Chapter 13 Commercial Property Insurance

A GENDA Commercial Package Policy(CPP) Building and Personal Property Coverage Form Causes-of-Loss Forms Reporting Forms Business Income Insurance Other Commercial Property Coverages Transportation Insurance Businessowners Policy (BOP)

C OMMERCIAL P ACKAGE P OLICY (CPP) Business firms can purchase a commercial package policy (CPP) A package policy is one that combines two or more coverages into a single policy. A multiple-line policy combines coverages for property and liability into a single policy. A mono line policy contains only one type of coverage. Advantages include : fewer gaps in coverage, lower premiums, and convenience. The CPP is tailored to cover most property and liability loss exposures.

C OMPONENTS OF C OMMERCIAL P ACKAGE P OLICY (CPP) Under the ISO program, each commercial package policy contains: 1- A common policy declarations page 2- A common policy conditions page 3- One or more coverage forms  The two or more coverage parts are selected from these coverages: Commercial property coverage, commercial general liability coverage, commercial crime coverage, equipment breakdown coverage, inland marine coverage, commercial auto coverage, and farm coverage. ( Exhibit 13.1 shows various parts of a commercial package policy)

E XHIBIT 13.1 C OMPONENTS OF A S AMPLE C OMMERCIAL P ACKAGE P OLICY (CPP) ( E NDORSEMENTS OMITTED )

B UILDING AND P ERSONAL P ROPERTY C OVERAGE F ORM The building and personal property (BPP) coverage form is a commercial property coverage part that is widely used to cover a direct physical damage loss to commercial buildings and personal property

C OVERED P ROPERTY UNDER BPP  Covered Property The insured can select the property to be covered. -Buildings -Named insured’s business personal property -Personal property of others in the care, custody, or control of the named insured 1 - Building  The building that is described in the declarations includes any completed additions, fixtures and permanently installed machinery and equipment.  Equipment used to maintain or service the building(fire- extinguishing equipment, appliances for cooking and dishwashing, floor buffers, and vacuum cleaners) is covered.

2-Named insured’s business personal property  Business personal property of the named insured inside or on the building or within 100 feet of the premises is covered.  All personal property owned by the insured and used in the insured's business includes furniture and fixtures; computer systems, machinery and equipment; stock or inventory; and other properties.  The insured’s use interest in improvements and betterments as a tenant is also covered as business personal property. Example: fixtures, alterations, installations, or additions that are made part of the building at the insured’s expense,e.g., installation of a new air conditioning.

3-Personal property of others. Personal property of others in the care, custody, or control of the named insured is also covered. Example: A tornado destroys a machinery repair shop,and the equipment belongs to customers is damaged. The loss is covered.

C OMMON P OLICY C ONDITIONS Common policy conditions that apply to all lines of insurance include: o 1- Cancellation rights for each party o 2- Changes. A provision stating that the only permissible changes are endorsements o 3- Examination of books and records. The insurer has the right to audit the insured’s books at any time during the policy period and up to three years after coverage expires.

o 4- Inspections and surveys. The insurer has the right to make inspections and surveys that relate to insurability and premiums charged. o 5-The first named insured in the declarations is responsible for premium payments. o 6- Transfer of rights and duties. The insured’s rights and duties under the policy can’t be transferred to another party without the consent of the insurer.

CASUE-OF-LOSS FORM A causes-of-loss form must be added to the policy to have a complete contract. The form specifies the covered perils for the business and personal property coverage. We have three types of cause-of-loss forms: 1- Basic form 2- Broad form 3- Special form

C AUSE - OF - LOSS BASIC FORM –Fire –Lightning –Explosion –Windstorm or hail –Smoke –Aircraft or vehicles –Vandalism –Riot or civil commotion –Sprinkler leakage –Sinkhole collapse –Volcanic action The causes-of-loss basic form provides coverage for 11 basic causes of loss: Basic form is a named peril coverage

C AUSES - OF -L OSS F ORMS The causes-of-loss broad form includes all causes of loss covered by the basic form plus: Falling objects Weight of snow, ice, or sleet Water damage Also, collapse is covered for certain causes, such as hidden decay. Broad form is a named peril coverage The causes-of-loss special form insures against “risks of direct physical loss” unless specifically excluded. Special form is an all peril coverage

R EPORTING F ORMS A reporting form requires the insured to report periodically the value of insured business personal property. The value reporting form is used to insure fluctuations in business personal property Premiums are based on the actual value of the covered property.

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 correct value that should have been reported. Example: If the actual value of business personal property on hand, including inventory, is $500,000, and the insured reports only $400,000, only four-fifth of any loss will be paid( less deductible).

B USINESS I NCOME (BI)I NSURANCE Business income insurance covers indirect(consequential) losses that occur as a result of direct physical damage to covered property. Business income insurance is designed to cover the loss of business income, expenses that continue during the shutdown period, and extra expenses because of loss from a covered peril. The business income (and extra expense) form covers the loss of business income due to suspension of operations. Business income is defined as the net profit or loss before income taxes that would have been earned, and continuing normal operating expenses, including payroll

B USINESS I NCOME I NSURANCE The extra expense coverage form is a separate form that can be used to cover the extra expenses incurred by the firm in continuing operations during a period of restoration. Can be used by firms that must continue to operate after a loss occurs, such as a newspaper. The form does not cover loss of business income. Expenses to continue operations are covered, subject to certain limits.

O THER C OMMERCIAL P ROPERTY C OVERAGES Some firms have certain needs that require more specialized property coverage. The builders risk coverage form can be used to insure buildings under construction. Covers the insurable interest of a general contractor, subcontractor, or building owner. Insurance is purchased equal to the full value of the completed building. A builders risk reporting form can be attached as an endorsement which requires the builder to report monthly the value of the building under construction.

O THER C OMMERCIAL P ROPERTY C OVERAGES A condominium association coverage form covers commercial and residential condominiums. Coverage includes the association’s personal property, such as exercise room equipment. Coverage also includes personal property in the association’s care, such as leased lawn mowers. Businesses that own units in a condominium building can purchase a condominium commercial unit-owners coverage form. Not used for residential condominium units. The form covers the business property of the unit owner, such as furniture, fixtures and improvements, machinery and equipment.

O THER C OMMERCIAL P ROPERTY C OVERAGES Equipment breakdown insurance covers losses due to the accidental breakdown of covered equipment, such as steam boilers, refrigeration equipment, and computer equipment These losses are not covered under the causes-of-loss forms. A breakdown is a direct physical loss that causes damage to covered equipment. Covered equipment includes the boiler, machinery, electrical, mechanical, communication and computer equipment insured under the policy

O THER C OMMERCIAL P ROPERTY C OVERAGES Difference in Conditions (DIC) insurance is an “all-risks” policy that covers other perils not insured by basic property insurance contracts. The coverage fills gaps in commercial property coverage. The coverage can be used to insure unusual and catastrophic exposures that are not covered by the underlying contracts. Many multinational corporations(MNCs) use a DIC policy to insurer their overseas properties.

Difference in condition (DIC) catastrophic peril insurance

T RANSPORTATION I NSURANCE Ocean marine insurance provides protection for goods transported over water.

Ocean marine insurance comes in several different forms: 1- Hull insurance covers physical damage to the ship or vessel.

2-A collision liability clause (running down clause) covers the owner’s legal liability if the ship collides with another vessel or damages its cargo. Canadian navy ship, U.S fishing boat separated after collision in Esquimalt, B.C., Tuesday, April 23, 2013

3- Cargo insurance covers the shipper of the goods if the goods are damaged or lost. Regular shipments can be covered with an open-cargo policy. Marine cargo insurance policy

T RANSPORTATION I NSURANCE 4- Protection and indemnity (P&I) insurance is the major form of liability insurance which protects businesses against bodily injury and third-party damage.

5- Freight insurance indemnifies the ship owner for the loss of earnings if the goods are damaged or lost and are not delivered.

B USINESSOWNERS P OLICY (BOP) A businessowners policy (BOP) is a package policy specifically designed for small- to medium-sized retail stores, office buildings, apartment buildings, and similar firms. The ISO BOP provides both property and liability coverage in one policy. Businesses are ineligible if their loss exposures are outside those contemplated for the average small- to medium-sized firm. Coverage includes buildings described in the declarations, fixtures, permanently installed machinery and equipment

B USINESSOWNERS P OLICY Property losses are covered on an “all-risks” basis Business personal property, including property in the insured’s care, is also covered A peak season provision provides for a temporary increase of 25% of the amount of insurance when inventory values are at their peak Some addition coverages include debris removal, collapse, and interruption of computer operations A standard deductible of $500 per occurrence applies to all property coverages