Lesson 6 Commercial Inland Marine (IM) Insurance

Transcription

1 Lesson 6 Inland Marine Intro p1 (IP) Lesson 6 Commercial Inland Marine (IM) Insurance Understanding the use and purpose of commercial inland marine insurance is important since nearly all businesses have one or more exposures that require this coverage. Not all types of property are eligible so it is important that commercial inland marine policies are in compliance with the Nationwide Marine Definition. This lesson will review exposures regarding property in transit, bailee (care, custody, or control), and specialized property subject for commercial inland marine consideration. It will also cover some of the key features and advantages of this type of insurance. We only have a few learning objectives, but they are important to your understanding this portion of commercial property. Lesson 6 Inland Marine Intro p2 (IP) Lesson 6 Topics of Discussion: Topics in the lesson include: How Commercial Inland Marine Developed Inland Marine Forms Overview Reasons for Writing Commercial Inland Marine Conditions Unique to Inland Marine Coverages Common Features in Writing Commercial Inland Marine Coverage Forms Lesson 6 Inland Marine Intro p3 (IP) Lesson 6 Learning Objectives: 1. Identify the types of property to be considered eligible as commercial inland marine. 2. Understand the difference between filed and non-filed commercial inland marine classes. 3. Explain the reasons for using and advantages of commercial inland marine. 4. Identify and briefly explain common features of inland marine policies. Lesson 6 Inland Marine Intro p4 (IP) Forms that you need to print for this lesson: Commercial Inland Marine Conditions CM 00 01

2 Forms you have printed and will need for this lesson: None Insuring Commercial Property Course Print

3 Lesson 6 Topic A - How Commercial Inland Marine Coverage Developed Lesson 6 Topic A How Commercial Inland Marine Coverage Developed p1 (IP) Learning Objective: Identify the types of property to be considered eligible as commercial inland marine. Commercial inland marine insurance evolved from ocean marine insurance as a result of an expanding America early in its history. At that time most shipments of goods were by water, and as the country changed, over land methods developed. This resulted in additional exposures involving transit, unnamed locations, and property being portable or unique which resulted in a change of insurance coverages. Ocean marine underwriters were experienced with these types of risks and readily provided coverage, and from there inland marine insurance developed as a separate classification of insurance. Property insurance originated from fire insurance, and by its nature is for the most part designed for insuring property at fixed or specific locations, and is subject to rigid rules regarding insuring terms and rating. Inland marine insurance arose from ocean marine insurance, having more freedom and flexibility regarding insuring terms and rating. This led to conflicts and disputes regarding what types of property would be written under fire insurance and what type of property would be written under inland marine insurance. The solution was the creation of the Nationwide Marine Definition which was adopted in 1933, and later modified. Lesson 6 Topic A How Commercial Inland Marine Coverage Developed p2 (IP) Learning Objective: Identify the types of property to be considered eligible as commercial inland marine. Nationwide Marine Definition The Nationwide Marine Definition identifies the following types of property to be considered eligible as Commercial Inland Marine: 1. Imports 2. Exports 3. Domestic Shipments 4. Bridges, Tunnels, and other Instruments of Transportation and Communication 5. Commercial Property Floaters Insuring Commercial Property Course Print

4 Lesson 6 - Topic B Inland Marine Forms Overview Lesson 6 Topic B Inland Marine Forms p1 (IP) Learning Objective: Understand the difference between filed and non-filed commercial inland marine classes. You will find the rules and rates for these classes in your Commercial Lines Manual, Division 8. Commercial inland marine is comprised of filed and non-filed classes of business as identified under a state's insurance code or law. Filed Classes Filed indicates those classes for which rules, rates, and forms must be filed by the insurance companies with state regulatory authorities for approval. Risks within a filed class are relatively uniform in nature and have similar exposures. Examples of Filed Inland Marine Forms Accounts Receivable Coverage Form Camera and Musical Instrument Dealers Coverage Form Commercial Articles Coverage Form Equipment Dealers Coverage Form Film Coverage Form Floor Plan Coverage Form Jeweler's Block Coverage Form Mail Coverage Form Physicians and Surgeons Equipment Coverage Form Signs Coverage Form Theatrical Property Coverage Form Valuable Papers and Records Coverage Form Lesson 6 Topic B Inland Marine Forms p2 (IP) Learning Objective: Understand the difference between filed and non-filed commercial inland marine classes. Non-filed Classes Non-filed indicates those classes for which rules, rates, and forms are not subject to filing requirements or uniform standards of application. The classes identified as non-filed have greater variance in the exposures, which makes it difficult to provide uniformity related to coverages and pricing. Non-filed classes have the ability to address unique or specific exposures on an individual risk basis. Insuring Commercial Property Course Print

5 Examples of Non-Filed Inland Marine Forms Builder's Risk Policies Contractors Equipment Floaters Installation Floaters Specialized Computer Policies Transportation Policies (Domestic Shipments) Transmission Towers Bailee Policies (to cover the goods of others in the insured's care, custody or control) Note: You must check your company's inland marine manuals for the rules, rates and coverage forms to use when writing these coverages. Insuring Commercial Property Course Print

6 Lesson 6 Topic C - Reason For Writing Commercial Inland Marine Insurance Lesson 6 Topic C Reason for Writing Commercial Inland Marine Insurance p1 (IP) Learning Objective: Explain the reasons for using and advantages of commercial inland marine. Commercial property forms have limitations. With few exceptions, commercial property coverage is generally limited to designated premises. Commercial property coverage forms also contain internal limitations. See the table below for examples of these limitations. Type of Property Limit Personal Property of Others $2,500 Outdoor Signs $2,500 Valuable Papers $2,500 Property Off Premises $10,000 Lesson 6 Topic C Reason for Writing Commercial Inland Marine Insurance p2 (IP) Learning Objective: Explain the reasons for using and advantages of commercial inland marine. Exposures Certain exposures, such as those mentioned below, are better addressed as commercial inland marine rather than commercial property from a premium and insuring terms prospective. 1. Transportation Insuring goods in transit is a complex process and requires flexibility in coverage, insuring terms and the ability to charge the proper premium for the exposure. The hazards vary depending on the type of property being shipped, where to, by whom, and type of conveyance. For example a shipment of eggs by truck is subject to breakage and spoilage as compared to pharmaceuticals where theft would be the concern, compared to a shipment of grain by rail which has low damageability and high salvage value. Lesson 6 Topic C Reason for Writing Commercial Inland Marine Insurance p3 (IP) Learning Objective: Explain the reasons for using and advantages of commercial inland marine. Exposures continued 2. Bailee (Care, Custody, or Control) Insuring Commercial Property Course Print

7 Many businesses serve as a bailee, having property of others in their care, custody, or control on which they perform a process or service. A majority of these businesses will have a transportation exposure since they will pick up and return their customer's property. In some cases they will need coverage while at locations other than their own depending on where their work is performed. An example of this would be a company that repairs industrial machinery, where they would go to the customer's site, remove and transport the machinery to their facility to make the repairs, and then return to the customer. Coverage would be needed from the moment it became in the repair firm's care, custody, or control at the customer's location until it was returned and the service completed. Other examples of businesses with a bailee exposure include dry cleaners, upholsters, appliance repair shops. Lesson 6 Topic C Reason for Writing Commercial Inland Marine Insurance p4 (IP) Learning Objective: Explain the reasons for using and advantages of commercial inland marine. Exposures continued 3. Specialized or Unusual Property Specialized or unusual types of property in general lack having homogeneous exposures, being they do not have the same characteristics, or the same expectation of loss. Commercial inland marine policies can be crafted to meet the coverage needs unique to each. Examples include bridges, dams, tunnels, pipelines, communication and transmission towers, and loading bridges/cranes. Other types of property would include machinery and equipment used in the construction, mining, and energy industries. Lesson 6 Topic C Reason for Writing Commercial Inland Marine Insurance p5 (IP) Learning Objective: Explain the reasons for using and advantages of commercial inland marine. Advantages of Commercial Inland Marine The advantages of commercial inland marine over commercial property forms include: Flexibility in the insuring terms and conditions contained in the policy The ability to tailor the policy allows an insurance company to offer coverages that better address the exposures as they apply to a specific business Insuring Commercial Property Course Print

8 Example Exclusions can be removed, added or modified; covered perils expanded or restricted; and terms and conditions such as valuation, deductibles, warranties and locations covered can be manuscript to meet the need for a particular insured. The freedom to develop a premium that reflects the nature of the property, the exposures and the coverages and insuring terms provided under the policy - this results in a more accurate premium charge, based on the individual characters of the risk and its relationship to the coverage provided. Insuring Commercial Property Course Print

9 Lesson 6 Topic D Unique to IM p1 (IP) Lesson 6 Topic D Conditions Unique to IM Coverages Refer to page 2 of the Commercial Inland Marine Conditions Form (CM 00 01). The Commercial Inland Marine Conditions Form shares many of the same conditions found in the Commercial Property Conditions Form; but the Inland Marine Conditions Form has several conditions that are peculiar to inland marine policies. Let's examine some of these conditions. Note: Page 1 of the Commercial Inland Marine Conditions Form tracks with the conditions that we studied for the Commercial Property Conditions Form (CP 00 90). The unique conditions we will be discussing here are found on page 2 of the Commercial Inland Marine Conditions Form.(CM 00 01) Lesson 6 Topic D Unique to IM p2 (IP) Refer to page 2 on the Commercial Inland Marine Conditions. Conditions Unique to IM Coverages continued G. Pair, Sets, or Parts In a loss to a pair or set, the company can repair or replace to restore the set. The company can also pay the difference between the value of the pair or set before and after the "loss." In case of "loss" to any part, the company will only pay for the lost or damaged part. Example: A tire is stolen off of a piece of construction equipment which has four wheels. The insurance company will only pay for the loss of the one tire and not all four. (Suggested pic of a back hoe or front loader that has four wheels and not caterpillar treads). H. Recovered Properties If property is recovered either by the insured or the insurer, the parties must give prompt notice to each other. The insured has the option to have the property returned; however, the amount paid by the company to the insured for the property will have to be refunded to the company. The company will pay recovery expenses and the expenses to repair the recovered property, subject to the Limit of Insurance. Example: The insurance company recovers a stolen diamond ring. The insured can take back the diamond ring or keep the insurance settlement. I. Reinstatement of Limit after Loss Insuring Commercial Property Course Print

10 After a claim has been paid, the limit of insurance is not reduced. In the event of total "loss" of a scheduled item, the company will reduce the limit for that scheduled item and refund the unearned premium. Example: A building under construction with a value of $1,000,000 is insured for that amount. It is partially damaged by fire. The insurance company pays $250,000 for the loss, however the limit of insurance continues to be $1,000,000. Another fire loss for $800,000 occurs two weeks later before the repairs were made. The insured would still have the $1,000,000 limit in place to pay the claim. Insuring Commercial Property Course Print

11 Lesson 6 Topic F Common Features in Writing Commercial Inland Marine Coverage Forms Lesson 6 Topic E Features Writing Coverage Forms p1 (IP) Learning Objective: Identify and briefly explain common features of inland marine policies. Locations Covered Commercial inland marine forms are referred to as floaters. The reason is that they provided coverage where ever the insured property is located, being at designated location, unnamed location, or while in transit, subject to the territorial limits contained in the policy. Lesson 6 Topic E Features Writing Coverage Forms p2 (IP) Learning Objective: Identify and briefly explain common features of inland marine policies. Common Features continued Open Perils Coverage The perils that are cited on inland marine forms may be "open perils" or "named perils". Most policies, however, are written with "open perils" coverage. As you will recall, with named perils, the insured must prove that a loss was caused by one of the covered perils. However, with open perils coverage, the insurance company must prove that a loss is excluded in order to deny coverage. Unlike commercial property forms, commercial inland marine can be freely written for earthquake and flood while the property is in transit (over the road). Lesson 6 Topic E Features Writing Coverage Forms p3 (IP) Learning Objective: Identify and briefly explain common features of inland marine policies. Common Features continued Coinsurance Provision You will almost always find a coinsurance provision in a commercial inland marine policy. Although not all policies title the provision "coinsurance," almost all inland marine policies require insurance-to-value. Tip: When you receive an inland marine policy in your office, check the Additional Conditions section of the Insuring Commercial Property Course Print

12 specific coverage form for words like "What We Will Pay," Insurance to Value, Coinsurance. Often you will find a statement that reads, "All covered property must be insured for its total value at the time of loss or you will incur a penalty." This is a 100% coinsurance clause. Valuation Most commercial inland marine policies are written on an actual cash value basis. There are a number of inland marine forms where replacement cost coverage is available as an option. Some inland marine forms may restrict valuation to stated amount. Stated amount means that the policy will pay the lesser of: a. The amount stated next to the insured item, b. The actual cash value, or, c. The cost to repair the item Occasionally, you will write the agreed value basis, which takes on the same meaning it does in property insurance. Lesson 6 Topic E Features Writing Coverage Forms p4 (IP) Learning Objective: Identify and briefly explain common features of inland marine policies. Exclusions Wear and Tear An Item is not covered for losses caused by normal wear and tear that occurs over time. Nuclear Action War Inherent Vice - Property is not covered for losses caused by the property's natural tendency to destroy itself. Opals, for example, will crack over a period of time. Government Action Loss of Income or Market Inland Marine policies provide coverage for direct losses only. Indirect, or time element, losses are not typically included in these forms. Dishonest Acts This includes dishonest and criminal acts of the insured, partners, members, officers, managers, employees (including leased employees), directors, trustees and other authorized representatives. Inventory Shortage When inventory shortage is the only indication that a loss might have occurred, there is no coverage. Insuring Commercial Property Course Print

13 Please refer to the end of Lesson 6 Topic E to complete Self Quiz 16 at this time. Insuring Commercial Property Course Print

14 Course Summary of Commercial Property Exam Preparation p1 (IP) Let's take a minute to review all of the learning objectives for each lesson. If you can perform each of these, you are ready to register for and take your exam. Lesson 1 Review 1. Identify the types of commercial property exposed to loss. 2. List parties that could have an insurable interest in property. 3. Define actual cash value (ACV), replacement cost, and functional replacement value. 4. Explain the coinsurance formula and given appropriate information, determine an adequate policy limit and explain how to apply the coinsurance formula after a loss occurs. 5. Identify the difference between specific, schedule, and blanket coverage. 6. List ways to provide coverage for fluctuating business personal property values. 7. Calculate amounts payable under the Value Reporting Form penalty provisions. Exam Preparation p2 (IP) Course Summary of Commercial Property continued Lesson 2 Review 1. Explain the structure of the Commercial Property Policy and define its component parts. 2. Identify the rights and responsibilities of the First Named Insured. 3. List Commercial Property Conditions that apply under Commercial Property Conditions CP Lesson 3 Review 1. Identify the types of property covered and property not covered by the Building and Personal Property Coverage Form. 2. Describe the Additional Coverages and Coverage Extensions provided by the Building and Personal Property Coverage Form. 3. Explain how vacancy affects coverage and the loss payment under the Building and Personal Property Coverage Form. 4. Define the rights of mortgage holders as provided in Commercial Property Coverage Forms. 5. Describe the Optional Coverages that may be "activated" from the Declarations of the Building and Personal Property Coverage Form. Insuring Commercial Property Course Print

15 Exam Preparation p3 (IP) Course Summary of Commercial Property continued Lesson 4 Review Lesson 5 1. Differentiate between the Covered Causes of Loss forms: Basic, Broad, and Special. 2. Given a loss situation, apply the exclusions of the Special Causes of Loss Form. 3. Describe the three possible losses a business faces with ordinance or law exposures. 4. Explain the Additional Coverage: Collapse. 5. Identify the three additional coverage extensions included in the Special Causes of Loss Form. 6. Discuss the Additional Coverage: Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria. 1. List the requirements for a time element loss to be covered. 2. Define "business income" and "period of restoration". 3. Define "extra expense". 4. Given a description of a business, recommend the most appropriate form of time element coverage. 5. Given a loss situation, explain how extra expense losses are paid. 6. Describe the dependent property exposures a business may face. Exam Preparation p4 (IP) Course Summary of Commercial Property continued Lesson 6 Review 1. Identify the types of property to be considered eligible as commercial inland marine. 2. Understand the difference between filed and non-filed commercial inland marine classes. 3. Explain the reasons for using and advantages of commercial inland marine. 4. Identify and briefly explain common features of inland marine policies. Insuring Commercial Property Course Print