Hibbs Hallmark & Company 6750 Hillcrest Plaza Dr. Suite 219 Dallas, TX Direct Toll Free (877) x2920

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2 Hibbs Hallmark & Company 6750 Hillcrest Plaza Dr. Suite 219 Dallas, TX Direct Toll Free (877) x2920 Professional Designations: Associate Underwriting Designation Associate Risk Management Designation Chartered Property & Casualty Underwriting Designation Certified Insurance Counselors Designation Experience/Professional Background: Executive Vice-President and Risk Management Consultant Jan Present Business Accounts Representative Jan Jan Account Underwriter Nov Jan Supervising Underwriter June 1988 Nov Senior Underwriter June 1987 June 1988 Line Underwriter Feb June 1987 Analyzing coverage and pricing of business accounts

3 This material is intended to give you a basic understanding of property insurance and business interruption coverage. Most insurers offer property broadening endorsements that provide a schedule of extra coverage. Each carrier offers something a little different. Therefore, read your policy. The following descriptions are for illustration purposes only. Your actual coverage may be broader or more limiting.

4 When we talk about property, there are 4 types: Real Property (buildings, etc) real property is of a permanent and immovable nature. What is the definition of building in a property insurance policy? Building, meaning the building or structure described in the declarations, including;

5 1- Completed additions 2- Fixtures, including outdoor fixtures 3- Permanently installed Machinery and Equipment 4- Personal property owned by you that is used to maintain or service the building or structure or its premise, including: A- Fire extinguishing equipment B- Outdoor furniture C- Floor coverings F- Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering

6 5- If not covered by other insurance: A- Additions under construction, alterations and repairs to the building or structure, B- Materials, equipment, supplies, and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations or repairs to the building or structure.

7 Personal Property- (contents) is anything that isn t nailed down, dug into or built into the land Your business Personal Property located in or on the building described in the declarations or in the open (or in a vehicle) within 100 feet of the described premises, consisting of the following unless otherwise specified in the declarations or on the Your Business Personal Property Separation of Coverage Form: Furniture and fixtures Machinery and equipment Stock All other personal property owned by you and used in your business Labor, materials or services furnished or arranged by you on personal property of others

8 Your use interest as tenant in improvements and betterments. Leased personal property for which you have a contractual responsibility to insure, unless otherwise provided for under personal property of others. Personal property of others that is in your care custody and control and located in or on the building described in the declarations or in the open within 100 feet of the described premise.

9 Personal Property of Others- is personal property owned by someone other than the named insured (your guest property, employees property, leased property, customer s property) Property off Premise- some types of property are often taken away from the insured owned premise

10 Cause of Loss- Special, Broad and Basic This describes the perils that are covered Special- Direct physical damage to covered property except where excluded or limited in the policy Broad- All of the Basic coverages plus weight of sleet/snow/hail, falling objects, collapse, and water damage Basic-fire, lightning, hail, wind, auto, aircraft, vandalism, riot/civil commotion, smoke, sinkhole, volcanic

11 Even though the Special form is the broadest form available, there are still some exclusions; they include: flood, earthquake, war and military action, government action, ordinance or law, nuclear hazard, sewer back up, loss of off premise services and insect, birds, rodents and other animals. I once had a customer build a new gym only to find that the local squirrel population liked the pink insulation for their own homes. The owner found pink insulation in most of the trees surrounding the building and very little in his gym. This was not covered. He was not a happy customer.

12 Valuation Clause- (method for calculating your claims payment) Actual Cash Value- a depreciated settlement based upon a negotiated portion of total cost of replacement or repair of the insured s property Replacement Cost- an insurance settlement based upon the actual cost to replace or repair the insured s property at the time of the loss Agreed Value- an insurance settlement based upon an agreed upon amount for a given loss. Typically in property insurance, this also means the coinsurance clause is not applicable. However underwriters commonly make you insure for at least 90% of the actual replacement cost.

13 Coinsurance Clause A clause in a property policy that requires the insured to insure for a specific percentage of the insurance to value. If Replacement Cost is desired, you must insure for at least 80% of the total replacement cost. Otherwise, the insurance company may reduce the amount of the payment proportional to the amount you were underinsured.

14 Example: A $100,000 building (RC value) should be insured for at least 80% of the value. $80,000. Suppose you insured it for only $65,000. You suffer a $30,000 fire loss. The carrier would pay (65/80) x $30,000 =$24,375 (minus your deductible. Had you insured for $80,000 the loss would have been paid in full less your deductible. Did/Should X Loss

15 In the same example, had it been a total loss (or $100,000), you would have been paid only $65,000. For that reason we recommend that you insure your buildings for 100% of the replacement cost.

16 There are two ways in which property coverage can be written. Schedule Coverage- a schedule of buildings and contents with specific amounts of insurance applied to each. Blanket Coverage- One dollar amount for all insured property. This gives you the flexibility of applying a larger limit to your covered loss. Schedule coverage requires that you insure at least 80% to value. Blanket coverage usually requires that you insured at least 90% to value.

17 When you elect a schedule basis, we recommend that you insure for what it actually cost to replace the buildings and contents.do not reduce them by 20%. However, with Blanket coverage, we recommend you reduce the values 10% to meet the 90% coinsurance clause. Since the policy has a blanket limit, you would not be out of pocket 10% in the event of a total loss of a building. (Assuming you met the other terms and conditions in the policy. i.e. coinsurance 90% on the entire property.

18 Business Interruption There are several different business interruptions forms available and they are all referred to as Time Element Coverages. Rather than having a deductible, they have a waiting period, typically 72 hours from the time of loss. Business Income (and Extra Expense) Coverage form is the most popular. One could just purchase Extra Expense or Business Income coverage individually. This coverage form is triggered when there is a loss to a covered building resulting from a covered cause of loss. The coverage for the damage to your building and contents will be covered by the property section of the policy. Any loss of income or extra expense you incur in continuing your operations during the period of restoration is excluded unless you purchase business interruption coverage.

19 What is an Extra Expense? Any necessary expenses you incur during the period of restoration that you would not have incurred if there had been not direct physical loss or damage to property cause by or resulting from a covered cause of loss. The Business Income is defined as net income (profit) that would have been earned or incurred: and continuing normal operating expenses incurred including payroll. When you decide on business interruption you need to plan for the worst scenario. It s best to complete a Business Income worksheet normally provided by the insurance agent/company. This will give you a form for determining what limit of insurance you should purchase. When you purchase business income there is a coinsurance requirement. It could either be 50%, 80%, 90%, 100%, or 125%...of the total derived from your business income worksheet. (This is based on the amount of time you feel you will be down.)

20 It s best to request an Agreed Amount Endorsement when purchasing business income coverage. This form will remove the coinsurance clause and thus any possible penalty. Another way to avoid coinsurance penalties is to request that your coverage be written on a Monthly Limitation Form. This form allows for you to get up to a specific amount of business income and or extra expense each month, for up to 6 months. There is no coinsurance requirement. You may choose 1/3, ¼, 1/6. This fraction of the limit is the most the policy will pay during each 30 day period after the loss during the period of restoration You can also purchase just Extra Expense on a monthly limitation basis. There are three options: 35%- 70%-100% 40%- 80%-100% 100%- 100% 100%

21 Example: You purchase $100,000 of Extra Expense coverage on a 40/80/100 basis. You have a fire destroy one of your offices. Extra expense would pay up to $40,000 for the first month of extra expense, and up to an additional $40,000 the next month, then finally up to $20,000 in the third month.

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24 NOTE: Business Income does not cover income loss sustain due to a loss of utility services. You can however purchase coverage for Business Interruption due to loss caused by loss of utility services. Utility services include water; communications and power (can include or exclude overhead transmission lines.) This is a specific coverage that must be requested, it is not automatically included.

25 Additional Debris Removal Debris is created whenever there is a building or business personal property loss. It must be removed in order for the reconstruction to begin. Payment for debris removal in the ISO Building and Personal Property Coverage Form is limited to 25% of the loss plus an additional $25,000 if needed. The $25,000 may not be sufficient for some insureds so there is an option to purchase a higher limit. Limits are purchased on a per-location basis instead of the standard per-building basis. This allows insureds to consider their entire location and determine potential debris removal considerations Unusual construction or places that are difficult to access can contribute to increased debris removal expense

26 Ordinance or Law Coverage The ISO Building and Personal Property Coverage Form does not pay for increases in a loss due to local ordinances that require improvements to a building following a loss. This coverage insures three specific situations when ordinances increase rebuilding costs: The first deals with laws that require a building to be torn down if more than a certain percentage is destroyed and the building does not meet current codes. There is no coverage for destruction of the undamaged portion of the building. Coverage A pays for this. Second, there is no coverage for the costs to demolish undamaged portions of the building and clear the site. Coverage B pays for this. Third, there is no coverage to bring a building up to code in order to obtain permits to build. Coverage C pays for this Coverage may be purchased under ISO CP Some insurance companies offer this coverage slightly differently

27 Pet Services Broadening Coverages The following Pet Services Broadening Endorsement extends and expands the coverage provided by your current Business Owner s Policy (BOP). It provides important coverages commonly needed by most businesses that may be limited by or excluded from a standard BOP. What s more, this endorsement provides these coverages at a fraction of what it would cost to purchase them separately.

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30 Hail Reports (greater than 1 inch diameter)

31 Wind Reports (greater than 58 mph)

32 Tornado Reports

33 Recommendations regarding purchasing of Property Insurance Review your property schedule of buildings and contents to make sure it includes all of the property you intend to cover and the appropriate value! Exclude those items you intentionally want to exclude. Review the replacement cost values for each item. For buildings you should know the square footage of each and the cost per square foot to rebuild. If you used donated labor and discounted materials when you built the building, you still need to value your building at what it would cost you to hire a General Contractor to build. Make sure you understand the coinsurance requirement in your policy and adjust your values accordingly. We recommend having blanket coverage and your buildings and contents on agreed value. The agreed value typically close to what the value would have been at 90% coinsurance option.

34 Understand your business income loss potential or the extra expense requirements in the event of a catastrophic loss and purchase enough coverage so that your business can sustain such an event. We recommend completing a business income worksheet and filing it with the insurance company annually. Ideally you want to have an agreed amount endorsement added to your policy. Understand what building ordinance you may be subject to and include that cost in the valuation of your buildings. Review all lease property contract to see if you have an obligation to insure or if you re just responsible for damage to the item. If the later, then you need to schedule those items as LEASE PROPERTY, or you may not have any coverage.

35 Consider Property Enhancement Coverage forms to be added to your policy. These offer a lot of coverage for very little money. Consider purchasing additional coverage for Property of Others. Every loss we have there are always thousands of dollars of either employee or guest property destroyed.