Chapter 25 - Commercial Property Insurance

An Inter-Ocean Transfer cargo ship was forced to jettison some cargo in heavy seas. The various interests in the voyage at the time the property was jettisoned were Value of the ship = $2.0 million Value of lumber and wood chips = 1.0 million Value of iron ore = $2.0 million If $400,000 worth of iron ore was jettisoned, for how much of this amount would Inter-Ocean Transfer be responsible under general average?

$160,000

Frank's property insurance requires periodic reporting of inventory values. Frank believes he can save money by under-reporting the inventory. Last period, Frank reported $200,000 when the value was really $400,000. Shortly after filing the report, when the value was $500,000, the inventory was destroyed. How much will Frank's insurer pay, assuming no deductible? A) nothing, as underreporting voids coverage

$250,000

The exterior walls, the roof, and the plumbing, heating and air conditioning systems of a residential condominium can be insured through the purchase of which of the following forms? I. Condominium association coverage form II. Condominium commercial unit-owners coverage form

I only

Which of the following is (are) included in the common declarations page of a commercial package policy? I. A description of the insured property II. A listing of the causes-of-loss that are covered by the policy

I only

Which of the following statements about the building and personal property coverage form is (are) true? I. A limited amount of coverage is provided for pollutant cleanup and removal at the described premises if the release or discharge of the pollutant results from a covered cause of loss. II. Fire department service charges are specifically excluded because they are a normal cost of doing business.

I only

Which of the following statements about the extra expense coverage form is (are) true? I. It provides coverage for the increased cost that must be paid to continue operations during a period of restoration. II. It provides coverage for lost business income if a key customer or key supplier experiences a loss.

I only

Which of the following items is (are) contained in the common policy conditions page of the commercial package policy? I. The policy period II. A provision describing the insurer's right to audit the insured's books and records

II only

Which of the following statements about ocean marine insurance coverages is (are) true? I. Hull insurance limits coverage to the breakdown of a ship's machinery and equipment. II. Protection and indemnity insurance provides liability insurance to the ship owner for bodily injury and property damage to third parties.

II only

Which of the following statements about the businessowners policy is (are) true? I. It is designed to meet the insurance needs of large manufacturing firms. II. It is a package policy designed to meet the basic property and liability needs of an insured in a single contract.

II only

Which of the following statements about the condominium commercial-unit owners coverage form is (are) true? I. It provides coverage for the unit owner's proportionate financial interest in the condominium building. II. It provides coverage for the business personal property of the unit owner.

II only

Which of the following statements about the provisions of the building and personal property coverage form is (are) true? I. A separate deductible must be satisfied for each building damaged in the same occurrence. II. Under the replacement cost option, there is no deduction for depreciation.

II only

Which of the following statements is (are) true concerning the value reporting form? I. Failure to report accurately suspends coverage. II. If the insured underreports the property values at a location, and a loss occurs at that location, recovery is limited to the proportion that the last value reported bears to the value that should have been reported.

II only

All of the following statements about inland marine forms are true EXCEPT

a jewelers block coverage form is used by individuals to insure jewelry limited in coverage by the homeowners form

Which of the following types of forms is used to insure fluctuations in business personal property, such as inventory and finished goods?

a value reporting form

In the optional replacement cost coverage provision is not selected, how are losses settled under the building and personal property (BPP) coverage form?

actual cash value

Renee is risk manager of XYZ Company. She purchased a Commercial Package Policy for her company and added one of the optional coverages. This option suspends the coinsurance clause and substitutes a new agreement covering any loss in the same proportion that the limit of insurance purchased bears to a value specified in the declarations. This provision is known as

agreed value coverage

One of the additional coverages under the building and personal property coverage form is "increased cost of construction." The coverage is payable if

an ordinance or building code increases the cost of construction

Which of the following statements about the causes-of-loss special form of the ISO commercial package policy is (are) true? I. The causes-of-loss special form insures against direct physical loss. II. The causes-of-loss special form excludes loss caused by earthquake.

both I and II

Which of the following statements about the equipment breakdown protection coverage form is (are) true? I. The covered cause of loss is a breakdown of covered equipment, including boilers, machinery, and electrical and mechanical equipment. II. It provides coverage for the reasonable cost of expediting permanent repair or replacement of damaged property.

both I and II

Which of the following forms is used to insure buildings that are under construction?

builders risk coverage form

XYZ, Inc. would suffer serious financial consequences if either of its two major customers were shut down and could not purchase XYZ products. Which of the following types of consequential loss protection would provide protection against this exposure?

business income from dependent properties

All of the following statements about business income insurance are true EXCEPT

business income is defined as total sales that would have been made if the loss had not occurred

All of the following are extensions of coverage under the building and personal property coverage form EXCEPT

currency and securities

One type of commercial property insurance excludes perils which are covered by the basic coverages. Some businesses buy this coverage to fill coverage gaps, including flood and earthquake, and to cover property in other countries. This type of insurance is called

difference in conditions insurance

Reimbursement for spoilage of frozen food caused by failure of a refrigeration unit at a frozen foods processor can be covered under

equipment breakdown insurance

Rick is risk manager of Herald News, a daily newspaper in a competitive market. Rick wants to make sure that if Herald's printing facility is damaged or destroyed, the paper will continue to be published. What type of insurance can Rick purchase to cover the added cost of continuing to print the paper after a physical damage loss has occurred?

extra expense coverage

Which of the following perils is not included in the causes-of-loss basic form of the ISO commercial package policy?

flood

Inter-Ocean Transfer owns 12 large cargo ships which transport goods. Inter-Ocean Transfer can obtain physical damage insurance on these vessels by purchasing

hull insurance

Which of the following statements about ocean marine insurance is true?

hull insurance includes collision liability covering the ship's owner if the ship collides with another ship

One inland marine coverage form is the accounts receivable coverage form. In which of the following cases would the purchaser of this form (the insured) be indemnified through the coverage?

if the insured cannot collect accounts receivable because of the destruction of records

Which of the following statements describes a Difference in Conditions (DIC) Policy?

it is an all-risk policy that covers perils not insured by basic property insurance contracts

Which of the following statements about the ISO businessowners policy is true?

it provides business income and extra expense coverage as an additional coverage

What is the effect of the optional agreed value provision in the building and personal property coverage form?

it suspends the coinsurance clause

Tom opened a store in a mall. His store is located between a theater and a department store. Tom counts on the theater and department store to generate walk-in business at his store. While his store has been successful, Tom knows that if either or both of the other businesses closed, his store would suffer an economic loss. What type of dependent property situation is illustrated in this scenario?

leader location

The business income and extra expense coverage form covers loss of business income and continuing normal operating expenses. How is business income (revenue) defined?

pre-tax net profit

Which ocean marine coverage provides comprehensive liability insurance for property damage caused by the ship to piers and docks, damage to the ship's cargo, and injury to the passengers or crew?

protection and indemnity insurance

The building and personal property coverage form provides several optional coverages. Under one optional coverage, no deduction is taken for depreciation when settling a covered loss. This optional coverage is called

replacement cost

There are a number of implied warranties in ocean marine insurance. One implied warranty is that the vessel is properly constructed and maintained, and that it properly equipped for the voyage to be undertaken. This implied warranty is the warranty of

seaworthiness

John Jones is risk manager of Alpha-2-Omega Company. John wants coverage for "direct physical loss" ("open perils" coverage) under the business and personal property (BPP) coverage form. Which causes-of-loss form should he select?

special form

Which of the following statements about the business income coverage form is true?

the form covers loss of business income and extra expenses incurred during restoration

Which of the following is covered under the building and personal property coverage form?

the insured's stock and inventory when located inside the insured building

A navigation error caused a cargo ship to run aground on a reef. The ship, valued at $1.5 million, was carrying $1.5 million in grain and $1.5 in electronic devices. The ship sustained $150,000 in physical damage. If this loss is a "particular average" loss, how will the loss be settled?

the owner of the ship is responsible for the entire $150,000 loss

All of the following statements about the businessowners policy are true EXCEPT

the policy must be written with a deductible of at least $2,000 for property losses

All of the following are considered to be instrumentalities of transportation and communication for purposes of inland marine insurance EXCEPT

trains

A firm wishing to insure a single shipment of merchandise sent by a common carrier would purchase a(n)

trip transit policy