CHAPTER 13 - OTHER TYPES OF P&C INSURANCE

Discuss the limits of Flood Insurance and how they differ between the Emergency Program and the Regular Program:

*Emergency Program Flood Insurance Limits:* (BUILDINGS/BASIC LIMITS/ADDITIONAL LIMITS/TOTAL LIMITS) SINGLE FAMILY/$35,000/$0/$35,000 2-4 FAMILY DWELLING/$35,000/$0/$35,000 OTHER RESIDENTIAL/$100,000/$0/$100,000 NON-RESIDENTIAL/$100,000/$0/$100,000 (CONTENTS/BASIC LIMITS/ADDITIONAL LIMITS/TOTAL LIMITS) RESIDENTIAL/$10,000/$0/$10,000 NON-RESIDENTIAL/$100,000/$0/$100,000 *Regular Program Flood Insurance Limits:* (BUILDINGS/BASIC LIMITS/ADDITIONAL LIMITS/TOTAL LIMITS) SINGLE FAMILY/$60,000/$190,000/$250,000 2-4 FAMILY DWELLING/$60,000/$190,000/$250,000 OTHER RESIDENTIAL/$175,000/$75,000/$250,000 NON-RESIDENTIAL/$175,000/$325,000/$500,000 (CONTENTS (PER UNIT)/BASIC LIMITS/ADDITIONAL LIMITS/TOTAL LIMITS) RESIDENTIAL/$25,000/$75,000/$100,000 NON-RESIDENTIAL/$150,000/$350,000/$500,000 The Regular Program Flood Insurance limits are a lot higher than those in the Emergency Program Flood Insurance limits. Also, the Emergency Program Flood Insurance does not have any additional limits whatsoever, but the Regular Program Flood Insurance does offer additional limits.

What are the Major Coverages under Ocean Marine Insurance?

*Hull Coverage:* This coverage insures for damage or loss of the vessel from covered perils. Vessels can include ships, barges, and even drilling rigs. A common provision found in the hull coverage section is known as the Running Down Clause or Collision Clause. It not only provides coverage for damage to the insured vessel, but also for the property damage to other ships and their cargo. There is NO coverage for damage to other property such as piers, wharves, docks, other structures, or for loss of life. Coverage can be written on a single vessel or on a fleet basis. *Cargo Coverage:* This coverage insured for damage to the cargo, the property that is accepted by the carrier, and for which a freight cargo fee has been paid. It does not include coverage for the crew's personal effects or that of passengers. Coverage is written on a voyage policy or an open cargo basis. An open basis means that the policy is usually written without an expiration date and on a reporting form. If a warehouse to warehouse clause is added, it will cover the cargo on both sea and land. Who is responsible to insure the cargo is governed by the terms of the contract upon which the goods are bought or sold. The following are common terms used in transporting goods: Free Along Side (FAS): the seller is responsible for loss or damage until the goods have been delivered alongside the vessel or designated dock. The goods then become the buyer's responsibility. Free On Board (FOB): the seller is responsible for the loss or damage until the goods have been placed on board the vessel. The goods then become the buyer's responsibility. Cost & Freight (C&F): the seller is responsible for the foods until they enter the custody of the ocean carrier. The seller's price includes the transportation cost to a named point. The goods then become the buyer's responsibility. Cost, Insurance & Freight (CIF): the seller is responsible for the goods and provides insurance to a named destination point. The seller's price includes the goods, insurance, and transportation fees to the named destination. The goods then become the buyer's responsibility. *Freight Coverage:* This coverage insured for the indirect loss coverage (loss of income). It refers to the revenues earned to transporting cargo. When transporting passengers, this is known as passage money coverage.

Name three types of contract bonds:

1.) Bid Bond: this bond guarantees a project owner that the contactor bidding on a contract will enter into the contract and furnish all required bonds. The bid bond is conditioned on the contract being awarded to the principal. What it actually guarantees is that the surety will pay the obligee (project owner) the difference between the amount of the bid and the bid that is finally accepted should the contractor be unable to actually enter into the contract. 2.) Performance Bond: this bond guarantees the owner that the contractor will complete the project in accordance with all plans and specifications of the contract. 3.) Maintenance Bond: this bond guarantees that the contractor will correct all defects in both workmanship and materials for a specific period of time.

What three criteria do bond underwriters use to determine if they will provide a bond to a principal?

1.) Character: A surety underwriter would want to establish a bonding relationship with someone who has good character. Nobody intends to work with a dishonest and deceitful character, which will cause losses at some point. 2.) Capacity: It means the Principal's ability to perform the obligations described in the underlying contract. The Principal's capacity may sometimes be based on his/her own experience, knowledge, and expertise, or that of his/her staff/employees. 3.) Capital: This defines the financial capacity of the Principal to fund their operations and their ability to financially respond in case they are unable to perform in keeping up with the terms and conditions of the contract.

Who are the three parties to a surety bond?

1.) Principal (Obligor) - The principal is the person or organization who is responsible to fulfill the obligation set forth in the contract. THIS IS THE PARTY WHO PURCHASES THE BOND, THEY ARE THE PARTY COMMITTING TO PERFORM OR PAY. 2.) Obligee - The obligee is the person or organization who is the beneficiary of the obligation set forth in the contract or agreement. IT IS FOR THEIR BENEFIT THAT THE BOND IS WRITTEN, THEY ARE THE PARTY THAT REQUIRES PROTECTION. 3.) Surety (Guarantor) - Is the person or organization who guarantees that the principal will meet their obligation to the obligee. Usually, THIS IS AN INSURANCE COMPANY WHO PROVIDES THIS BOND FOR A FEE.

What is a Risk Retention Group?

A Risk Retention Group (RRG) is an insurer formed by several organizations to cover liability losses for those organizations. The RRG only needs to meet the capitalization needs and the chartering requirements of one state. The following are characteristics common to all RRGs: 1.) Members of an RRG must be involved in a similar or related business. 2.) The RRG is owned by it's members. 3.) It must have "Risk Retention Group" in it's name. 4.) It must be chartered or licensed as an insurance company in at least one state. An RRG can be licensed in one state and conduct business in other states. Also, an RRG is not subject to all the individual state laws in which it may operate. A Risk Retention Group can provide most forms of liability insurance EXCEPT Worker's Compensation. These forms of liability insurance may differ in some respects since the RRG is not subject to the same state approval process as other insurers. Coverage can be tailored to the member's needs.

What are Risk Purchasing Groups?

A purchasing group is a group that maintains as one of it's purposes the purchase of liability insurance on a group basis. It purchases insurance only for it's members liability exposures. It is comprised of members with similar interests, businesses, products, or trade. It is domiciled in a specific state. Unlike an RRG, the Purchasing Group does not bear any risk. However, members of a Risk Purchasing Group may benefit from good group results in various ways, including dividends. Since the purchasing group is not subject to state laws requiring rate and policy form approval, it can offer better rates for the same coverage. Groups should be able to negotiate more favorable insurance terms than individual insureds and provide broader coverage than may be found in standard markets.

What is the standard deductible on a flood policy and how does it differ from other property policies?

All flood insurance is written with a standard deductible of $1,000. This is required for regular program communities. The insured may select higher deductibles for lower premiums. The standard deductible applies separately to building and contents. A policy written with the standard deductible of $1,000 for building and contents would apply a $1,000 deductible to the building and an additional $1,000 deductible to the contents. Other property policies (Homeowners Insurance for example), have one deductible for contents AND building alike. Flood insurance policies come with two separate deductibles, one for the structure and one for personal property.

What is underlying coverage and SIR in Umbrella policies?

An underlying policy is insurance that covers a particular risk first. Other insurance covering the same risk will only pay out once this insurance is exhausted. Umbrella/excess policies will have a self-insured retention (SIR). This is similar to a deductible, but only applies if the loss is paid by the umbrella/excess policy when the underlying policy does not provide coverage (the loss is excluded).

Explain the Aircraft Hull coverage:

Aviation insurance borrows from Marine insurance by calling the insurance which covers the actual aircraft Hull insurance. Aircraft coverage is usually limited to the aircraft described in the declarations and typically includes equipment whether in the aircraft or temporarily removed for service or repair. This physical damage coverage usually is separated on where the plane is located: either on the ground or in the air. Hull insurance uses the old term, all risk, which means everything is covered, except that which is specifically excluded. There are usually three potential coverage under physical damage for hull insurance: 1.) All Risk - Ground and Flight: this broad coverage pays for direct physical damage to the covered aircraft. In addition to coverage related to crashing or other collisions, it also includes theft, or disappearance of the aircraft after take-off if the aircraft is not found or heard from with a specified number of days (usually 60). 2.) All Risk - Not In Motion: although this coverage has the name all risk, there are only a limited number of things that can happen to an aircraft when it is not in motion. It would include, but is not limited to: fire, lightning, hail, windstorm, vandalism, and theft. This coverage is restricted to loss while the aircraft is on the ground and not in motion under it's own power. This coverage would cover the aircraft as it was pushed into a hanger for storage, service, repair, or towed from one place to another on the ground. There is no coverage while the aircraft is taxiing. 3.) All Risk - Not In Flight: this coverage is similar to All Risk - Not In Motion, but the major difference is that there is coverage while the aircraft is taxiing. Typically, there are two deductibles found in Hull insurance. There is a deductible that is applicable to in motion and the other deductible is applicable to not in motion. Common hull exclusions include: -Not registered as airworthy. -Operated by someone other than the pilot named in the declarations. -Operated for a use not shown in the declarations. -Confiscation by a governmental agency due to a violation of the law, such as the use of aircraft to transport illegal drugs. Loss settlement for the Hull is usually based on actual cash value. Sometimes, however, the aircraft is written on a stated amount. Despite the high value of aircraft, usually the greatest potential loss exposure arises from the damages that aircraft may do to property on the ground, as well as to the people in the plane, and on the ground. Due to the catastrophic nature of these exposures, larger aircraft are commonly insured through specialized aviation pools. AIRCRAFT LIABILITY: Combined Coverage for Bodily Injury and Property Damage: aircraft liability coverage can be written to cover the legal liability of the named insured to pay for bodily injury to any and all persons including passengers and property damages arising out of the use or ownership of covered aircraft. Policies may be written in a combined single limit (CSL) for all covered bodily injury and property damage. Combined Coverage for Bodily Injury (Except for Passengers) and Property Damage: this is a variation of the previous coverage that does not include coverage for bodily injury to passengers. The coverage is limited to bodily injury to those persons on the ground and property damage. Coverage for Bodily Injury to Passengers Only: this covers only for bodily injury to passengers. It contains a separate per passenger and per accident limit. Coverage for Property Damage: this coverage will pay for the obligations imposed by law for damages because of damage to property arising out of the ownership, maintenance, or use of covered aircraft. Usually the limit is per accident.

What is Boatowners/Personal Watercraft, Recreational Vehicle, Farmowners/Ranchowners and Mobile Home policies?

BOATOWNERS/PERSONAL WATERCRAFT: The boatowners policy is a multiline contract that provides coverage for both property & liability. The coverage form has some of the same characteristics as the personal auto policy coverage, only it applies to losses that occur within the navigational limits that are defines in the application and the policy. Boatowners coverages can include: Section I - Property: Coverage here is generally written on an open peril basis, subject to named exclusions, some of those exclusions include wear and tear, inherent vice, mold, freezing, dishonest or illegal acts, weathering, mechanical and electrical breakdown. Covered property not only covers the boat, but also motors and boat trailers. Section II - Boatowners Liability: This coverage pays for bodily injury and property damage arising out of a claim or suit brought against any insured for damages due to the ownership, maintenance, or use of the boat. Uninsured boaters coverage, which is very similar to uninsured motorists coverage, can be added to this policy. Medical payments are also included in this policy. Medical payments can actually pay for limited medical expenses to the insured, passengers, and even under some policies water skiers can be covered. RECREATIONAL VEHICLES: Many personal automobile companies will not provide coverage for these type of vehicles (ATVs, dune buggies, motorcycles, snowmobiles, etc). Also, the coverage provided by the standard ISO auto policy is restrictive. Therefore, insureds should purchase a recreational vehicle policy which provides automobile coverage on these types of vehicles, tailoring the coverage to meet the needs of the recreational vehicle owner. FARMOWNERS/RANCHOWNERS POLICY: This policy is very similar to a Homeowners Policy, providing comprehensive coverage to the farm owner. It can provide property coverage on the farm dwelling and person property, as well as on barns, stables, and other farm outbuildings. Liability coverage is also included in this policy. MOBILE HOME POLICY: As we learned earlier, mobile homes are not eligible for coverage under a Homeowners Policy. However, this is a Homeowners type policy that has been adapted to meet the needs of mobile homeowners. The policy can provide coverage on the mobile home, other structures, personal property, and additional living expenses. Personal liability and medical payments to others is also included in the mobile home policy.

Who is eligible for Flood Insurance?

Communities must ask to participate in the NFIP. When communities first join the program, they enter the emergency program. During this initial phase of participation, very limited dollar amounts of flood insurance are available. Once the community completes a detailed mapping and identification of it's flood hazard areas, and had complied with the NFIP's requirements, it enters the regular program. At this point the community's property owners are eligible for higher limits of coverage.

What is the FAIR Plan? What does FAIR stand for?

FAIR PLANS - (Fair Access to Insurance Requirements) The FAIR plan is a state supervised pool. It's purpose is to assure that no property owner is denied basic property insurance without impartial evaluation of the individual exposure. Coverage offered through the fair plan is basic property insurance. Policies only cover for fire, extended coverages, and vandalism/malicious mischief. Normally unbound applications are submitted to the plan, which in turn inspects the property, and advises the producer of eligibility. Sometimes recommendations for improvements are required to make the property eligible for coverage. Generally speaking, the fair plan will insure risks that are marginal and normally not acceptable in the regular market. However, even the FAIR plan considers the following exposures to be uninsurable: -Fire damages property that has not been repaired. -Property with poor housekeeping. -Property in violation of building codes, public policy, or law. -Property vacant and open to trespass. Denial to write coverage is not permitted on the basis of environmental hazards that are not within the control of the applicant.

How is WYO different than Government?

Flood insurance is underwritten by the Federal Government and administered by the Federal Emergency Management Agency (FEMA). Any licensed producer may make application for flood coverage to FEMA or to any Write-Your-Own carrier (WYO). A Write- Your-Own carrier writes and services flood policies in their own name. The company will receive an expense allowance for policies written and claims processed while the Federal Government retains responsibility for underwriting losses. The rates, rules, and policy language written through a WYO are identical to that written as direct NFIP business. All claim decisions are approved by the NFIP. Basically, WYO carriers are providing the insurance FROM the government (in their own name) and the government makes all the calls on funding, claims, etc.

Discuss License Bonds, Permit Bonds, Judicial Bonds:

License Bonds and Permit Bonds: these bonds authorize individuals to engage in a particular activity. An example would be when a person or organization needs a license required by a political subdivision to operate a business. Those requiring license bonds could be barbers, beauticians, electricians, plumbers, and those who sell liquor. Judicial Bonds: these bonds are used in the legal process. Examples would include: a.) Appeal Bond: this bond guarantees that a judgement will be paid if an appeal is upheld. b.) Attachment Bond: this bond indemnifies a party whose assets have been wrongfully attached. c.) Bail Bond: this bond guarantees that a defendant will appear as required by the court. d.) Fiduciary Bond: this bond guarantees the faithful and honest performance of fiduciaries such as guardians or administrators of estates.

Describe the following Liability Policies and who needs them: Professional Liability Directors and Officers Liability Employee Benefits Employment Practices Liability

Professional Liability: Intended to provide liability coverage for litigation that alleges failure to meet what would be considered to be a professional standard. These allegations may be brought against those in the medical profession such as hospitals, doctors, nurses, chiropractors, dentists, opticians, druggists, veterinarians, etc. otherwise known as MEDICAL MALPRATICE. However, professional liability exposure is not limited to medical professionals. Similar allegations of failure to meet professional standards may be made against accountants, architects, attorneys, consultants, engineers, funeral directors, insurance agents, realtors, surveyors, and many others. Frequently the name used for this professional liability coverage is Errors and Omissions. Directors and Officers Liability: Often referred to as D&O coverage, this type of policy protects corporate officers and members of the corporation's board or directors from allegations of "wrongful acts" which are not in the best interests of the corporation. For example, stockholders in the corporation may file suit against the directors and officers alleging mismanagement that caused the price of the corporation's stock to fall. Also creditors, regulatory bodies or those who have a contractual relationship with the corporation may initiate legal action for those alleged wrongdoings. This policy can also provide coverage to reimburse the corporation for those payments which the directors and officers are legally obligated to pay to third parties, and the corporation is permitted to indemnify the directors and officers for such payment. In essence, a D&O policy is an errors and omissions policy for corporate officers and the board of directors. Employee Benefits: This coverage provides protection to a person or organization who become legally obligated to pay because of an act, error, or omission committed in the administration of employee benefits. Examples would include, insured fails to add an employee's beneficiary to a life insurance plan provided by the employer, or insured fails to add an employee to the company health plan. The employee later becomes hospitalized with a serious illness and discovers he does not have health insurance. The employee then sues the insured for his benefits. Employment Practices Liability: This policy covers businesses against claims by employees that their legal rights as employees of the company have been violated. Coverage can be offered as a separate policy or as an endorsement to a D&O policy. The need for this policy is important because employment practices liability coverage is excluded from all other primary personal and commercial insurance policies. It provides protection to employers from the following types of exposures: refusal to employ, termination of employment, failure to promote, demotion, breach of employment contract, negative evaluation, discipline, defamation, or humiliation of the person based on discrimination, work related sexual-harassment, or other work related verbal, mental, physical, or emotional abuse directed at a person related to race, color, national origin, gender, marital status, age, sexual orientation, physical or mental conditions, or any other protected class. These types of abuse are referred to as creating a hostile work environment.

What is Federal Crop Insurance?

The Federal Crop Insurance Act enacted in 1938 created the Federal Crop Insurance Corporation (FCIC), operated and managed by the Risk Management Agency (RMA), as an agency of the Department of Agriculture to administer a federal crop insurance program. The FCIC was undertaken to insure wheat yields against loss by drought, flood, hail, frost, insects, diseases, and all natural hazards for a premium based on the past loss history of the particular area. Over the years there have been many amendments and revisions to this program. The current program dates from the Federal Crop Insurance Act of 1980, which established a new federal "all-risk" crop insurance program. Basic/Catastrophic Crop Insurance: The current program was intended to replace all other forms of federal disaster protection for farmers. The all-risk coverage of the FCIC protects against all losses caused by natural conditions beyond the control of the farmer. Farmers may purchase crop insurance from private insurers against named perils or on an all risk basis and receive a premium credit when purchasing a federal policy. The 1980 Act authorized the FCIC to expand it's coverage to include all commercial crops in all agricultural counties and to subsidize farmer premium payments. The delivery system was expanded to include private insurance companies and licensed producers. Private insurance companies are permitted to sell federal crop insurance and have now become the primary marketing arm for multi-peril crop insurance. Private insurance companies conduct all aspects of the business: marketing, loss adjustment, claim payments, and data information services. These companies receive compensation for their administrative and operating expenses and these companies are reinsured by FCIC. Covered Causes of Loss: For most field crops, practically every unavoidable cause of loss is insured. For certain other crops, only the most catastrophic and frequent causes of loss may be covered. Losses from unavoidable causes or act of God are covered under the Federal Crop Insurance. Losses NOT COVERED include mismanagement, theft, poor market conditions, neglect (failure to use approved practices), and losses caused by the insured involving criminal acts. Optional Units: In general, the insured must insure his interest in all acreage of a particular crop which is planted in the county. The principal exception to this rule stems from the "Unit" insurance rule. "Unit" insurance permits the writing of separate coverage for separate acreage. The benefit of having unit insurance, if you qualify, is that for indemnity payment purposes production on each unit is considered without regard to production on other units, or without regard to the insured's total production of the insured crop. There are two types of units: 1.) Units Based on Crop Interest. Unit insurance coverage, at no extra cost, is automatic when there are different ownership interests. 2.) Optional Units. When certain locations, farming practice, and recordkeeping criteria are met, coverage can be written on a unit basis. For optional units, there is an additional 10% premium charge. Coverage Level: The FCIC's multi-peril policies indemnify insureds through the use of what may be referred to as a "yield guarantee plan." The FCIC guarantees a specific yield at the approximate cost of production, and pays the farmer for every bushel or pound his yield falls below the guarantee. The maximum guarantee the FCIC will allow is 75% of the mean yield. Indemnity is limited to a maximum of 75% of the historical yield to reduce morale hazard. Under the current program for most crops, yield coverage options are 50, 65, and 75 percent of average yields. Individual Crop: If a farmer elects to insure some crops and not insure other crops for which insurance was available, any loss on noninsured crops will not be considered in computing the individual FJHA emergency loan eligibility. Price Election: Price election coverage varies from crop to crop and is set several months before the application deadline based on a percentage of the estimated market price of the crop during the term of the policy. The 1980 Act requires FCIC to offer one price election that is not less than 90% of the projected market price for the commodity. Premium costs rise in tandem with increases in price projection. Federal Crop Insurance covers loss of yield, but does not cover loss of value of crops or decline in the market. Small Grain: Provisions that apply to small grains refer to cereal grains which include barley, wheat, oats, etc. Corn is not classified as a small grain; it is a "coarse grain." Application: The application deadline for crop insurance varies by crop, but is generally about one month before the normal planting date for the crop. Dates are established by the Federal Crop Insurance Corporation for various crops in all regions of the country. Application for coverage, reports, and requests to continue coverage must be submitted by those dates. Life of Policy: The policy provides coverage on an annual basis; however, it may be continued by the insured by making the necessary reports and paying a renewal premium.

What is the purpose of Flood Insurance?

There are two main objectives of the NFIP: 1.) To provide a system that allows individuals and business property owners to purchase coverage from the catastrophic effects of flooding at reasonable rates. 2.) To act as an incentive to communities to reduce future flood losses by proper floodplain management. This would include things like improving land use to minimize future flood losses, construct storm drains, building river dikes, requiring flood proof buildings. etc.

Discuss Contract Bonds:

These bonds are used in the construction business and guarantee that contractors will carry out their contractual obligations.

What is Protection and Indemnity (P&I)?

This coverage insures for legal liability of the ship-owner from bodily injury and property damage to third parties. In addition to the third parties we expect, the policy also provides liability for bodily injury to passengers, ship visitors, and the crew (who are covered under the Jones Act). This coverage also provides property damage caused by a collision to other ships and structures (piers, wharves, bridges, etc.) as well as the loss of cargo caused by the ship-owner's negligent.

What conditions must be met before coverage can be placed in the surplus lines market?

To be eligible to seek coverage in the surplus lines market, a diligent effort must have been made to place insurance with an admitted company, usually defined by a certain number of declinations, or rejections, by licensed insurers, typically three to five.

What is an Umbrella/Excess Liability policy and describe coverage provided?

Whether we are talking about a commercial or personal excess/umbrella policy, the purpose of the policy is to provide liability coverage. To what extent coverage is provided varies greatly with the type of excess policy. In most excess policies, the coverage will be at least as broad as found in the underlying policies. In umbrella policies, there could be broader coverage, and the umbrella could pay even if the underlying contract excludes coverage. Limits for these types of policies vary greatly, but most policies begin at $1 million. Personal line umbrellas are usually offered in increments of $1 million not exceed $5 million. Commercial umbrellas and many excess policies are written with limits in increments of $1 million rising up to hundreds of millions.