ISO COMMERCIAL PROPERTY PROGRAM

• Business firms can purchase a commercial package policy (CPP)

– The package policy is tailored to meet the specific needs of the business

– The policy combines two or more coverages into a single policy

• Advantages include: fewer gaps in coverage, lower premiums, and convenience

– The policy contains:

• Common policy declarations

• Common policy conditions, e.g., cancellation terms

• Coverage parts, e.g., commercial property, crime

Building and Personal Property Coverage Form

• The building and personal property 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

– The form covers the buildings described in the declarations, including fixtures and permanently installed machinery and equipment

– Business personal property, such as furniture and computers, is covered

• Includes the insured’s interest in improvements and betterments as a tenant

– Personal property of others in the care, custody, or control of the named insured is also covered

– Additional coverages include debris removal, the cost of preserving property, fire department charges, and the cost to replace data destroyed by a covered loss

– Under certain conditions, the insurance can be extended to cover other property, such as the personal effects of employees, newly acquired property, and property off the premises

• The declarations page must show a coinsurance requirement of 80% or greater or a value-reporting period symbol

– If applicable, the coinsurance requirement must be met to avoid a penalty

– The policy can be endorsed to cover losses on an agreed value or replacement cost basis, or to add an inflation guard

Causes-of-Loss Forms

• 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

– The causes-of-loss basic form provides coverage for 11 basic causes of loss:

– 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

– The causes-of-loss special form insures against “risks of direct physical loss” unless specifically excluded

• Also, personal property in transit is covered for certain causes of loss

• Coverage also includes glass damage

Reporting Forms

• The reporting form is used to insure fluctuations in business personal property

– Premiums are based on the actual value of the covered property

– The insured can report inventory on a daily, weekly, monthly, quarterly or annual basis

– 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

Business Income Insurance

• 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

• One form is the business income (and extra expense) coverage form

• This form covers the loss of business income due to suspension of operations during a period of restoration

• Suspension must result from a covered direct physical loss

• Extra expenses, such as relocation costs, are also covered

• An extended business income provision covers the reduction in earnings for a limited period after the business reopens

• 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

Business Income Insurance

• The coinsurance percentage selected depends on the length of time it takes to complete repairs and resume operations

– A higher percentage should be selected if the business expects to be shut down for a longer period of time

– Some optional coverages include:

• A maximum period of indemnity of 120 days

– Also eliminates the coinsurance requirement

• A monthly limit of indemnity

– Eliminates the coinsurance requirement and limits the maximum monthly amount that will be paid for each consecutive 30-day period

• Business income agreed value

– This option suspends the coinsurance clause and places no limit on the monthly amount paid, provided that the agreed amount of insurance is carried

• 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

• An endorsement can be added to a business income policy to cover the loss of business income from dependent properties

– Used when a business depends on a single supplier for raw materials, or relies on a single customer to purchase its products

– The loss of income must result from direct damage to property of the dependent property

– Types of dependent properties include:

• Contributing location

• Recipient location

• Manufacturing location

• Leader location

Other Commercial Property Coverages

• Some firms have certain needs that require more specialized property coverage

• A builders risk coverage form can be used to insure buildings under construction

– Covers the insurable interest of a general contractor, subcontractor, or building owner

– A builders risk reporting form can be attached as an endorsement

• Requires the builder to report monthly on the value of the building under construction

• As the building progresses, the amount of insurance on the building is increased, and premiums are adjusted based on the values reported by the builder

• A condominium association coverage form is used to cover a condominium building

– 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

– The form also covers the personal property of others in the care, custody, or control of the unit owner

• The equipment breakdown coverage form can be used to cover 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

• 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

– A substantial deductible must be satisfied for losses not covered by the underlying contracts

Transportation Insurance

• Ocean marine insurance provides protection for goods transported over water

– It is one of the oldest forms of transportation insurance

• Ocean marine insurance comes in several different forms:

– Hull insurance covers physical damage to the ship or vessel

• A collision liability clause (running down clause) covers the owner’s legal liability if the ship collides with another vessel or damages its cargo

– 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

• This coverage requires the shipper to report periodically the shipments that are made

– Protection and indemnity (P&I) insurance is usually written as a separate contract that provides comprehensive liability insurance for property damage or bodily injury to third parties

• Coverage includes liability for damages caused by the ship to piers and docks, and for illness or injury to passengers and crew

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

– Ocean marine insurance is based on certain fundamental concepts, or implied warranties:

– The owner implicitly warrants that the vessel is seaworthy

– The ship cannot deviate from its original course

• The ship can only deviate to avoid an accident, or to save the life of an individual on board, or rescue persons from another vessel

– The purpose of the voyage is legal

– The ocean marine policy provides broad coverage for perils of the sea, such as bad weather, high waves, collision, sinking, and stranding

– Includes losses from fire, pirates, and jettison (to save the ship)

– The policy can be written on an “all-risks” basis

• Common exclusions are losses due to delay and war

– A particular average is a loss that falls entirely on a particular interest

– Under the free-of-particular average (FPA) clause, partial losses are not covered unless the loss is caused by certain perils, such as stranding or sinking

• The insurer pays the full amount of a loss only if it exceeds a certain percentage specified in the FPA

• A general average is a loss that falls on all parties to the voyage, incurred for the common good

– Each party must pay its share of the loss based on the proportion that its interest bears to the total value in the venture

– Conditions for a general average loss include imminent peril, voluntary sacrifice, preservation of at least part of the value

• All parties claiming contributions must be free of fault

• Inland marine insurance provides protection for goods shipped on land

– The coverage grew out of ocean marine insurance

– Conflicts between fire and marine insurers were resolved with a nationwide marine definition in 1933, to define the types of property that marine insurers could write

– The current definition includes imports, exports, domestic shipments, means of transportation and communication, personal property floater risks, and commercial property floater risks

– Some examples of property that can be insured include:

• Losses to domestic goods in transit

• Property held by a bailee, such as dry cleaner

• Mobile equipments, such as a tractor

• Property of certain dealers, such as jewelry and fine art

• Means of transportation and communication, which is property at a fixed location that is used in transportation or communications, such as a bridge or television tower

• Inland marine contracts are classified as either filed or non-filed forms

– Filed forms are filed with the state insurance department, and are typically used in situations where there are a large number of potential insureds

• Forms under the ISO simplified commercial inland marine program include, for example:

• Accounts receivable coverage

• Camera and musical instrument dealers coverage

• Film coverage form

• Mail coverage form

• Signs coverage form

• Theatrical property coverage form

– Non-filed inland marine forms are used to meet specialized needs

• An annual transit policy can be used to cover the shipment of goods on public trucks, railroads, and coastal vessels

• Both incoming and outgoing shipments can be insured on a named perils or “all-risks” basis

• A trip transit policy is used by firms to cover a single shipment

• A business floater covers property that frequently moves from one location to another, such as contractors equipment and garments in the process of manufacturing

Business-owners Policy

• A business-owners 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

• e.g., auto repair shops and bowling alleys

– Property losses are covered on an “all-risks” basis

• Coverage includes buildings described in the declarations, fixtures, permanently installed machinery and equipment

– 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

– For an additional cost, business-owners can also cover:

• Outdoor signs

• Money and securities

• Employee dishonesty

• Mechanical breakdown

– The BOP also includes business liability coverage similar to the commercial general liability policy (CGL)

• The business-owner is insured for bodily injury and property damage liability, and advertising and personal injury liability

• Medical expense insurance is also provided