Commercial P ackage P olicy

Transcription

1 Commercial P ackage P olicy (CPP) 7 Like a Homeowners policy, the CPP is a packaged policy. It is designed for large businesses. Every package policy must have at least two parts Property and Liability. Business clients may purchase any of these commercial coverages as monoline coverage (that is, all by itself) or as part of a CPP (Commercial Package Policy): Commercial General Liability Commercial Property Commercial Crime Commercial Inland Marine Equipment Breakdown Coverage Farm Commercial Auto

2 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e Components of a Commercial Package Policy A CPP has four key components: 1. Common Policy Declarations Page: Contains the names of the parties to the contract, the policy period, a description of the first named insured s business, a schedule of coverage parts and the premiums charged for each, and the total policy premium. 2. Interline Endorsements (as needed): Designed to eliminate duplicate language and minimize the number of endorsements required. Interline endorsements effectively coordinate the coverage provided in one coverage part of the policy to other coverage parts to prevent redundancy. 3. Two or More Coverage Parts: Specified in the common Declarations page. Although the common declarations provide information regarding the entire CPP, each coverage part must also have a separate Declarations page. 4. Common Policy Conditions: There are six common policy conditions that apply to all coverage parts of the CPP. Please review the following chart: Six Common Policy Conditions of the CPP CANCELLATION POLICY CHANGES AUDIT BY INSURER INSPECTION BY INSURER PREMIUM TRANSFER OF RIGHTS By written advance notice by either side, with appropriate refund of unearned premium Require mutual consent and endorsement attached to policy Insurer may examine books and adjust premium during and up to three years after policy period Insurer may establish insurability and determine proper premium charges at renewal Insured is responsible for paying all premiums No assignment without permission of insurer, except at insured s death Commercial General Liability (CGL) The CGL coverage part is liability coverage for the business. It does not cover personal liability. This type of coverage generally has no deductible and can be written for almost any type of business. Some businesses, such as auto dealers and repair shops, have a special type of Liability coverage known as Garage Liability, which was discussed in the previous chapter. CGL is basically a Bodily Injury (BI) and Property Damage (PD) coverage that pays for legal liability to others resulting from failure to act reasonably (negligence) on the part of the insured or anyone acting on behalf of the insured, or activities the business could be held contingently liable for such as the hiring of sub contractors or joining with others in common activities such as sponsorships. These policies pay the cost of defense in addition to policy limits, and the insurer will select the lawyer and settle the claim in any manner it considers to be expedient. 126 Who is an insured on a CGL? If you are designated in the declarations as an individual, both you and your spouse are insureds. If you are designated as a partnership; you, your spouse, your partners, and their spouses are insureds. If you are designated as a corporation; you, your executive officers, your board of directors, and stockholders are also insureds.

3 C o m m e r c i a l P a c k a g e P o l i c y 7 Coverage is also provided for any liability resulting from the negligent acts of a business employees. However, injury to a business employees is not covered since that falls under Workers Compensation. Although state law requires it, Workers Compensation is always a separate policy. Volunteer workers are an insured under the policy but only while performing duties related to the business. However there is no coverage for injury or property damage caused by volunteer workers to other volunteer workers or employees. Occurrence Form Versus Claims Made Form The CGL may be issued using an Occurrence Form or a Claims Made Form. The difference between the two forms is when the policy will respond and defend against a negligence lawsuit and pay out if the insured is legally liable for damages. An Occurrence Form covers any BI or PD that occurs during the policy period. On June 15, a customer slips and falls on business premises due to negligence. The policy expires on June 30 and the insured does not renew it. On October 1, the customer sues the insured for negligence. Since the policy was in force when the fall occurred on June 15, the insurance company must defend the business and pay the claim if the insured was negligent, even though the policy had expired on June 30. As you can see, the insurer is open to future claims for an indefinite period of time. Coverage applies to all claims that occurred during the policy period, even though they may not be turned in until much later. To solve this problem, insurers introduced Claims Made policy forms. On a Claims Made Form, the claim must be reported while the policy is in force or within 60 days after the expiration date. While the insurer is no longer responsible for claims that are reported after this time, they are now responsible for anything that may have occurred in the past if the claim is reported during the current policy term! To solve this dilemma, Claims Made policies will contain a retroactive date, which goes back to a date in the past. Now in order for the Claims Made Form to respond, the claim had to occur after the retroactive date and be reported during the policy period. This retro active date is negotiated between the insured and the insurer at each policy renewal. The farther back the retroactive date goes, the more exposure to past incidents the insurer has and therefore, the larger the premium will be. If the original Claims Made retroactive date was January 1, 2009, the policy should renew on January 1, 2010, with the original retroactive date of January 1, If so, a claim that occurred in 2009 but was not turned in until 2010 would be covered. However, if the retroactive date was advanced to January 1, 2010 at renewal, the claim that occurred in 2009 would not be covered by the 2010 policy, since it occurred prior to the retroactive date. Nor would it be covered by the 2009 policy, because the claim was not reported before the end of the previous policy period. Claims that might be turned in after the end of the policy period create a problem which can expose the client to situations that are not covered. The ERP (extended reporting period) was created to solve this problem. An ERP does not extend a policy period, it simply extends the period for reporting such claims. The ERP or tail as it is often referred to applies only to BI and PD that occurred after the retro active date and were reported during the policy period or the extended reporting period. Claims first received during any extended reporting period are treated as if they had been made on the last day of the policy period. Once in effect, an ERP may not be canceled. 127

4 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e The insurer provides one or more ERPs if the CGL policy is: Canceled or not renewed. Renewed with an advanced retroactive date. Renewed by an Occurrence Form. Provisions are made for two types of Extended Reporting Periods Basic ERP: Provided automatically without an additional premium charge, begins at the end of the policy period and provides an extra 60-day period for reporting any claims that occurred after the retro active date and during the policy period. This is known as the mini tail. Supplemental ERP: Extends the claim-reporting period for one to five years, known as the midi tail, or indefinitely, which is often referred to as the maxi tail. In order to purchase the Supplemental ERP, the named insured must request it in writing within 60 days after the end of the policy period. To summarize, on an Occurrence Form, if the incident occurred during the policy period, that policy will respond no matter when the claim is turned in. On a Claims Made Form, the incident had to occur after the retro active date and be reported during the policy period. An extended reporting period of 60 days is automatic at the end of the policy and if that is not long enough, the insured may purchase a Supplemental Extended Reporting Period. Once a Supplemental Extended Reporting Period is purchased, it can not be cancelled, altered, or renewed. Commercial Liability Coverages Coverage A on a CGL provides BI and PD coverage for Premises and Operations Liability and Products and Completed Operations Liability. Suppose a client owns a grocery store. Premises Liability provides coverage for BI and PD on the fixed premises in the event someone (other than the owner or his employee) is injured or has property damaged due to negligence. The premium is based mainly on the size of the premises and how many square feet of space is open to the public. Coverage also applies to the parking lot and the sidewalks adjacent to the store. Operations Liability is designed for businesses that could be sued based on what activities they perform. A contractor does work at many different locations. Operations Liability provides BI and PD coverage in the event someone, other than the contractor or his employee, is injured or has property damage due to the contractor s negligence. Injury or damage done by mobile equipment is also covered, as long as the mobile equipment is used off public roads. The premium for Operations Liability is based on the company s payroll. The more employees doing work for a business, the more exposure to operations liability lawsuits the business has and therefore, the higher the premium. 128 A masonry contractor while building a wall drops a brick on someone walking by. A paving contractor while operating a front end loader does damage to a car while grading the parking lot.

5 C o m m e r c i a l P a c k a g e P o l i c y 7 Coverage A on a CGL also includes coverage for products and completed operations. These coverages are designed for businesses that either manufacture or sell something (products) or build something (completed operations). Some businesses need both coverages. 1. A grocery store owner sells soft drinks bottled by a local bottling company. If the soft drinks are bottled improperly and a consumer becomes ill after drinking one, the consumer could sue both the grocery store and the bottler. Both businesses are covered by the Products Liability coverage on a CGL, including the cost of defense in addition to policy limits. In this example, the bottler may be found to be more negligent than the grocery store, but both need coverage. The cost of hiring a lawyer can be substantial, even if the case is won. 2. A small manufacturing company makes aviation components. The component is sold and installed in an airplane. Later, the component fails due to negligent manufacture and the plane crashes, injuring its occupants. The manufacturer can be sued by the occupants of the plane who can recover medical expenses, pain and suffering, loss of wages, etc. Products Liability covers BI and PD resulting from the sale or manufacture of a faulty product, after it has been released from the control of the manufacturer or retailer. The product itself is not covered, only the BI and PD it causes. The cost of a recall related to faulty products is not covered either, nor is the loss of income the manufacturer may suffer while a product is off the shelf due to a recall. The basis of premium charged for Products Liability is gross annual sales. The more products sold, the higher the premium. As you can see, just about every business needs Products Liability coverage. Some products, such as chemicals, ammunition, explosives, and medical supplies, are so inherently hazardous that the insurance underwriter may elect not to offer Products coverage on them. Products Liability on a CGL may be excluded with the mutual consent of the parties. Completed Operations Liability is actually part of the same CGL insuring agreement, but is designed for businesses that build or repair things. We already know that the CGL covers premises and operations liability in case someone is injured on the premises of a business or because of its operations. However for someone building houses, coverage is also needed to protect the insured later (e.g., in the event the roof collapses and injures the occupants). So, Operations Liability provides coverage while in the process of building the house and Completed Operations Liability covers the builder or repair contractor after the work is done. Coverage A of the CGL also covers liability assumed under contracts. This coverage is called Contractual Liability. The CGL automatically covers insured contracts as defined in the policy for contractual liability. The insured contracts can be remembered with the acronym L.E.A.S.E. Lease contracts for equipment and premises Easement or a license agreement Agreement to Indemnify (Hold Harmless agreement) Sidetrack agreement, often known as a railroad siding Elevator/ Escalator maintenance agreement. Also included under Contractual Liability is coverage for businesses that act as general contractors. Since general contractors are assumed to be responsible for the acts of any subcontractors they may hire, they need a coverage called Owners and Contractors Protective Liability. 129

6 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e Owners and Contractors Protective Liability This is why most general contractors require subcontractors to have their own insurance and name the general contractor on their policy as an additional insured. Fire Legal Liability will extend coverage for fire damage to that portion of a leased premise in the care custody and control of the insured. This is now known as Damage to Premises Rented to You. A client leases a new office space. The landlord inserts a clause in the lease stating that the insured is responsible if the portion of the premises leased is damaged by fire. Your client has a CGL, but it contains the exclusion relating to property damage to property in the lessee s care, custody, or control. However, the coverage Fire Legal Liability or Damage to Premises Rented to You on the CGL pays for the damage under Property Damage Liability. In other words, the care, custody, and control exclusion has been deleted only as it relates to fire. Damage caused to the leased premises, other than fire, is still excluded. Coverage A on a CGL has many exclusions, including no coverage for: Expected and intentional acts. Liquor liability. Any obligation of the insured under the Workers Compensation laws. Any liability relating to pollution. However an exception to this exclusion will provide coverage for pollution from building heating, cooling, or dehumidifying equipment: This exception covers bodily injury sustained inside a building and caused by smoke, fumes, vapor, or soot from equipment used to heat, cool, or dehumidify the building. This includes equipment used to heat water that the building s occupants and their guests use. Coverage applies only to injuries sustained inside the building. It does not apply if the same events release smoke, fumes, vapor, or soot outside the building that injures a person passing by. Note: This exception has grown over the years. It was first added to except only heating equipment such as furnaces. It was then broadened to except cooling equipment and most recently dehumidifying equipment. 130 Any liability arising out of the ownership, use, loading, or unloading of any aircraft, auto, or watercraft. Damage to property the insured owns, rents, or occupies. Damage to personal property in the insured's care, custody, or control. Damage to the insured s product arising from the product itself. Damage to the insured s work. Property damage to impaired property. Product recall. Employment-related practices. Coverage B on CGL provides coverage for Personal and Advertising Injury Liability. This type of liability coverage does not cover bodily injury or property damage but, Personal injury arising out of one or more of the following offenses: Libel Slander False arrest, detention, or imprisonment

7 C o m m e r c i a l P a c k a g e P o l i c y 7 Malicious prosecution Wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a premise that a person occupies on behalf of its owner, landlord, or lessor Advertising injury means injury arising out of: Misappropriation of advertising ideas or style of doing business. Infringement of copyright, title, or slogan. Many underwriters deny Personal and Advertising Liability coverage for media businesses such as television and radio stations, newspapers, magazines, and search engine websites. Coverage is also excluded for any injury caused by electronic chat rooms or bulletin boards or any unauthorized use of another s name or product. Coverage C on a CGL is a no-fault coverage called Medical Payments to Others. This is very similar to the Medical coverage on a Homeowners policy. The purpose of this coverage is to prevent lawsuits. It applies only to others, not to the insured or employees. If the injury took place within the policy period and is reported within one year, the Medical coverage applies to necessary medical, surgical, and dental services, including funeral services if death results from the injuries sustained. Coverage applies on a per person basis. Coverage is excluded for injury to employees or anyone injured while participating, practicing, or instructing any athletic activities, exercises, games, sports, or contests. Supplementary payments, in addition to limits, are also included in the CGL. The insurer agrees to pay, with respect to any claim or lawsuit it defends under Coverage A or B, all expenses it incurs (such as legal fees), all reasonable expenses incurred by the insured at the insurer s request, including loss of earnings up to $250 a day, the cost of bail bonds and bonds to release attachments, and any interest that accrues after entry of a judgment but before the insurer pays the claim. Commercial Liability Limits The limits of insurance shown in the CGL declarations fix the maximum the insurer will pay, regardless of the number of insureds covered or claims made. Most CGL policies are written with both an occurrence limit and an aggregate limit. The per occurrence limit applies to all damages resulting from the same occurrence. However, in order to limit the insurer s total liability during the one-year policy period, most CGLs also have an aggregate limit. The declarations page will list a separate aggregate limit for Products and Completed Operations losses and a General Aggregate for all other types of losses. Claims paid on an occurrence basis reduce the aggregate total amount of insurance available to pay future claims, but the aggregate limit is reinstated in full on the next policy anniversary date. If the CGL has an occurrence limit of $1,000,000 and an aggregate limit of $5,000,000, the insurer would pay any covered claim up to $1,000,000 per occurrence. But during the year, once the total amount for all claims exceeded $5,000,000 (the aggregate limit), there would be no further coverage for any claims until the anniversary date, at which time the aggregate limit would be reinstated. CGL policies contain conditions similar to other liability contracts, such as the right of the insurer to conduct a premium audit and the right of the insured to receive advance notice in the event the insurer elects to non-renew (or cancel) the coverage. The CGL policy territory usually means the United States, including its territories and possessions, Puerto Rico and Canada, and other parts of the world, providing the injury or damage arises out of goods or products made or sold in the described policy territory and the lawsuit for damages is brought in the United States. 131

8 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e Commercial Property Commercial Property Insurance may be issued as a monoline policy or as part of a CPP. The Property policy will contain the following: Declarations page One or more Property Coverage Forms One or more Cause of Loss Forms Property Conditions Any applicable endorsements added The Commercial Property Declarations page and Property Conditions Form contain virtually the same information we studied earlier in connection with Dwelling Insurance. In fact, Commercial Property Insurance is very similar to the Dwelling and Homeowners policies, except the names of the policy forms are different. Dwelling DP 1 DP 2 DP 3 Insurance Comparisons Homeowners Commercial Property HO 1 Basic HO 2 Broad HO 3 Special Perils Covered 11 Named Perils 14 Named Perils All Risk Commercial Property Coverage Forms 132 Commercial Building and Personal Property Form: This is the most frequently used Commercial Property Form. It is a general-purpose form used to write coverage for direct loss to buildings, to business contents and equipment, or to both. Although the Form is descriptive, describing the commercial building and/or contents to be covered, coverage does not apply unless the building and/or contents are listed on the declarations page, along with the appropriate premium charge. There is no stacking of coverage such as that on a Homeowners policy. 1. Coverage A covers buildings. A limit of insurance must be shown in the declarations. The Form describes a building to include any permanently installed equipment (such as air-conditioning systems), personal property used to maintain or service the building (such as fire extinguishers), and built-in appliances. Vegetated roofs are now considered to part of the building. 2. Coverage B covers business personal property (contents), including stock, equipment, merchandise, office furniture, etc. A limit of insurance must also be shown in the declarations, or Coverage B does not apply. Remember, there can be Coverage A without Coverage B, or vice versa, or both. Coverage B covers business personal property in or on the described building, or within 100 feet of the described premises. 3. Coverage C covers the personal property of others that was left in the insured s care, custody, or control. Remember, the CGL portion of the CPP contains an exclusion under Property Damage Liability for damage to property of others left in the care, custody, or control of the insured. Clients can obtain coverage for the property of others left with them by declaring a limit on the declarations and paying an additional premium. Exclusions on the Commercial Building and Personal Property Form are the same exclusions we discussed in other property insurance, such as no coverage for money, securities, animals; automobiles; growing crops (this does not include lawns or growing plants that are part of a vegetated roof); boats and airplanes; bridges, roadways, walks, patios and paved surfaces; contraband; the cost of excavation grading or backfilling; foundations; land; personal property while airborne or

9 C o m m e r c i a l P a c k a g e P o l i c y 7 waterborne; retaining walls, bulkheads, pilings, piers, wharves or docks; underground pipes, flues, or drains, and electronic data on any kind of electronic media. The standard exclusions of flood, war, earthquake, off premises power interruption, ordinance and law costs, intentional acts and neglect are also excluded. Commercial Property Conditions Co-insurance on Commercial Property Insurance works the same way it does on Dwelling Fire and Homeowners, but the insured may select the co-insurance percentage when buying the policy. It is not fixed at 80%, as it is on personal policies. Co-insurance runs as low as 50% or as high as 100%. However, the higher the co-insurance percentage selected, the lower the rates. The deductible is $500 per occurrence, regardless of the number of buildings or contents affected by the loss. The insured may select higher deductibles, which lower the premium. Deductibles are applied after the co-insurance penalty, if any, has been calculated. Claims Settlement on the Commercial Building and Personal Property Form is on an actual cash value (ACV) basis replacement cost minus depreciation although replacement cost coverage is available as an option, at an additional premium charge. Additional Coverages: The Commercial Building and Personal Property Form contains the following additional coverages at no extra premium charge: 1. Debris Removal is covered when the debris results from a covered property loss subject to a maximum of 25% of the total payment made for the loss. If the cost of the direct loss plus the amount payable for debris removal exceeds the policy limit, the insurer pays up to an additional $25,000 per occurrence, per location for additional debris removal. 2. Fire Department Service Charge provides an additional $1,000 to cover the costs of the fire department. This is the maximum per loss to each premise no matter how many fire departments respond. 3. Removal of Business Personal Property to a place of safety during a covered loss is covered on an All Risk basis for up to 30 days. 4. The Cost of Extracting Pollutants from land or water caused by a covered loss is o covered up to $10, Ordinance and Law costs to bring the building up to code after a loss are covered up to 5% of the building limit or $10,000 whichever is less. 6. Electronic Data will pay for the cost to replace or restore electronic data which has been destroyed or corrupted by a covered cause of loss. The maximum payable under this additional coverage is $2,500 for all the occurrences during a policy period. If a loss starts in one policy period and continues into the next policy period, the maximum payable under both policies is still $2,500. This coverage does not apply to pre-packaged software held for sale or electronic data which is integrated in, operates or controls the building s elevator, lighting, heating, ventilation, air conditioning or security system. Extensions of Coverage are granted at no extra premium charge, but only if a co-insurance percentage of 80% or more is shown in the declarations and the proper limit of coverage maintained. Each extension is provided as an additional amount of insurance, above policy limits. 1. Coverages A and B of the Commercial Building and Personal Property Form are extended to apply to newly acquired property. Up to a maximum of $250,000 for each new building may be extended for up to 30 days to cover new buildings being constructed at the same location or buildings newly acquired at other locations. Up to a maximum of $100,000 may be extended for up to 30 days to cover business personal property at newly acquired locations, as well. 2. The personal effects of employees and the personal property of others in the care, custody, and control of the insured are covered up to a maximum of $2,500. Theft of the personal property of others is covered by the extension but not the personal effects of the employees. 133

10 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e 3. The costs of researching, replacing, or restoring lost information contained in valuable papers and records, not including those that exist on electronic media, is covered up to a maximum of $2,500. However, money and securities are not considered to be valuable papers. Accounts receivables that cannot be collected due to damaged records are also covered up to $2, Business personal property (other than stock) is covered while temporarily off premises, up to a maximum of $10,000. However, coverage is not extended to cover business personal property in a motor vehicle, or in the care or custody of a salesperson. 5. Coverage may also be extended to apply to outdoor property, such as fences, antennas, signs not attached to the building, trees, shrubs, and plants. The most the insurance company pays under this extension is $1,000, but not more than $250 for any one tree, shrub, or plant. Trees, shrubs and plants which are considered stock such as a nursery s inventory, or are part of a vegetated roof are not included in this extension. 6. Non-owned detached trailers are covered if they are used in the business, in the care custody and control of the business and the business has a contractual responsibility to pay for loss or damage. The most this extension will pay is $5,000. No coverage if the trailer is attached to a motor vehicle or in the process of being hitched or unhitched. 7. Business Personal Property Temporarily in Portable Storage Units is covered up to $10,000 for 90 days as long as the portable storage unit is within 100 feet of the premises described in the declarations. Commercial Property Endorsements (Optional) 134 Optional coverages that can be added for an additional premium include: Inflation Guard Endorsement: Will automatically increase the limit of insurance every year to make sure the property is properly insured and that the policy limit does not fall below the amount required by the co-insurance clause selected. The increased amount is an annual percentage stated in the declarations and it may be applied mid-term if a loss occurs partway through the policy period. Builders Risk: Especially designed for buildings in the course of construction. This unique form recognizes that the initial risk is limited to the value of the materials at the construction site but, as work proceeds, the risk increases, eventually growing to its maximum, which is the completed value of the building. Most Builders Risk coverage is written on a completed value basis, which means that the completed value of the building should initially be shown as the policy limit. However, since the amount of risk is initially small and gradually increases over time, the rates are considerably lower for this type of coverage. Reporting forms, which require the insured to report increasing values over time, may also be used. Business Income Coverage Form (business interruption): May also be added to a CPP. This insurance applies to losses and expenses related to an interruption of normal business operations at the premises described in the declarations. Both the Commercial Building and Personal Property Form and the Builders Risk Form involve coverage for direct losses, in which a covered peril actually damages the insured property. However, perils that cause direct damage can also cause consequential (indirect) losses, sometimes called time element losses. The term time element means that the amount of the loss is directly linked to the time it takes to repair or rebuild the damaged property. However, indirect losses (time element) are not covered unless the peril causing the direct loss is covered first. Only losses incurred during a period of restoration are covered. The period of restoration begins on the date that the direct physical loss occurred, and it ends on the date that the damaged property should be repaired, rebuilt, or replaced by the insurance company. Expiration of the policy does not shorten the period of restoration. Business Income Coverage pays the actual loss of business income, which is defined as net

11 C o m m e r c i a l P a c k a g e P o l i c y 7 profit or loss before taxes plus continuing operating expenses. The purpose of the coverage is to restore the insured to the position that would have existed had there been no disruption of operation. Care must be taken when writing this coverage to make sure that the policy limits are adequate to cover the insured if the loss comes at the worst possible time. Some businesses do 75% of their annual sales during the holiday season. Since sales figures are not level throughout the year, some insureds prefer coverage to be written on an agreed amount basis, which may be used to lock in full coverage for losses up to the policy limit. Reporting forms (worksheets) must be filed showing the insured s previous and projected profit and loss figures on an annual basis. Contingent Business Interruption Insurance (sometimes called Business Income from Dependent Properties): Also available as an optional coverage. This coverage will protect an insured s business income from interruption due to loss or damage to property that the insured does not own, operate, or control. Hoops Embroidery business depends on Major City T-shirts business as a source of materials or services. This contributing location has a fire loss, which in turn puts Hoops Embroidery out of business until this supplier rebuilds. The resulting loss of income can be covered by this optional Business Income from Dependent Properties Form. The Business Income Coverage Form may be purchased with or without coverage for Extra Expense. Of course, Extra Expense coverage may also be purchased alone. The Extra Expense Coverage Form: May also be added to a CPP, or it can be combined with the Business Income Coverage Form. In either case, it covers actual and necessary extra expenses sustained due to direct physical loss. Also, it is important to remember that Extra Expense does not cover loss of business income. It covers only the extra expenses incurred by a business because it had to move to a temporary location in order to continue operations. One company has normal business expenses of $5,000 a month. After a fire, the business is temporarily moved into a new location while the building is being repaired. While operating at the temporary location, the monthly expenses total $6,000. The Extra Expense policy pays only $1,000 a month. This is the amount of extra expense incurred, over and above normal business expenses. The general rule is that if a business must shut down due to a loss, it needs Business Income Coverage. However, if the business must continue to operate after a loss, it needs the Extra Expense coverage Form. A manufacturing business or restaurant might purchase Business Income Insurance. A service business, such as a school or newspaper, might purchase Extra Expense since it can continue operations elsewhere. Glass Coverage Form: Provides comprehensive glass coverage for commercial plate glass, frames, lettering, and ornamentation. Glass coverage may be needed because the Commercial Building and Personal Property Form may not cover glass losses, depending on which Cause of Loss Form is attached, or it may have special limits on glass, if covered. Glass coverage is usually written on an ACV basis although an agreed value is also available. Generally, the insurer does not pay for loss or damage to glass if the building has been vacant for more than 60 consecutive days. 135

12 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e Earthquake Endorsement: This endorsement adds the peril that is excluded on the Cause of Loss Forms earthquake and any subsequent volcanic eruption are now covered. Naturally, the insurer charges an additional premium for this coverage. This Form defines all earthquake shocks and any subsequent volcanic eruptions occurring within a 168-hour period as a single event. This means that a policy that expires during this 168-hour period would still cover shocks or an eruption following the initial event, so long as it began while the policy was in force. Value Reporting Form: When a business has fluctuating inventory (business personal property) values, most insurers add a specialized valuation endorsement, often called the Value Reporting Form, to the property policy in order to avoid over-insurance, under-insurance, and the inconvenience of continually endorsing policies to reflect changing insurance values. This endorsement allows the level of coverage to be adjusted as values change by requiring the insured to file daily, weekly, monthly, or quarterly reporting forms. Peak Season Endorsement: May be used to increase the limit of insurance on business personal property for specified periods to take care of seasonal fluctuations. A ski shop may have increased inventory during the winter months. Instead of buying more coverage than necessary for the entire year, the Peak Season endorsement may be used to cover the temporary increase for a 30- to 60-day period. The Peak Season Endorsement and the Value Reporting Form are subject to a premium audit at the insurer s discretion to make sure the values being reported are accurate. Ordinance or Law Coverage Endorsement: Most Property Insurance coverage forms exclude losses resulting from the enforcement of city ordinances or laws regulating building repair or construction. If an older building is damaged, repairs must be in accordance with current building codes, which the insurer does not have to pay for unless the insured has this optional endorsement. Spoilage Coverage Endorsement: This optional endorsement provides coverage for spoilage of perishable stock due to power outage, mechanical breakdown, or contamination. Condominium Association Coverage Form Condominiums do not come in one size or shape. Residential condominiums can be apartment buildings, multi-unit dwellings, or even single-family dwellings. Commercial condominiums may house offices, warehouses, or even manufacturing operations. Some condominiums may include both residential and commercial unit-owners. The key is shared ownership of the building and common areas by the individual unit-owners and the condominium agreement and bylaws that contractually bind the unit-owners. Coverage is provided based on the association agreement and bylaws and property ownership. Most of a single unit-owner s property is not eligible for coverage. The following property is covered while located within a unit and without regard to ownership: Fixtures. Improvements. Alterations that are part of the building or structure. Any appliances for refrigerating, ventilating, cooking, dishwashing, laundering, security, or housekeeping. However, this property is covered only if the Condominium Agreement states that the Association s insurance must cover them. 136

13 C o m m e r c i a l P a c k a g e P o l i c y 7 If a unit-owner has other insurance on property this coverage form insures, this coverage is primary and the unit-owner s other insurance is excess. All rights to recover (subrogate) from unit-owners are waived. Condominium Commercial Unit-Owners Coverage Form Buildings are not eligible because this coverage form insures the condominium s interior portion. The description of covered property includes the unit-owner s owned fixtures and structural changes. Since buildings are not eligible, numerous structural items are excluded because they are not listed as covered property. This includes bridges, roadways, bulkheads, and similar property. Any property that the association is required to insure because of the agreement and bylaws is excluded. This includes fixtures, improvements, appliances, and similar property. The unit-owner coverage form is always excess over the condominium association coverage form that insures the same property. There is no Mortgage holders Additional Condition. This could be significant if there is a mortgage on the property. Legal Liability Form The commercial general liability policy provides limited coverage for damage to property of others in the care custody and control of the insured and only if caused by fire. The commercial property policy requires the insured to insure the property of others in the custody of the business as a separate limit and subject to certain perils. The Legal Liability Form is the only way to completely cover significant real or personal property legal liability exposures. The highlights of the form are as follows: Coverage is available for building and/or business personal property. The limit for this coverage does not affect any other limits. The cause(s) of loss can be selected based on the contractual obligations. It includes supplementary payments that provide for defense expenses outside the limit of insurance. Commercial Property Cause of Loss Forms The Commercial Building and Personal Property Form really doesn t contain any perils. The Form is descriptive in nature, describing the types of buildings and business personal property that may be covered. To determine which perils are covered, the insured must add at least one Cause of Loss Form to the policy. Two of these Causes of Loss Forms are Named Peril Forms, meaning only perils specified on the Form are covered. If the peril is not named, it is not covered. The Special Cause of Loss Form, however, is considered to be All Risk and covers all perils unless excluded. Basic Cause of Loss Form: Includes coverage for 11 Named Perils included in the REV FL SHAW acronym including, sprinkler leakage, sinkhole collapse, and volcanic action. Broad Cause of Loss Form: Covers all the perils covered in the Basic Form plus three additional perils. Remember how the REV FL SHAW joined the WWF weight of ice, snow, or sleet, water damage other than flood, and falling objects. This Form is very similar to the broad form DP-2 we studied earlier. It is still named peril, but it has more perils than the basic form, so the premium is higher. The Form also provides an additional coverage for the breakage of glass, but it is limited to $100 per pane and $500 maximum per loss. Collapse of the structure is also covered as an additional coverage. 137

14 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e Special Cause of Loss Form: Covers all risks of physical loss to both the building and business personal property, except what is excluded. Since theft is not excluded, this policy form contains special maximum limits for theft of certain business personal property, such as a maximum of $2,500 for furs, jewelry, watches, and precious stones. Like the DP-3 and the HO-3, the All Risk Special Cause of Loss Form contains exclusions for such things as wear and tear, deterioration, rust, dry rot, industrial smoke, pollutants, mechanical breakdown, settling, shrinking, expansion, vermin, rodents, insects, domestic animals, & mold. Commercial Crime Crime Insurance may also be added to a CPP or written as a monoline coverage all by itself. Crime losses are also subject to a discovery period that states a loss is covered only if it is discovered within one year after the end of the policy period. These policies are referred to as being written on a discovery basis. Claims may also be subject to a loss sustained method whereby coverage is afforded only if the loss was sustained or occurred during the policy period. These forms are considered written on a loss sustained basis. Crime insurance can be written for commercial entities as well as government entities on either a discovery or loss sustained basis depending on the insurer. Common Crime Insurance exclusions include losses resulting from acts committed by the named insured, loss resulting by order of a government authority, and losses resulting from any nuclear hazards or war-related actions. Losses that can only be proven by an inventory count are also excluded. An inventory shortage can be the result of many issues aside from crime. Crime Insurance policies insure specific types of property against loss by specific perils. Whether a loss is covered may depend on whether a burglary or robbery, as defined by the policy, has been committed. It is, therefore, very important to review the following definitions as they relate to Crime Insurance. Definitions of Crimes Burglary: The taking of property from inside the premises by a person unlawfully entering or leaving the premises, as evidenced by marks of forcible entry or exit. Visible marks or damage at the point of entry or exit are needed to confirm the burglary. Extortion: The surrender of property away from the premises as a result of a threat communicated to the insured to do bodily harm to an insured or an employee, or to a relative of either who is, or allegedly is, being held captive (i.e., Kidnapping). Robbery: Taking property from the care and custody of a person by someone who has caused or threatened to cause bodily harm. Safe Burglary: The taking of property from within a locked safe or vault by a person unlawfully entering the safe or vault as evidenced by visible marks of forced entry on the safe. This also includes removal of a safe from the premises. Theft (Larceny): Any act of stealing. Theft is a broad category. It includes all of the more narrowly defined acts of stealing, such as burglary and robbery. 138 Definitions of People and Places Custodian: The named insured, any of the insured s partners, or any employee, while having care and custody of insured property inside the premises, but not including any person acting as a watchperson or janitor. Messenger: The named insured, any of the insured s partners, or employees, while having care and custody of property outside the premises.

15 C o m m e r c i a l P a c k a g e P o l i c y 7 Premises: The interior of that portion of any building occupied by the insured for the purpose of conducting business. Watchperson: Any person the insured retains to have care and custody of property inside the premises, and who has no other duties. Definitions of Property Money: Currency, coins, and bank notes in current use and having a face value; travelers checks; registered checks; and money orders held for public sale. Securities: Negotiable and non-negotiable instruments or contracts representing either money or other property, including tickets, stamps in current use, and evidences of debt in connection with credit or charge cards other than cards issued by the insured. Securities do not include money. Property other than Money and Securities: Any tangible property other than money and securities that has intrinsic value. A client may add one or more Crime Insurance Coverage plans to a CPP. The name of each Crime Insurance Form provides an insight as to the coverage afforded. The main testable forms are identified as follows: Employee Theft: A type of fidelity bond that covers losses resulting from employee dishonesty, covering money, securities, and merchandise. It does not cover losses that can be proved only by inventory computation. Coverage may be written covering all employees, or on a per loss or scheduled basis in which coverage applies per employee. Further, scheduled coverage may be written on a Named Schedule basis, in which each covered employee is named, or on a Position Schedule basis, in which just the job title (position) is named and whoever holds the position is covered. Forgery or Alteration: Pays for loss resulting directly from forgery or alteration of outgoing checks, drafts, promissory notes or similar written promissory notes, or similar written promises, orders or directions to pay a sum certain in money that are: - Made or drawn by or drawn upon the insured - Made or drawn by one acting as the insured s agent Inside the Premises-Theft of Money and Securities: Money and securities are now covered if they are stolen inside the premises. Losses occurring outside the premises would not be covered. Losses caused by dishonest or criminal acts of any of the insured s employees are not covered. Inside the Premises-Robbery or Safe Burglary of other Property: In this Form, a robbery (threat of or actual bodily harm) occurring inside the premises would be covered as well as other property besides money and securities that were taken by visible signs of a forced entry(a burglary)to a safe. Inside the Premises-Robbery or Burglary of other Property: Covers property other than money and securities against inside loss or damage by actual or attempted robbery or other property taken from the premises by the visible signs of a forced entry or exit. Computer and Funds Transfer Fraud: Covers theft of property, including money and securities, directly related to the use of any computer to fraudulently cause a transfer from inside the premises to a person or place outside the premises. The form can also be extended to cover money orders and counterfeit money or these items can be insured on a separate crime form called Money Orders and Counterfeit Money as long as the proper procedures prescribed by the U.S. Treasury are followed. These forms do not cover acts of employees whether working alone or in collusion with others and any loss that can only be calculated by an inventory shortage. Outside the Premises: This form covers crime losses that occur outside of the insured s premises. This can be written to cover money and securities as well as other property from burglary, robbery and theft. Extortion - Commercial Entities: Sometimes a business is threatened by a kidnapper (or someone who purports to be a kidnapper) or other type of extortionist. This person threatens bodily harm to someone at the company (or their relatives). Other threats to a business involve potential damage to 139

16 O h i o P r o p e r t y a n d C a s u a l t y I n s u r a n c e its premises or property. This form agrees to pay for loss of covered property as a result of threats of bodily injury or property damage. The loss is the insured s paying money, securities, or other property to the extortionist as a result of his or her threats. The endorsement, however, adds one exclusion. It denies coverage if the named insured surrenders the property before he or she makes a reasonable effort to report the extortionist s demands. Lessees of Safe Deposit Boxes: This form adds an insuring agreement covering securities while they are in a safe deposit box or vault. The securities are covered for the perils of theft, disappearance, or destruction. The depository where the box or vault is located must be shown on the endorsement. The securities are also covered if they are temporarily in another location at the depository, while the named insured is adding to the box/vault or removing from it. The limit and deductible per occurrence are also specified. Securities Deposited With Others: This form adds coverage for securities that the insured has deposited with others - other than in a safe deposit box or vault. The name and address of the depository must be shown. The name of the custodian must also be shown. The securities are covered for theft, disappearance, or destruction and must be on the custodian s premises; conveyed by the custodian off the premises; or on deposit with the custodian for safekeeping in a depository. Guests Property: This form pays for loss or damage to guests property when inside a safe deposit box within the insured s premises or property located inside the insured s premises or in the insured s possession. The insured must be legally liable and responsible for the loss or damage. Safe Depository: This coverage pays for loss of or damage to customer s property while in a safe deposit box inside a vault inside the insured s premises. It also covers the property when stored in a vault inside the insured s premises or while on the insured premises during the course of deposit or removal from the safe deposit box or vault. The insured must be legally liable for the loss. The insurer will pay the costs to defend the insured even if the claim is denied provided the insured receives permission from the insurance company in advance of incurring any expenses All of the above crime coverage forms may be added to the CPP for an additional premium. While it is difficult to memorize all of the various forms, make an effort to memorize all of the various definitions, such as burglary, robbery, theft, premises etc. You should be able to answer most exam questions relating to Crime Insurance if you know the meanings of the words. The name of the crime form tells you what it covers. What does a Premises Burglary policy cover? If you know that burglary requires forcible signs of entry or exit after business hours, and you know what premises means, you should be able to answer the question! Commercial Inland Marine 140 To help identify the kinds of risks that are eligible for either Ocean or Inland Marine, the insurance industry has developed the nationwide definition that lists six categories of eligible marine risks: 1. Imports 2. Exports 3. Domestic Shipments 4. Instrumentalities of Transportation or Communication 5. Personal Property Floater Risks (such as the scheduled property endorsement on a homeowners or a separate Personal Articles Floater policy) 6. Commercial Property Floater Risks