AAI 303

Would a garage attached to a dwelling be covered under Coverage A—Dwelling, Coverage B—Other Structures, Coverage C—Personal Property, or Additional Coverages?

YES Coverage A—Dwelling applies to structures (such as a garage or a deck) attached to the dwelling and to materials and supplies located on or next to the covered dwelling and used to construct or repair the dwelling.

dwelling policy

Although a dwelling policy can be used to insure only personal property with no dwelling or structures coverage, this is rarely done. The DP-3 form is more commonly used to cover only the dwelling and other structures (for example, to insure a house rented unfurnished to tenants) or to cover the dwelling, other structures, and personal property.

What are the most significant differences in coverage between the DP-3 and HO-3 policies?

Although many differences exist between the dwelling and homeowners policies, among the most important is that the unendorsed DP-3 policy provides neither theft coverage for personal property nor liability coverage. However, both of these coverages can be added to the dwelling policy by an endorsement or supplement.

These are a few possible situations in which Coverage F would apply:

An insured's dog bites a party guest at the insured's home. (Coverage would not apply if the dog bites a burglar because the intruder didn't have permission to be there.) An insured is draining water from a pool into the street and a neighbor slips in the water and breaks his wrist. An insured plays soccer on weekends and accidentally breaks a teammate's nose.

Aziz has a 60-month loan on a vehicle with an actual cash value of $31,000. The vehicle is totally destroyed in an accident. At the time of the loss, Aziz's loan amount is $33,450, of which $595 is the remaining cost of an extended warranty. How much would Aziz be paid for the vehicle under both an unendorsed PAP and a PAP with the Auto Loan/Lease Coverage endorsement?

An unendorsed PAP would pay Aziz the $31,000 actual cash value. If the policy includes the Auto Loan/Lease Coverage endorsement, the payment would be $32,855 (the $33,450 loan amount less the $595 warranty cost).

One month after renewing their homeowners insurance policy, Antonia and Emilia sold their home to another couple, Olivia and Frederik, who had relocated from another state. To make life a little easier for Olivia and Frederik, Antonia and Emilia decided to transfer their homeowners insurance to them. Explain whether the transfer is legally enforceable.

Antonia and Emilia's transfer of their homeowners policy to Olivia and Frederik may not be legally enforceable because an insurance policy is a personal contract between the insurer and the policyholder. Therefore, the insurer is able to choose whom it will insure. The assignment condition states that any assignment of the policy will not be valid unless the insurer provides its written consent.

In most circumstances, the spouse of the named insured under an auto insurance policy is also covered by the policy. But what if the married couple don't reside in the same home? Is the spouse still covered by the policy?

Assuming the spouse and the named insured lived at the same address when the policy was issued, the spouse will continue to be covered by the policy if he or she moves out of the household but remains married to the named insured. But the spouse will only be covered for 90 days, until the policy expires, or until the spouse purchases other PAP coverage—whichever occurs first.

Although Nia earns a comfortable income, she sometimes goes a month or so without any commission income at all. In addition, Nia and Zahara are willing to take risks to potentially increase the value of their investments, are contributing the maximum amounts to their tax-advantaged retirement plans, and welcome additional tax advantages. Based on this information, what characteristics do you think the most suitable life insurance policy for Nia and Zahara would embody?

Based on this information, the most suitable life insurance policy for Nia and Zahara would have these characteristics: It should build tax-deferred cash value, which would offer the tax advantage of deferring taxes on gains. The premium should be flexible to allow for Nia's irregular cash flow. The death benefits should be flexible. The ability to increase and reduce the death benefit is important because the family's death benefit needs are likely to change as the children mature and begin their own families and as Nia eventually retires. The policy should facilitate access to its cash value that could be used to increase the couple's retirement income. The policy should enable the couple to potentially increase their cash value by taking on investment risk.

Consider the differences between automobiles and recreational vehicles. In what ways might their loss exposures differ?

Collision damage for recreational vehicles tends to be more frequent per mile driven than for personal autos because drivers may not be able to adjust to the different operating characteristics of motor homes or recreational trailers. Additionally, the use of recreational vehicles as temporary dwellings creates exposures common to residences, such as fire and explosion. Camping vehicles can have a greater exposure to flood or windstorm damage than autos because campsites are often located in flood plains or in wooded areas.

Replacement Cost optional coverage

Coverage for losses to most types of property on a replacement cost basis (with no deduction for depreciation or obsolescence) instead of on an actual cash value basis.

Some of the main differences between BOP property coverage and the ISO commercial property coverage forms include these:

Covered causes of loss in the BOP are usually offered on either a broad form or special form basis. Replacement cost is the standard BOP valuation provision. Some BOPs have no insurance-to-value provisions. BOPs contain a shorter list of property not covered. BOPs contain automatic seasonal increase provisions. Business income and extra expense coverage is automatically included in BOPs.

Dirk has a rare 1968 Ford Mustang that was passed down to him after his father's death. The car is highly valuable, and Dirk can't afford to insure it for its full appraised value. However, he doesn't plan to drive it much. If Dirk wants to insure the Mustang under his PAP with collision and other than collision coverage, describe which (if any) endorsement he could consider attaching to his policy.

Dirk could attach the Coverage for Damage to Your Auto (Maximum Limit of Liability) endorsement to his PAP, which would allow him to establish the Mustang's insurable value when the policy is written by inserting a stated amount of insurance in the policy. The stated amount may be less than the appraised value of the vehicle, allowing Dirk to insure it for a lower premium than he might pay under a policy that would establish a level of coverage for the car using its appraised value.

Dmitri recently purchased a long-term disability income policy. The policy states that he can renew the coverage until age 65 as long as he is gainfully employed. However, the insurer reserves the right to raise the premium at renewal. Which type of policy has Dmitri purchased?

Dmitri has purchased a guaranteed renewable policy, in which the insurer must renew the policy but can raise the premiums.

What are some common types of personal watercraft that are not classified as small boats?

Examples of watercraft that do not qualify as small boats include Jet Skis, WaveRunners, and Sea-Doos. Obtaining insurance for these may require specialty policies or endorsements.

Continuing expenses

Expenses that continue to be incurred during a business interruption.

Why do you think property related to home-sharing activities is excluded?

If insureds routinely rent out their home or part of their home, their home sharing is likely considered a business. Endorsements to the homeowners policy are available to provide appropriate home-sharing coverage.

What are the effects of long-term disability?

In addition to losing the disabled individual's wages, families must often pay medical expenses (with or without health insurance) and may incur costs for physical therapy or rehabilitation. The individual may also need funds for education or retraining so that he or she qualifies for another type of job—one in which the disability is not a concern.

Doug is employed as a delivery driver for a pizza restaurant. When delivering pizza, he uses his own vehicle, which is insured under his PAP. Doug is seriously injured during a pizza delivery when his car is struck from behind by a hit-and-run driver. The pizza restaurant's workers compensation insurer, Delmond Insurance, pays Doug for his medical expenses and lost wages. Delmond Insurance decides to seek reimbursement from Doug's PAP insurer under Part C of Doug's policy. Explain the basis of Delmond's claim and what will likely occur in Delmond's attempt to assert it.

In some states, if an injured employee receives workers compensation benefits, the workers compensation insurer has a legal right to recover the amount of the benefits from a negligent third party through subrogation. If an employee receives workers compensation benefits for an injury involving an uninsured, at-fault driver, the workers compensation insurer could sue the driver or attempt to make a claim under the injured employee's UM coverage, which is what Delmond Insurance is attempting to do. However, Part C of the PAP contains an exclusion that prevents any insurer from benefiting directly or indirectly under a workers compensation law. That exclusion will likely prevent Delmond from obtaining reimbursement under Doug's PAP UM coverage.

What is inland marine insurance?

Inland marine insurance is designed to cover property that has special value or that frequently moves ("floats") from one location to another.

Nancy is a certified public accountant (CPA) who operates an accounting firm from an office in her home. The lease agreement she has for her office furniture requires her to have it insured, and she has some concerns that the outside walkway that leads to her office's entrance could ice up during the winter months when clients are starting to get their taxes in order. Which business endorsements would you recommend she add to her homeowners policy?

Nancy can insure her leased office furniture by adding the Home Business Insurance Coverage endorsement. The same endorsement will also provide liability coverage for Nancy if a client were to slip and fall on the premises and seek damages from Nancy. Also, because Nancy is operating an accounting firm, she may want to increase her valuable papers and records coverage from $2,500 to a more adequate amount. This increase can be implemented using the Valuable Papers and Records Coverage Increased Limits endorsement.

Why might an insured want to include an optional passenger exclusion to a Miscellaneous Type Vehicle endorsement?

One reason might be that a motorcycle owner who never carries passengers can receive a lower premium by electing this exclusion.

Vehicles come in all sorts of shapes and sizes, and so do the property and liability loss exposures associated with them. Think about the various types of vehicles—motor homes, golf carts, motorcycles and so forth—and try to identify risk management techniques that can be used to address loss exposures related to miscellaneous vehicles.

Risk management relating to miscellaneous vehicles can be divided into risk control techniques and risk financing techniques.

How does the basic principle of insurance apply to life insurance?

The basic principle of all insurance is that the financial losses of the few are drawn from the paid premiums of the many. Life insurance beneficiaries are compensated from premiums paid by other insureds in the life insurance pool.

c. Vandals broke several windows in KI's building.

The broken windows would be covered because vandalism is a covered cause of loss in the Broad Form.

The Basic Form lists several covered causes of loss. How many can you name?

The covered causes of loss in the Causes of Loss—Basic Form are fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Additional limited coverage is available for "fungus," wet rot, dry rot, and bacteria.

How can you tell whether a commercial insured has purchased optional coverages for its BPP?

The optional coverages apply only when an appropriate notation is made on the declarations page.

What are some of the benefits of having health insurance?

Those who have health insurance tend to live longer and have a better quality of life than uninsured people. They are more likely to visit healthcare providers for recommended medical examinations, such as routine physicals, blood tests, mammograms, prostate exams, gynecological and obstetric tests, and colonoscopies. And if problems arise, they are more likely to seek appropriate medical care promptly. This cuts overall costs and increases the chances for positive outcomes.

Henry has replaced his current auto insurance policy with a new insurer. What must he do to cancel his original auto policy, which was issued by a different insurer?

To comply with the cancellation provision, Henry can cancel the original policy anytime during the policy period by returning the policy to the insurer or by giving advance written notice of the date the cancellation is to become effective.

How is Uninsured Motorist (UM) coverage different from Underinsured Motorist (UIM) coverage?

UM coverage is meant to protect the named insured from damages caused by a driver who does not have any liability coverage. UIM coverage is meant to bridge the gap between those damages and the policy limits of an at-fault driver's insurance if they are too low.

Like most insurance policies, an umbrella policy will provide coverage only for the liability loss exposures of specific people. Who would those people be?

Umbrella policies cover the named insured, resident relatives, and usually people using (with the insured's permission) the named insured's owned or rented cars, motorcycles, recreational vehicles, or watercraft. Umbrella policies also generally cover anyone younger than 21 who is in the care of the named insured or of a resident relative.

Pedro purchased a new sedan for his two teenage children to use and added the auto to his own PAP policy. Several months later, he and his wife opened their home to Francesca, a foster child, while she finished up her last year of high school. Would Francesca be covered under Part A—Liability Coverage of Pedro's PAP if she borrowed the sedan and caused an accident for which she was found liable?

Yes, because foster children who live in the same household with the insured are considered family, Francesca would be covered under Part A—Liability Coverage of Pedro's PAP.

Some disability policies use a modified "own occupation" definition, which means

full benefits are paid if the insured is unable to perform the duties of his or her specific occupation or any other occupation. However, if the insured can earn income from another occupation, the benefit payments are reduced in proportion to the income earnings from the other occupation.

Agreed Value optional coverage

optional coverage that suspends the Coinsurance condition if the insured carries the amount of

For example, assume an insured who is legally liable for bodily injury in an auto accident has a PAP with a $100,000 limit of liability. If the insured is found legally liable for injuring one person and ordered to pay a $50,000 judgment plus $5,000 in prejudgment interest, the insured's PAP issuer will pay

the full $55,000. However, if the judgment were $95,000 plus $10,000 in prejudgment interest, the insured's PAP would pay only up to the $100,000 limit of liability.

Larry sold his home and most of his furniture to spend two years traveling by bicycle across the United States and Europe. He is traveling with camera equipment valued at $8,000. He also placed some furniture, books, and personal possessions in a self-storage unit. What personal inland marine policies can Larry purchase to cover his property?

A Personal Effects Form can be used to cover Larry's camera equipment. The Personal Property Form can be used to insure the property in the self-storage unit.

Jones Act (United States Merchant Marine Act of 1920)

A federal statute that permits injured members of a vessel's crew (or survivors of a deceased crew member) to sue their employer for damages due to the employer's negligence.

What does it mean for coverage to apply on a named perils basis?

A named perils basis means that coverage applies only if covered property is damaged as a result of a cause of loss specifically named in the policy. While open perils and named perils cover many of the same causes of loss, open perils coverage names causes of loss that are not covered, thereby covering all others. So open perils coverage may include causes of loss that are not among the named perils. For example, melting snow can back up beneath roof shingles if ice accumulates in roof gutters, a condition referred to as "ice dam. This water can then enter the building, causing water damage to both the building and personal property within it. Ice dam is not a named peril under Coverage C, but it is not excluded from open perils Coverage A and Coverage B, so it is covered under them. Resulting water damage to the building is covered by Coverage A or Coverage B, but water damage to personal property in the building is not covered by Coverage C.

Warranty

A promise made by an insured that guarantees compliance with the insurer's conditions.

Lay-up provision

A provision that suspends certain coverages on recreational vehicles and watercraft for a specified period during seasons when they are in storage.

Inherent vice

A quality of or condition within a particular type of property that tends to make the property destroy itself.

Indemnity plan

A type of healthcare plan that allows patients to choose their own healthcare provider and reimburses the patient or provider at a certain percentage (usually after a deductible is paid) for services provided.

Managed-care plan

A type of healthcare plan that provides members with comprehensive services and encourages them to use providers belonging to the plan.

Open perils coverage

A type of policy or coverage that insures against direct physical loss unless the loss is excluded or limited by the policy.

Alva is a homeowner who rents a furnished apartment above her detached garage to Conor. Her base homeowners policy does not provide coverage for any damage that occurs to the garage structure. She's also concerned about being liable if Conor is ever injured through negligence on her part as landlord. What endorsements for insuring rental exposures would address Alva's concerns?

Alva can acquire coverage for any damage to the garage structure through the Structures Rented to Others endorsement. This same endorsement will also provide liability coverage if Conor were to become injured because of her negligence as a landlord, such as if she were to hire an incompetent electrician who causes an electrical fire that burns Conor. Additionally, Alva may need to increase the $2,500 limit on Landlord's Furnishings. This can be done using the Landlord's Furnishings—Forms HO 00 02, HO 00 03 and HO 00 05 Only endorsement.

Brian's employer offers two healthcare plan options: an HMO and a PPO. Brian and his husband, Karl, are both in their late 20s and have no known health issues. They would prefer a plan with low premiums and out-of-pocket expenses. But they are new to the area and not familiar with area physicians or other medical care providers. Which one of the healthcare options would best meet the couple's needs?

An HMO would best meet Brian and Karl's needs. It would offer lower premiums and low, fixed, prepaid fees with small co-payments for routine visits. Because the two are in good health but not familiar with area physicians and other medical care providers, they are less likely to want or require the services of out-of-network providers. A PPO plan would be a more costly solution in terms of premiums and co-payments but would provide more flexibility for treatment from out-of-network providers, which does not suit the couple's current needs.

d. An earthquake damaged KI's building.

Any damage to KI's building caused by the earthquake would not be covered because earthquake is not a covered cause of loss and the Earth Movement exclusion applies.

As an example, Bob has a disability policy that defines disability as "own occupation." Bob, a mail clerk with a severe knee injury, cannot deliver mail throughout an office complex, his normal duties. However, he can perform other duties, such as operating a computer to track mail requests from various departments and requesting pickup and delivery from parcel delivery vendors. Under this "own occupation" policy,

Bob would be paid full benefits while he performs his new duties. Under a policy that defines disability as "any occupation," Bob could not collect benefits because he could perform the duties of another occupation. A policy that uses the "own occupation" definition requires a higher premium.

What are the major components of a CDHP?

CDHPs usually include three major components: A health savings account (HSA) or a health reimbursement arrangement (HRA) High-deductible medical coverage with no charge for preventive care Access to informational tools to make informed healthcare decisions

What insurance product is available for liability protection beyond that provided in homeowners and auto policies?

For individual liability protection beyond that provided by homeowners and auto policies, individuals and families can purchase umbrella liability protection. For example, an umbrella policy with a $1 million limit provides supplementary protection above and beyond the limits provided in an individual's auto and homeowners policies. The nominal cost of an umbrella policy makes it an attractive feature of a personal insurance plan for individuals with potentially high liability loss exposures.

Based on your experience, can you think of examples of when people need to purchase personal inland marine coverage?

Here are some examples of when inland marine coverage might be appropriate: A couple own highly valued paintings and sculptures, and their insurer is reluctant to provide the requested amount of coverage by endorsement to their homeowners policy. To insure his collection of costly cameras and lenses, an amateur photographer needs customized coverage that his homeowners policy cannot offer. A retired person owns valuable jewelry or golf equipment but lives in a retirement home and has no homeowners policy. A couple want to keep their homeowners premium separate from the premium on jewelry or collectibles because the homeowners premium is paid together with their mortgage payment.

Julian insures his home with a basic HO-3 form. His 25 year old daughter, Hanna, recently moved out to live closer to the school where she's pursuing her doctorate. Rather than have Hanna worry about obtaining and paying for her own renter's insurance, what endorsement could Julian add to his homeowner's policy to cover Hanna's personal property and liability exposures?

Instead of writing a separate renter's policy for Hanna, it may be more efficient to extend Julian's homeowners policy to cover Hanna's personal property and liability exposures through the Additional Insured—Student Living Away From the Residence Premises endorsement.

Hull insurance

Insurance that covers physical damage to vessels, including their machinery and fuel but not their cargo.

Business income insurance

Insurance that covers the reduction in an organization's income when operations are interrupted by damage to property caused by a covered peril.

Protection and indemnity (P&I) insurance

Insurance that covers vessel owners against various liability claims that result from operating the insured vessel.

Insurance to value

Insurance written for an amount approximating the full value of the asset(s) insured.

Kyle is a producer helping the owner of an apartment building select property and liability coverage. What advantage of the BOP should Kyle highlight?

Kyle can stress the convenience and economy that the BOP provides for insureds.

Business interruption

Loss of revenue that a business or another organization sustains because its operations are suspended as a result of physical injury to its property.

A soft-drink producer is insured under a Building and Personal Property Coverage Form with Special Form coverage. A mistake during the production process for one of its diet sodas causes too much artificial sweetener to be added to a large quantity of the beverage, forcing the soft drink producer to dispose of the entire batch. Would the cause of this loss be covered under the soft-drink producer's Special Form?

No, the cause of the loss would not be covered under the soft-drink producer's Special Form, because the Loss or Damage to Products exclusion eliminates coverage for damage to merchandise, goods, or other products resulting from production errors, such as adding wrong ingredients or measuring ingredients incorrectly.

Martina insures her home under an HO-3 policy. She works full time at an accounting firm but also prepares income taxes for personal clients each year in her spare time. Martina miscalculated some figures on a tax return she prepared for a client several years ago, but the error was not found until recently. If the client was required to pay penalties and interest to the federal government, would Martina's HO-3 provide coverage for the loss?

No. The Coverage E and F Professional Services exclusion would apply to Martina's tax-preparation business, which should be covered under a professional liability policy. Therefore, no coverage applies under the HO-3 policy.

A business owns a building insured under a BPP, with coverage indicated for the Building and Your Business Personal Property as defined in the policy. Would merchandise that the business owns and displays at a trade show held in a different city qualify as covered property under its BPP?

No. The insured's merchandise meets the BPP's definition of stock, and stock is one of the types of property listed under Your Business Personal Property. However, while located in another city, the merchandise does not meet the requirement that the property must be located in or on the described building or in the open (or in a vehicle) within 100 feet of the insured's building or the described premises. Therefore, the merchandise is not covered property while located at the trade show. (However, a coverage extension in a later section of the BPP provides limited coverage for this loss exposure.)

What are some risk control techniques other than insurance that may be appropriate for business income exposures?

One of the most important steps an organization can take to prevent or reduce business income losses is to prepare a business continuity plan, which details the steps to take after a disaster to ensure its operations continue. In addition, any risk control measure taken to reduce the frequency or severity of direct physical losses affecting the organization can reduce the frequency or severity of business income losses.

Elizabeth's son, Sam, is a family member as defined in his mother's PAP. Although he is old enough to drive, he has promised his mother he won't do so after having been involved in a couple of serious accidents. However, late one Saturday night, he grows bored and takes his mother's car for a drive while she is sleeping. Shortly afterward, he strikes a parked car and is injured. Explain what medical expense coverage Sam may have under Elizabeth's PAP.

Part B of the PAP contains an exclusion that eliminates coverage if an insured sustains an injury while using a vehicle without a reasonable belief that he is entitled to do so. Taking his mother's car while she was sleeping and having made a previous promise that he would not drive would appear to place Sam within the application of this exclusion and preclude coverage for his injuries in this accident. However, the medical payments exclusion does not apply to a family member who uses an owned auto of the named insured. For insurance purposes, it is assumed that a family member has permission to use another family member's car. Therefore, Sam's medical expenses should be covered by his mother's PAP within the limits of her policy.

Jack rents a car from XYZ Rental Car Agency. He declines the damage waiver that XYZ offers at a substantial extra cost. While driving the rental car, Jack is involved in an auto accident with another car. Who is at fault is being contested, but in the meantime, the rental car is not available to be rented while it is being repaired. XYZ has demanded reimbursement from Jack for its loss of the income the car would have earned in rental fees of $40 per day. Will Jack's PAP collision coverage for his covered auto help him in this situation and, if so, to what extent?

Part D of Jack's PAP provides coverage for transportation expenses. Under this provision, the rental car is covered as a nonowned auto, and the rental company's lost income while the car is being repaired is covered. However, the transportation expenses are limited to a maximum of $30 per day and $900 for each covered loss. Also, although transportation expenses do not have a dollar-amount deductible, they are subject to a 24-hour waiting period. Therefore, Jack's insurer would pay only $30 a day for XYZ's lost income, and the first day's loss would not be paid. Jack should also be aware that at $30 per day and a maximum of $900, he has only 30 days of coverage ($900 divided by $30).

Regardless of whether a certain peril is covered within a policy, there are risk control measures an insured can use to avoid or mitigate a loss. Can you think of risk control measures for the following loss exposures? Freezing of a plumbing, heating, or air-conditioning system Vandalism and theft at a vacant dwelling Fire or lightning

Risk control measures for freezing include maintaining heat in the building and shutting off the water supply. For vandalism and theft at a vacant dwelling, risk control might involve checking on the dwelling daily. Risk control for fire and lightning may involve installing smoke detectors, fire extinguishers, surge protectors, and lightning rods.

A house insured by a DP-3 was vacant for a month and then burglarized. The burglars broke down a door, damaged a table, and stole a television. Which of those items is covered by the DP-3?

Since the house was vacant for only a month, damage to the door and table are covered. However, loss of the stolen television would not be covered.

Direct and accidental losses to an auto fall into two categories: collision losses and other than collision (OTC) losses. Name some examples of collision losses that would be covered under Part D.

Some examples of collision losses that would be covered under Part D are a car damaged in a collision with another car, a car damaged from hitting a tree, and a car that was damaged when a passenger in a neighboring parked car opens his or her door and strikes the insured vehicle.

Nina runs a small clothing store near a popular tourist destination. The majority of her business income is generated in the summer; therefore, her inventory typically spikes during that time. Assuming that Nina's store is eligible for a BOP, describe the coverage advantages a typical BOP would offer to her business.

Some of the coverage advantages a typical BOP would offer to Nina's business include replacement cost coverage; a short list of property not covered; an automatic seasonal increase provision; automatic inclusion of business income and extra expense coverage; and optional coverages such as employee dishonesty, money and securities, outdoor signs, and computers.

Check Your Understanding Surewell Aircraft manufactures small aircraft at its plant in Arizona. For its aircraft, Surewell uses lightweight bodies manufactured in Mexico and engines manufactured in England. Identify some of Surewell's business income loss exposures.

Surewell's business income loss exposures include loss of income from a business interruption in which it cannot manufacture and sell aircraft, and extra expenses related to renting equipment and a facility to maintain operations while its plant is being restored. In addition, Surewell has exposures related to its suppliers of aircraft bodies and engines. Damage to either of its suppliers' plants could shut down Surewell's operation.

Which of these are provided by the federal government's Social Security program? Survivor benefits Unemployment insurance Medical expenses coverage

Survivor benefits and medical expenses coverage are provided by the Social Security program; however, unemployment insurance is not.

Suppose Paul rents a stall of his garage to his neighbor for her private auto for $40 per month during the winter. Explain which of the HO-3 Section ll Exclusions should be considered and whether the exclusions affect the HO-3 coverage.However, the Business exclusion is designed to exclude coverage for bodily injury or property damage arising out of business activities of an insured while providing coverage for occasional or part-time activities, such as insureds under the age of twenty-one selling lemonade. Another exception involves activities for which the insured receives $2,000 or less during the year preceding the policy period, which likely applies to Stacy's lemonade stand operations. So liability coverage applies.

The Coverage E and F Business exclusion could be considered. However, liability for rental as a private garage is an exception to the exclusion, so coverage would be provided.

Paul and Terri own a home with a four-stall detached garage and insure it under an HO-3 policy. They have an eight-year-old daughter, Stacy, and provide living space for their nanny, Holly, who is 28 years old. State law where the couple reside requires that homeowners provide workers compensation benefits for domestic workers. One hot afternoon, Stacy sold lemonade from a stand along her street and inadvertently added a harmful liquid to the product. A customer required a trip to the emergency room for treatment immediately after drinking the tainted lemonade. Which of the HO-3 Section II Exclusions should be considered as to whether they might affect the HO-3 coverage for this instance?

The Coverage E and F Business exclusion could be considered. However, the Business exclusion is designed to exclude coverage for bodily injury or property damage arising out of business activities of an insured while providing coverage for occasional or part-time activities, such as insureds under the age of 21 selling lemonade. Another exception involves activities for which the insured receives $2,000 or less during the year preceding the policy period, which likely applies to Stacy's lemonade stand operations. So liability coverage would apply.

Can you think of an example of when an insured might name a loss payee on a homeowners policy?

The Loss Payable Clause condition could apply to a homeowner who uses leased or rented furniture. The homeowner might be asked to name the furniture leasing company as an additional insured for this property. This information would appear in the policy declarations.

Julieta works as a maid for Filip. Filip insures his auto under a PAP. He asks Julieta to accompany him to the grocery store. While en route, he drives the car into a pole, causing bodily injury to Julieta. Workers compensation benefits are not required for domestic employees in the state where the accident occurred. Explain what liability coverage Filip has for Julieta's claims against him.

The PAP excludes liability coverage for bodily injury to an employee of an insured who is injured during the course of employment. Julieta is employed by Filip, the insured, and was injured during the course of her employment. However, an exception to this exclusion is injury to a domestic employee in the course of employment when workers compensation benefits are not required. Therefore, despite the exclusion, Filip's PAP should provide coverage for Julieta's liability claim against him.

Bonita has a 10-year-old son, Ray, who has a number of medical conditions and prefers to see certain specialists for his treatments. Bonita changed jobs, and her new employer offers two managed-care options, a PPO plan and an EPO plan. While Bonita would prefer a flexible plan with low deductibles and co-payments, Ray would like to continue treatments with his preferred specialists. Which option would best meet Bonita's and Ray's healthcare needs?

The PPO plan offered by Bonita's new employer would best meet their healthcare needs because it would allow them to seek medical care from their current physicians and specialists and offer decreased costs for in-network providers. If one of their providers is out-of-network, they could still see that provider—although they would pay higher costs, co-payments, and deductibles for such treatments.

East Side Manufacturing is insured under a commercial property coverage part that includes the BPP and Broad Form. One night, loss of electrical power at the plant causes a natural gas leak, which resulted in an explosion (a covered cause of loss) that damaged covered property. Would the Utility Services exclusion apply?

The Utility Services exclusion in East Side's policy would not eliminate coverage for loss to covered property caused by the explosion. Even though the gas leak and explosion occurred because of a power failure, the power failure resulted in a covered cause of loss: in this case, explosion. So the exception to the exclusion applies and the explosion damage is covered.

After getting married, Thomas and Carla lived together in New York City. Since public transportation was so accessible, Carla had never bothered owning a car. After the wedding, Thomas switched auto insurers and was assured that the new policy on his car would cover Carla as well. However, after receiving a promotion, Carla moved to Albany, where the public transportation network wasn't as extensive. Before moving, Thomas bought another car for her use. One week after Thomas purchased the car and Carla moved to Albany, she was in an accident. Assuming Thomas had not yet added the new car to his policy, would Carla be covered if she was found liable for the accident?

The accident occurred within 14 days of the new car's purchase and within 90 days of when Carla moved out, so Thomas's policy would still provide coverage for her as his spouse.

If the replacement cost option is activated, the Coinsurance condition continues to apply, but with one important difference:

The amount of insurance required by the Coinsurance condition is calculated by multiplying replacement cost by the coinsurance percentage if the claim is made on a replacement cost basis. If the insured makes a claim on an ACV basis, coinsurance is also calculated on an ACV basis.

The Damage to Property of Others additional coverage will not cover any property damage in these circumstances:

The damage is caused intentionally by an insured who is 13 years of age or older. Property owned by an insured is damaged. Property owned by or rented to a tenant of an insured or a resident of the named insured's household is damaged. The damage arises out of a business engaged in by an insured. The damage is a result of an act or omission in connection with premises (other than an insured location) that the insured owns, rents, or controls. The damage arises out of the ownership, maintenance, or use of any motor vehicle, watercraft, aircraft, or hovercraft (other than a recreational vehicle designed for use off public roads that is not subject to motor vehicle registration and not owned by an insured).

A disgruntled employee of the insured returned to the insured's retail clothing store after it closed and stole certain inventory items and vandalized some mannequins. Assuming that all of the lost or damaged items were covered property under the employer's Building and Personal Property Coverage Form, which of the employer's losses resulted from a covered cause of loss under the Causes of Loss—Special Form?

The damage to the mannequins resulted from a covered cause of loss because the Special Form does not exclude vandalism committed by an employee. The inventory loss did not result from a covered cause of loss because the Special Form specifically excludes theft committed by an employee.

Net income

The difference between revenues (such as money received for goods or services) and expenses (such as money paid for merchandise, rent, and insurance).

Gorge, who has UM coverage on his vehicle, is involved in a serious auto accident. He agrees to accept a payment from the at-fault driver that is well below the driver's liability policy limits because he intends to make a UM claim against his own insurer for any additional damages. Which exclusion, if any, might apply to this situation?

The exclusion Claim Settlement That Prejudices Insurer's Right of Recovery exclusion would allow Gorge's insurer to deny his claim because by accepting the low payment from the at-fault driver, Gorge prejudiced the insurer's right to recover full payment from the at-fault driver.

A husband and wife have separate PAP policies. The UIM limit on the husband's policy is $25,000, and the UIM limit on the wife's is $50,000. Both policies have a damages trigger and are endorsed for interpolicy stacking. The couple was involved in an auto accident in which the husband was injured. The other driver has a PAP with a liability limit of $50,000 and was held liable for the husband's injuries, which are $150,000. How much will the husband receive?

The husband will receive $50,000 from the at-fault party's insurer. He will collect another $75,000 under the policies held by his wife and himself. So he will receive a total of $125,000.

Kim and Dan own a home. Kim has an HO-3 with a $100,000 Coverage A limit. Dan also purchased a homeowners policy with a $150,000 Coverage A limit for the home. A natural gas explosion destroyed the couple's home, which had a replacement cost of $200,000 at the time of the loss. After the explosion, the couple discovers that two policies cover their home, with a total of $250,000 in coverage available. Calculate the amount that each policy will pay.

The insurer that issued Kim's policy will pay 40 percent of the loss ($100,000 ÷ 250,000), or $80,000 (0.4 × $200,000). The insurer that issued Dan's policy will pay 60 percent of the loss ($150,000 ÷ $250,000), or $120,000 (0.6 × $200,000).

One of a PAP's key provisions is the liberalization clause. How does this clause affect a policy's coverage?

The liberalization clause automatically updates an insured's existing policy whenever an insurer makes a change to its PAP that broadens coverage without an additional premium. The change takes effect on the date the revision to the PAP is effective in the insured's state.

For BOPs, which is more commonly used: the named perils or open perils form?

The open perils form is more common. In fact, some insurers offer only the open perils form, with an endorsement available to change coverage to named perils.

In regard to Hanna's accident, described earlier, if the boat she owns is a 32-foot sailboat, which of the policies described in this section would provide her with liability coverage for the damage to the dock and injuries to the boat passenger and person on the dock?

The sailboat could be insured under a yacht policy or an ISO Watercraft Policy, either of which would provide coverage for Hanna's liability related to the accident.

b. A river near KI's property overflowed its banks. The rising water seeped into KI's building and damaged the hardwood floors.

The water damage to KI's hardwood floors would not be covered because the Broad Form does not list flooding as a covered cause of loss and the Water exclusion applies.

Kendall Incorporated (KI) insures its building under a commercial property policy that includes the Causes of Loss—Broad Form. Explain whether each of the following causes of loss that occurred during the policy period would be covered under KI's policy: Let's take a look at whether each loss in KI's unfortunate run of luck would be covered: a. A windstorm damaged KI's roof.

The windstorm damage to KI's roof would be covered because windstorm is a covered cause of loss in the Broad Form.

Explain whether each of the following losses would be covered by a typical personal umbrella policy: a. The insured detained a youth falsely accused of stealing a racing bike until the police arrived. The police later arrested the actual thief. The youth's parents sued the insured for the false arrest of their son. b. The insured owns a small bakery and is sued after an employee severely burns his hand when an oven's handle falls off.

These answers address questions regarding a typical personal umbrella policy: a. Yes, the personal umbrella policy would cover the insured's liability for personal injury, including false arrest. b. No., the personal umbrella policy would not cover any obligation for which the insured is legally liable under a workers compensation, disability benefits, or similar law.

Sadie owns a call center business and insures her building and personal property under a BPP. Because communications technology changes so rapidly, she leases all of her phone equipment. According to the lease agreement, she is responsible for the replacement cost of the leased phone equipment in the event it is damaged. How can Sadie ensure that her insurance coverage meets the obligations of her lease agreement?

To feel confident that she has sufficient coverage, Sadie should select both the Replacement Cost and Extension of Replacement Cost to Personal Property of Others optional coverages. By doing this, the amount of a loss to the leased phone equipment will be calculated according to the terms of the lease.

Anthony insures his home, personal property, and liability with an HO-3 policy. He shares his home with his aunt Mabel, who is an insured under the policy. Anthony invited a friend, Trisha, into his home. Trisha tripped over Mabel's dog and fell through a glass patio door, requiring medical treatment that cost $850. Anthony notified his insurer of the occurrence the following morning. The insurer offered to pay Trisha's medical expenses under Coverage F—Medical Payments to Others. Explain any applicable conditions and how they might affect the coverage.

To obtain medical payments coverage, Trisha must comply with all requirements under the Duties of an Injured Person condition of Coverage F. The Payment of Claim condition also applies here, stipulating that the insurer's payment of Trisha's Medical Payments to Others claim is not an admission of liability for the occurrence. Anthony complied with the Duties After "Occurrence" condition, so coverage was provided.

Marco owns a business that rents office space in a commercial building. He purchased a BOP with a $25,000 personal property insurance limit and no building coverage (because he is a tenant and doesn't own the building). After a fire, Marco's business was shut down for eight months, and it sustained a business income loss of $750,000. What would Marco's business income loss payment be under the two different types of BOPs described earlier?

Under the BOP that provides business income and extra expense coverage for up to 12 consecutive months with no dollar limit, Marco's loss payment would be $750,000 because it was incurred in less than 12 months. Under the alternative BOP that contains a dollar limit, Marco's loss payment would be an amount equal to 100 percent of the personal property limit, or $25,000.

Joshua, a home-sharing host, rents his home to Sota through a home-sharing network. Joshua offers homemade meals to his occupants, and while he is cooking dinner, a fire starts and damages the room Sota is staying in and his belongings. Determine which of the endorsements would provide the best coverage for Joshua in this circumstance.

Under the Broadened Home-sharing Host Activities endorsement, Joshua would have coverage for the damage to Sota's property. A $1,000 limit per occurrence applies unless increased limits are shown on the schedule in the endorsement.

Julie has an HO-3 policy to insure her home, detached garage, and personal property. During a windstorm, a large tree branch fell through the roof and into Julie's living room, damaging the exterior and interior of her home, a sofa, and a coffee table. Rain that blew through the opening in the wall caused water damage to the dining room table. Considering coverages A, B, and C, identify the appropriate coverages and explain whether the coverage(s) would insure her property against this peril.

Windstorm is not an excluded peril under Coverage A, so coverage would be provided for the exterior and interior damage to Julie's home. Windstorm is a named peril under Coverage C, so coverage would be provided for the damage to Julie's sofa and coffee table. Because wind (a specified peril) caused the branch to damage the structure, leaving an opening that allowed the rain into the home, the water damage to the dining room table would be covered under Coverage C.

Lucas is mowing the grass in his front yard when the blade on his mower strikes a rock, causing it to fly toward Sam, his next-door neighbor. Sam was in Lucas's front yard walking toward him to return a hedge trimmer he had borrowed from Lucas. Sam immediately fell down, grabbed his chest, and called out for an ambulance. Upon investigation, it was determined the rock bounced off the hedge trimmer, never striking Sam. Sam sued Lucas for bodily injury. Lucas is insured by an HO-3 policy, which was in effect at the time of the accident. a. Will Coverage E—Personal Liability of Lucas's HO-3 policy respond to Sam's claim? b. How will the fact that the rock never struck Sam affect the defense Lucas's insurer provides him?

Yes, Coverage E—Personal Liability coverage provisions provide coverage if a claim is made or a suit is brought against an insured because of bodily injury arising from a covered occurrence. Mowing the yard is a covered activity, and the accident occurred during the policy period. There is no indication that the occurrence was not accidental. Defense costs coverage, which is supplemental to the liability limit, is provided even if a suit is groundless, false, or fraudulent. The fact that Sam is, at best, exaggerating any injury does not relieve Lucas's insurer of the cost of defending him.

Carol has purchased a DP-3 with coverages A and B. She owns a ladder that is kept along the fence in the backyard of the insured dwelling and uses it while cleaning the gutters. If the ladder is damaged by a covered cause of loss, will Carol have coverage for it?

Yes, the dwelling form specifically states that, if not covered elsewhere in the policy, building equipment and outdoor equipment used for the service of the premises and located on the described location are covered by Coverage A.

Let's say a business owns an office building and insures it under a BPP covering only the building as defined in the policy. Would equipment that the business owns and uses to clean and maintain the building be considered covered property under its BPP?

Yes, the equipment would be covered property under the BPP, because the definition of building includes personal property owned by the insured and used to maintain or service the building or its premises.

Under a policy that uses a split definition for disability, the "any" and "own" occupation concepts are

combined. For example, the policy might use an "any occupation" definition for the first six months of disability and then revert to an "own occupation" definition if the disability extends beyond six months.

Now suppose Anne has purchased UIM coverage with a $50,000 single limit, and Randy has purchased auto liability coverage with a $100,000 single limit. Randy causes an accident in which Anne is injured. In states that apply a damages trigger,

if Anne's damages are $150,000, her UIM coverage will be triggered because Randy's policy limit is less than Anne's damages. However, if Anne's damages are $75,000, her UIM coverage will not be triggered because her damages are less than Randy's limit. The key criterion for coverage to apply under UIM coverage with a damages trigger is that the liability limits of the other party's policy are less than the insured's damages.

Suppose Tom has an auto liability policy with a $100,000 UIM limit and Lynn has an auto liability policy with a single limit of $50,000, both of which exceed the minimum financial responsibility limits in the state. Tom and Lynn are involved in an auto accident, and Lynn is liable for Tom's damages. In states that apply a limits trigger,

if Tom's damages are $60,000, he will collect $50,000 from Lynn's insurer and $10,000 under his UIM coverage. The key criterion for UIM protection with a limits trigger is that the liability limits of the other party's policy are less than the insured's UIM limits.