CAIB 2 Ch 3 - Sept 2024.pptx

CAIB 2: Chapter 3 Commercial Property Insurance – Policy Forms CAIB  CAIB 2 Section 1 Insurance Coverage Options  Premiums Written: Over $5 billion...

CAIB 2: Chapter 3 Commercial Property Insurance – Policy Forms CAIB  CAIB 2 Section 1 Insurance Coverage Options  Premiums Written: Over $5 billion annually in commercial property premiums. Overview Market Share: Represents ~45% of of total property insurance premiums. Commerci Policy Forms: Two primary forms used by insurers - Named Perils al Property Form (IBC 4036-09.06) and Broad Form (IBC 4037-00.06). Insurance Focus Areas: Fire Policy and Fire in Canada and Extended Coverage Policy still hold relevance. CAIB Essential Coverages for Businesses Fire Coverage Customization: Priority: No two businesses Fire coverage is a have identical top priority for insurance needs. business owners. Fire Losses in Canada: ~50,000 fire losses annually, costing ~$1.5 billion. CAIB Leading Causes of Fire Losses Mechanical/Electrical Failures: Major cause, ~20% of claims. Arson and Set Fires: ~20% of losses, with increasing incidents. Misuse of Ignition Sources: ~10% of losses, including smoker’s materials and children playing with matches. CAIB Issuing the Policy — The Declarations Page (IBC 4000-09.06) Mandatory Information: Names of parties Policy period Loss payable Coverage summary Rate and premium Subject matter Policy Period: Starts at 12:01 a.m. local time, with specific issues related to coverage start time. CAIB  Key Elements Names of Parties: Identification of the contracting parties. of the Loss Payee: Importance of noting all parties with an insurable interest. Declaratio Coverage Summary: Detailed breakdown of coverages and limits. ns Page CAIB Fire Policy (IFC 10010) Overview Historical Context: Rarely used today but important for specific risks. Basic Fire Policy: Serves as the model for broader commercial property coverage forms. CAIB  Legislated Basic Coverages under Fire Policy Mandatory Coverages: Fire Lightning Explosion of natural, coal, or manufactured gas. Legislation Compliance: Policies must meet these minimum coverages. CAIB  Electrical Damage: Excludes damage caused by electrical currents unless fire ensues. Standard Application of Heat: Exclusions Losses due to the direct application of heat are in Fire excluded. Policies War and Nuclear Incidents: Standard exclusions for war-related and nuclear incidents. CAIB Extensions of Coverage in Fire Policies Removal Clause: Coverage for property removed to prevent loss, limited to 7 days or the policy term. Debris Removal: Coverage for debris removal, capped at 25% of the loss payable under the policy. CAIB Perils Excluded Under Fire Policy Electrical Currents: Excludes losses from artificially generated electrical currents. Application of Heat: Excludes damages from processes involving direct heat application. War and Nuclear Incidents: Explicit exclusions for war and nuclear-related damages. CAIB Property Excluded from Coverage High-Risk Items: Money, precious metals, securities, etc., are excluded due to higher risk. Vehicles and Equipment: Excludes automobiles, watercraft, and other mobile equipment. Vacant Properties: Excludes coverage for properties vacant for more than 30 days CAIB Specialized Coverage for Nuclear Risks Nuclear Insurance Pool: Coverage for nuclear risks available through specialized pools like MAC. Institutional Risks: Specialized coverage provided for institutions with nuclear exposures (e.g., hospitals, research labs). CAIB Practical Application and Review 1 2 3 Policy Form Review Exclusions Regular Policy Selection: and Extensions: Review: Encourage Importance of Ensure thorough regular review and choosing the right understanding of updates to policies policy form for the policy exclusions as business specific business and extensions of circumstances risk. coverage. change. CAIB  Vacant: Property is "empty" — occupant absent, contents removed. Unoccupied: "Lack of habitual presence" — property is furnished, but occupants temporarily away. Understanding Insurer Concerns: Increased risk due to absence of regular supervision. "Vacant" and Higher susceptibility to vandalism and other hazards. "Unoccupied" in Coverage Implications: No coverage if property is vacant, unoccupied, or shut down for Fire Insurance over 30 days. Exception: Coverage may apply if insured unaware of the vacancy Policies or unoccupancy. Policy Extensions: Insureds can request policy endorsements to extend coverage beyond 30 days. CAIB  CAIB 2 Section 2 Commercial Property – Named Perils Form Evolution of Fire Policy Coverage Expansion Fire is Just One Peril: Property faces multiple risks beyond fire. Beyond Fire Insureds Seek Comprehensive Protection: Majority extend coverage beyond the Fire Policy. Coverage: Endorsements Added: To enhance fire policies. 1950s Customized Coverage for Businesses: Examples include: K-66 for Commercial Risks Introduction of L-66 for Sprinklered Risks R-66 for Malicious Acts and Vandalism Endorsements: Additional Charges: Small cost increase, typically $0.05 per $100 of coverage. Modern Fire & Automatic Inclusion of Previous Endorsements: Reduces the Extended need for separate forms. Coverage Endorsement Forms Becoming Obsolete: Due to integrated coverages. Policies: CAIB Modern Fire & Extended Coverage Perils IBC & Market Variations No Standard Form from IBC: The Insurance Bureau of Canada does not provide a standardized Fire and Extended Coverage form. Slight Variations Between Insurers: Modern forms have minor differences but cover similar perils. Perils Covered (A) Fire or Lightning (B) Explosion (C) Impact by Aircraft, Spaceship, or Land Vehicle (D) Riot, Vandalism, or Malicious Acts (E) Smoke (F) Leakage from Fire Protective Equipment (G) Windstorm or Hail Insuring Agreement Coverage for Direct Physical Loss: Insured must prove loss directly results from covered perils. Exclusions Parallel Fire Policy: Major exception - lightning damage to electrical devices now covered. CAIB Fire or Lightning Coverage Basic Coverage: Extended Fire and lightning coverage are fundamental perils in property Coverage: Inclusion of Electrical Devices: Modern policies extend coverage to insurance. include loss or damage to electrical No Specific Exclusions: Coverage devices or appliances caused by does not have specific exclusions for lightning. these perils within this policy section. Comparison to Fire Policy: Exclusions mirror those found in traditional fire policies, with the notable inclusion of coverage for lightning-related damage. CAIB Explosion Coverage and Limitations Explosion Coverage Defined: Broad Coverage: Explosion coverage is provided but with important limitations. Specific Exclusions: Several types of equipment and situations are excluded from coverage. Excluded Objects: Steam Boilers and Connected Equipment: Excluded if owned, operated, or controlled by the insured. High-Pressure Vessels and Apparatus: Coverage excluded for vessels with pressures exceeding 103 kilopascals (15 psi). Other Specific Exclusions: Electric Arcing Hydrostatic Pressure or Freezing Safety Discs or Fusible Plugs Coverage for Tenants: Broader Coverage for Non-Owners: Tenants who do not own or control the equipment may have broader explosion coverage. Exceptions: Coverage is denied if the tenant owns or controls the excluded equipment. CAIB  Coverage for Portable Gas Cylinders: Extension of Coverage: Losses from the explosion of manually portable gas cylinders are covered. Rationale: The limited potential for loss and strong safety records associated with gas storage justify this coverage. Exclusions: Exceptions Centrifugal Force or Mechanical Breakdown: Losses caused by centrifugal force or mechanical breakdown are not considered explosions under this policy. and Pressure Testing Failures: No coverage for losses during pressure testing, but resultant damage to other property is covered. Limitations in Gas Turbines: Excluded from explosion coverage. Explosion Not Considered Explosions: Electric Arcing Coverage Ruptures from Hydrostatic Pressure/Freezing Bursts of Safety Devices: Exclusions apply to losses due to equipment failure and maintenance issues. CAIB Impact Coverage and Coverage Specifics Limitations: Aircraft, Coverage Overview Impact Losses Covered Only Impact by Aircraft and Spacecraft, and Land Spacecraft Impact by Spacecraft Vehicles Land Vehicles Not Owned or Controlled by Insured CAIB Impact Coverage Exclusions Coverage Exclusions Cumulative Damage Exclusion Land Vehicles Controlled by Insured Damage to Aircraft/Spacecraft Movement of Aircraft/Spacecraft Future Considerations Impact by Spacecraft CAIB Riot, Vandalism, or Malicious Acts Coverage Riot Definition: Includes open assemblies of strikers or locked-out employees. Conditions for Riot: Acts of violence or threatened violence. Involvement of at least three persons. Clear and present danger to property or persons. Coverage Provided Loss or damage from riots, vandalism, or malicious acts, including actions by strikers or locked-out employees. Coverage extends to damage resulting directly from the riotous acts as defined. Coverage Exclusions Cessation of Work or Business Interruption: No coverage for losses due to business interruption, process disruptions, or temperature changes. Flood and Dam Water Release: Excludes damage from floods or water released from dams. Theft or Attempted Theft: Excludes losses related to theft or attempted theft, even if it might be considered a malicious act. CAIB Detailed Exclusions and Policy Implications Cessation of Work: Detailed impact on inventory and business operations. Exclusion Details Flood and Water Release: Risks associated with dam water and flood events. Theft Exclusion: Clarification on why theft is not covered. Impact on Insured: Understanding exclusions helps in Policy Implications assessing risk and coverage needs. Claims Process: Importance of detailing claims to align with policy exclusions. CAIB  Smoke Coverage and Limitations Definition of Smoke Coverage Details Policy Implications Coverage Restrictive Definition: Smoke No Cumulative Damage: The Coverage Scope: The specific damage is limited to "sudden, policy excludes coverage for definition limits the breadth of unusual and faulty operation of any cumulative smoke damage. smoke coverage. stationary furnace." Fire Coverage: Smoke damage Terminology Impact: Choice of Exclusions: Smoke from portable from a fire on the premises is words like "means" vs. "includes" heaters, cooking units, fireplaces, or covered under the peril of fire. affects the extent of coverage. industrial sources. CAIB Leakage from Fire Protective Equipment Coverage 1.Definition of Coverage Types of Leakage: 1. Leakage or discharge of water or other substances 2. Collapse of fire protective equipment 3. Rupture due to freezing Coverage Scope: Applies to fire protective equipment for the premises or adjoining structures. 2.Coverage Details Indemnity for Accidental Leakage: Covers damage from accidental leakage of water or other substances. Exclusions: Does not cover leakage from domestic appliances or production equipment. 3.Damage Scenarios Coverage for Equipment Failure: 1. Accidental leakage 2. Collapse or breakage 3. Rupture due to freezing CAIB Windstorm or Hail Coverage and Limitations Coverage Conditions Damage to Interior: 1. Coverage for interior damage is only provided if it results from an aperture caused by windstorm or hail. Aperture Requirement: 2. Evidence must show an opening (e.g., broken glass, knocked-down doors, or roof removal) caused by the storm. Coverage Exclusions Indirect Causes: 3. Excludes damage from snow-load, ice-load, tidal waves, high water, overflow, flood, waterborne objects, waves, ice, land subsidence, and landslips. Non-Storm Related Factors: 4. Damage from these factors is not covered, regardless of whether driven by wind or not. CAIB  CAIB 2 Section 3 Commercial Building, Equipment and Stock – Broad Form Introduction to All Risks Coverage and Broad Form Policy Introduction to All Risks Coverage Revolution in Insurance: Introduced in the mid-1950s, all risks coverage transformed the insurance industry. Current Relevance: Essential in today's insurance landscape, particularly for commercial property owners. Broad Form Policy Overview Definition: The Broad Form policy is the most comprehensive standard coverage available. Insuring Agreement: Covers "all risks of direct physical loss of or damage to the insured property," except as otherwise provided. CAIB Clarification on “All Risks” and the Role of Exclusions Clarification on “All Risks” Role of Exclusions Misnomer: "All risks" does not Shifting the Burden: The shift mean all-encompassing; from Named Perils to All Risks exclusions and conditions apply. changes claim handling. Claims Process: Insurers must Policy Limitations: Even broad prove that a loss is excluded to policies have exclusions and deny coverage. conditions. Understanding Coverage: Analysis of exclusions is crucial for understanding the scope of coverage. CAIB  Overview of Exclusions Exclude Extensions Through d Endorsements Property General Importance CAIB  Sewers, Drains, and Watermains Located Beyond Building Foundations Excluded Municipal Ownership Coverage by Named Perils Property - Sewers, Outside Antennae and Communication Towers Drains, and Risks: Collapse, Faulty Installation, Theft Coverage by Named Perils Antennae CAIB Excluded Property - Street Clocks and Exterior Signs Street Clocks and Exterior Signs Accidental Breakage Coverage by Named Perils Only CAIB Excluded Property - Vacancy and Electrical Issues Property at Vacant Locations Excluded After 30 Days of Vacancy Common Industry Practice Electrical Devices and Appliances Exclusion of Damage from Electrical Currents Coverage for Resultant Fire or Explosion CAIB Excluded Property - Growing Plants and Animals Growing Plants, Trees, Shrubs Excluded Outside the Building Limited Coverage in Clause 7(e) Animals, Fish, Birds Exclusion for Death or Loss Coverage for Named Perils and Theft CAIB Excluded Property - Money, Vehicles, and Furs Money, Securities, and Precious Metals Excluded Items: Money, Bullion, Stamps Specialized Policies for Coverage Vehicles and Accessories Excludes Land, Water, and Air Vehicles Exceptions for Certain Business Uses CAIB Excluded Property Furs, Jewelry, and Precious Stones - Miscellaneous $1,000 Limit on Theft Named Perils Coverage Items Marine Insurance and Waterborne Property Limited Coverage for Waterborne Property Marine Insurance for Full Coverage Property Loaned, Rented, or Sold Excluded While in Custody of Others Coverage While in Carrier Custody Property with Sales Representatives Excluded Unless Coverage Purchased Illegally Acquired Property Excluded for Confiscated or Illegal Property CAIB Exclusions Related to Pressure Vessels and Boilers Pressure Vessels Normal Operating Pressure Exclusion Includes Hot Water Heaters and Compressors Boilers and Equipment Exclusions: Explosion, Rupture, Bursting, Cracking, Burning Out, Bulging Exceptions: Manually Portable Gas Cylinders, Gas Explosions, Unconsumed Fuel in Furnaces CAIB Exclusions for Roadways, Walkways, and Equipment Roadways and Paved Surfaces Excluded Coverage $10,000 Limit on Losses Equipment and Stock Under Repair Exclusion During Work Exceptions for Resultant Fire or Explosion CAIB Exclusions for Glass and Vitrolite Exterior Glass and Vitrolite Excluded Coverage Coverage Extension in Clause 7(d) CAIB Excluded Perils: Earthquake Exclusions Earthquake Loss or damage caused directly or indirectly by earthquakes Covers fire, explosion, smoke, or leakage from fire protective equipment Property in transit is excluded from this exclusion CAIB Flood Exclusions Flood Covers surface water, waves, tides, tsunamis, and overflow Exception: Fire, explosion, smoke, leakage from fire protective equipment, and leakage from watermain Property in transit is not excluded CAIB Water Seepage and Overflow Exclusions Seepage and Leakage Water from natural sources through basement openings Exceptions: Directly caused by non-excluded perils Backing Up or Overflow Water from sewers, sumps, septic tanks, or drains Exceptions: Directly caused by non-excluded perils CAIB Natural Precipitation and Mechanical Breakdowns Natural Precipitation Damage from rain, snow, or sleet through openings Exceptions: Perils that are not otherwise excluded Mechanical Breakdowns Centrifugal force, mechanical or electrical breakdown Exceptions: Resultant fire damage CAIB Temperature Extremes, Trade Losses, and Contamination Temperature Extremes and Interruptions Dampness, dryness, temperature changes Interruption of utilities (electricity, water, gas, steam) Exceptions: Rupture of pipes, theft, and accidents during transportation Specific Losses Shrinkage, evaporation, exposure to light Contamination, marring, scratching CAIB Smoke, Vermin, and War Exclusions Smoke from Agricultural or Industrial Operations Excludes both sudden and cumulative smoke damage Vermin and Rodents Excludes damage caused by vermin, unless caused by a non-excluded peril Indirect Losses Excludes loss of market, use, or occupancy CAIB This Photo by Unknown Author is licensed under CC BY-NC War, Nuclear Incidents, and Dishonest Acts War and Military Actions Covers all forms of conflict-related losses Nuclear Incidents Includes nuclear incidents and radioactive contamination Exceptions: Ensuing fire, lightning, or gas explosions Dishonest or Criminal Acts Excludes acts by the Insured or entrusted parties Exceptions: Damage from employees or bailees for hire CAIB  Explosion and Explosion and Pressure Pressure Equipment(i) Steam Boilers and Excludes explosions from steam boilers, piping, and related equipment under pressure Equipment Exclusions Equipment: Pressure Piping Excludes damage to external pressure and Apparatus: piping and apparatus Excludes vessels and apparatus with Other Vessels: internal pressure > 103 kPa (15 psi) Rotating Excludes damage to moving or rotating Machinery: machinery Excludes vessels and pipes during Pressure Tests: pressure tests Gas Turbines: Excludes gas turbines CAIB Settling and Structural Movements Exclusion Settling and Structural Movements Includes: Settling, expansion, contraction, shifting, cracking Exceptions: Losses directly caused by non- excluded perils CAIB By-Laws and Regulations By-Laws and Regulations Coverage Impact: Losses due to enforcement of zoning or construction regulations Excludes losses where repair or reinstatement is prevented by regulations CAIB Illegal Drug Operations Illegal Drug Operations Losses arising from or related to illegal drug operations Includes actions by government entities to address drug operations CAIB  Pollution Exclusion Pollution Exclusion Excludes coverage for pollution-related losses and expenses Key Exclusions: (a) Loss or damage from pollutants Includes spills, discharges, emissions, seepage, leakage, migration, release Costs of clean-up and remediation Exceptions: (i) Pollution caused by a peril not otherwise excluded (ii) Resultant damage from an excluded peril (b) Costs related to pollution testing and monitoring CAIB Data Data Exclusion Overview Excludes all types of data Exclusion from coverage Details: (1) Excludes insurance for "data" (2) Excludes insurance for loss or damage caused by a "data problem" Exception: Coverage for resultant fire, explosion, smoke, or leakage from fire protective equipment CAIB  Terrorism Exclusion Overview: Excludes coverage for loss or damage caused by terrorism Details: Exclusion: Covers all loss or damage Terrorism caused directly or indirectly by terrorism or related government actions No Coverage for Resultant Damage: Exclusion No coverage for subsequent fire, explosion, smoke, or leakage from fire protective equipment Severability Clause: If any part of the exclusion is invalid, the remainder remains effective CAIB Fungi and Spores Exclusion Scope of Exclusion: No coverage for loss or damage caused by fungi or spores Exceptions to the Exclusion: Direct Cause by Insured Peril: Exclusion does not apply if fungi or spores are caused by an insured peril Resultant Damage: Exclusion does not apply if the resultant damage is from an insured peril Costs Excluded: No coverage for costs associated with testing, monitoring, or assessing fungi or spores CAIB Other Excluded Losses Wear and Tear Rust or Corrosion Gradual Deterioration Latent Defects Faulty Materials, Workmanship, or Design Mysterious Disappearance and Inventory Shortages CAIB Wear and Tear, Rust, and Corrosion Wear and Tear: Definition: Natural deterioration from ordinary use Examples: Worn upholstery, old office furnishings Coverage: Not covered; exceptions apply for abnormal conditions Rust and Corrosion: Definition: Slow degradation due to environmental factors Examples: Metal structures, pipes Coverage: Not covered; sudden and accidental rust/corrosion may be covered if caused by an insured peril CAIB Gradual Deterioration and Latent Defects Gradual Deterioration: Definition: Natural decline over time Examples: Cracks in concrete, paint fading Coverage: Not covered; exceptions apply for extraordinary circumstances Latent Defects: Definition: Hidden defects not discoverable by normal inspection Examples: Faulty machinery components Coverage: Not covered; exceptions if the defect causes a loss covered by the policy CAIB  Faulty Materials: Definition: Use of inferior or inappropriate materials Coverage: Not covered Faulty Materials, Faulty Workmanship: Workmanship, and Definition: Poor execution of construction or repairs Coverage: Not covered Design Faulty Design: Definition: Inadequate planning or design flaws Coverage: Not covered CAIB Mysterious Disappearance and Inventory Shortages Mysterious Disappearance: Definition: Property loss with unexplained circumstances Coverage: Not covered if the cause is not identifiable; theft is an exception Inventory Shortages: Definition: Discrepancies in stock or equipment discovered during inventory Coverage: Not covered if the loss is first identified during inventory CAIB