but only up to a maximum of 120 days (approximately 4 months). So, add up the losses for months 1 through 4 and we come up with $60,000

Newly Acquired Property

The Newly Acquired Property extension provides thirty days of insurance coverage for new buildings under construction at the insured premises, or for any newly acquired business properties located off the insured premises. This extension provides up to $250,000 in coverage for buildings and structures.

Non-Owned Trailers

The Non -Owned Detached Trailers extension provides up to $5,000 in coverage for any non -owned trailers damaged during use if being used for business purposes on the insured premises. This extension only applies if the non -owned trailer is not attached to a vehicle, and if the insured has a contractual responsibility to pay for damages to the trailer.

Personal Effects

The Personal Effects and Property of Others extension provides up to $2,500 in coverage for damage or destruction of personal belongings of the insured or employees of the insured, or personal items in the care, custody, and control of the insured. The loss must occur on the insured premises. This extension does NOT apply to the theft of personal effects.

Property Off-Premises

The Property Off - Premises extension provides up to $10,000 for covered business property temporarily not located on property owned, leased, or rented by t he insured. Property Off - Premises coverage excludes property that is off-premises for the purpose of being sold.

Valuable Papers

Under the Valuable Papers and Records extension, Coverage B provides up to $2,500 towards the recovery or replacement of valuable papers and computer records damaged or destroyed by a covered peril.

A storm travels through town, partially destroying Wilma's business. Wilma maintains a Business Income coverage policy with $120,000 limit, and the Monthly Limit of Indemnity coverage option. Wilma's business incurred the following expenses: Monthly Expenses Month Amount Month 1 $29,000 Month 2 $36,000 Month 3 $24,000 Month 4 $31,000 How much would her policy pay for lost income if Wilma had a monthly limit of 1/4 in place?

With a monthly limit of 1/4, Wilma's Business Income coverage will pay a maximum of 1/4 of her limit every month during the period of restoration, until the policy limit is reached. 1/4 of $120,000 is $30,000. 1/4= 0.25 0.25($120,000)= $30,000 So, she'll receive the actual loss amount in months 1 & 3, since they fall below the limit. 29,000+24,000=53,000 AND she'll only receive $30,000 for months 2 & 4. This totals $113,000. 53,000+30,000+30,000= $113,000

Argo Sciences Inc. wants to build a new testing laboratory for their line of chemicals. They want insurance coverage to protect their insurable interest in the building and materials while under construction. What commercial property coverage might Argo Sciences Inc. purchase to protect their new facility while it's under construction? a . Preservation of Property b . Builder's Risk coverage c . Extra Expense coverage d . Business Income coverage

b . Builder's Risk coverage

Which of the following coverage options does NOT waive the coinsurance requirement in a commercial property policy? a . Monthly Limit of Indemnity b . Replacement Cost c . Maximum Period of Indemnity d . Agreed Value

b . Replacement Cost The replacement cost endorsement will always require the policyholder to meet at least the 80% level of coinsurance.

Electronic Data

covers cost of replacing or restoring electronic data lost or damaged by covered loss includes losses caused by viruses or malicious code, unless introduced by employees of the insured. limit: $2,500 per year does not apply to data used to operate; elevator, lighting, heating, ventilation, a/c, security system

Coverage Extensions

only for policyholders who maintain the coinsurance requirement of 80% of the propertys value not subject to policy limits

Pollution Cleanup

pays up to $10,00 for pollution damages caused by a covered peril insured must report the loss within 180 days

Commercial Property Insurance

provides coverage against direct and indirect loses related to business property

Universal Exclusions

specific types of loss or damage that are not covered under the policy - optional extensions or endorsements can qualify some of these for coverage exs: loss caused by enforcement of building ordinances - earthquakes or land movement - seizure or destruction by governmental action or authority - war - nuclear reaction - loss resulting from utility failure - flood/mudslides/rising of water/or backup of water - explosion of boilers/steamers/pipes/engines