CAIB 2 Ch 4 - Sept 2024.pptx

CAIB 2: Chapter 4 Commercial Property Insurance – Additional Coverage Forms CAIB  CAIB 2 Section 1 Dealing with Policy Exclusions  Understanding Exclusio...

CAIB 2: Chapter 4 Commercial Property Insurance – Additional Coverage Forms CAIB  CAIB 2 Section 1 Dealing with Policy Exclusions  Understanding Exclusions in Property and Peril Insurance Importance of brokers' expertise in exclusions. Enhancing coverage through additional insurance. Strategies to Extend Coverage: Dealing Endorsements: Modify terms and conditions of existing policies. with Policy Riders: Add specific coverages to enhance existing policies. Separate Policies: Consider additional policies for specialized needs, such as Equipment Breakdown Insurance. Exclusions Diversity in Specialized Coverage Forms: Coverage forms may vary significantly between insurers. Importance of comparing similar forms from different providers. Utilization of standard industry forms for consistency. CAIB Insuring Property Excluded CAIB Insuring Perils Excluded CAIB Broadening On-Premises Coverages: Addressing Exclusions through Endorsements, Riders, and Policy Forms On-Premises Exclusions: Standard coverage forms often exclude certain on-premises losses. Key endorsements, riders, and policy forms can extend protection. Direct Damage Forms to Consider: 1. Sign Form (IFC 51037) - Coverage for signs on the premises. 2. Glass Rider - Protection against damage to glass. 3. Accounts Receivable Form (IFC 51067) - Insures losses related to accounts receivable. 4. Valuable Papers and Records Insurance (IFC 51065) - Covers the cost of replacing important documents. 5. Electronic Data Processing Policy - Protects against losses related to electronic data. 6. Equipment Breakdown Policy - Formerly known as Boiler and Machinery Policy, insures against equipment failures. 7. Earthquake Endorsement (IBC 4039) - Coverage for damages caused by earthquakes. 8. Water Escape Endorsement - Protection against damage from water escape incidents. 9. Flood - Provides coverage for flood-related losses. CAIB Sign Form (IFC 51037): Comprehensive Coverage for Exterior Signs Standard Coverage Limitations: Limited to losses from specific named perils. Broader coverage available through the Sign Form (a.k.a. Sign Floater, Neon Sign Floater, Exterior Sign Floater). Coverage Features: Covers all types of signs: neon, fluorescent, electrical, mechanical, etc. Insures lettering and artwork on signs. Available to building owners and tenants (depending on lease terms). Common Exclusions: Wear and tear or mechanical breakdown Electrical currents (other than lightning) Damage during installation or maintenance Dampness, temperature extremes Losses from strikes, labor disturbances, riots Insurance Rates: Typical rate: ~$3 per $100 of sign value. Lower rates for interior signs (e.g., in malls). Subject to 100% co-insurance clause. CAIB  Understanding the Glass Rider (IFC 45303): Essential Coverage for Glass and Ornamentation Importance of Glass Coverage: Significant investment in glass, ornamentation, lettering, and artwork. Tenant lease agreements may require glass loss responsibility. Standard Policy Limitations: Coverage limited to named perils only. Broader coverage available through the Glass Rider. Scheduled Coverage Details: Specialized Risks: Churches, heritage buildings, hospitals, schools. Glass Types Insured: Plate glass, stained glass, skylights, special glasses. Location & Exposure: Interior vs. exterior; higher rates for exterior glass. Lettering & Ornamentation: Must be explicitly described for coverage. CAIB Exclusions, Insuring Agreement, and Basis of Settlement Insuring Agreement: Common Exclusions: Basis of Settlement: Covers "all damage" to Fire: Covered by Full replacement cost, glass, including building’s fire insurance. including installation. accidental breakage. Acts of War/Violence: Possible additional Examples: Damage by Excludes deliberate acts coverages: employees, shifting like bombings. Temporary repairs (e.g., buildings, vehicle Construction-Related boarding up). impacts. Losses: Excludes during Removal of installation or major obstructions. alterations. Repairs to damaged Vacancy: No coverage if frames. vacant/unoccupied >30 Deductibles: Typically, days. $100+; higher for blanket Bylaw Enforcement: coverage. Excludes costs of upgrading glass post- loss. CAIB Accounts Receivable Form (IFC 51067): Protecting Your Business's Financial Records Importance of Accounts Receivable Insurance: Critical for businesses extending credit (e.g., retailers, brokers, contractors). Essential for protecting against losses that impair business operations. Inadequacy of Standard Policies: Standard commercial property forms offer minimal coverage. Only blank value and costs to copy from other sources are covered. Four Key Coverage Components: Uncollectible Amounts: Insures against uncollected debts due to lost records. Interest Charges on Loans: Covers interest on loans taken to offset impaired collections. Excess Collection Costs: Covers additional collection expenses due to loss. Re-establishing Records: Covers costs to reconstruct accounts receivable records. CAIB Exclusions and Practical Considerations for Accounts Receivable Insurance Location and Reporting Form Common Limiting Loss Protection Coverage Exclusions: Exposure: Requirements: Option: Electronic Coverage Provides Importance of Recordings: applies only at flexibility for regular backups Loss due to specified businesses with and offsite electrical or premises. varying storage of magnetic injury Records must be receivables. duplicates. (except stored in Option to report Highlight that lightning) not approved outstanding despite covered. receptacles, amounts technology, full Record especially when monthly to elimination of Integrity: not in use. adjust coverage risk is Losses related to and premiums. challenging. the integrity of records or dishonesty are excluded. CAIB Valuable Papers and Records Insurance (IFC 51065): Understanding the Coverage Definition of Valuable Papers: Written, printed, or inscribed documents (e.g., books, maps, deeds). Excludes money or securities. Inadequacy of Standard Policies: Standard forms cover only the blank value of records. Need for coverage to recreate records after a loss. All Risks Basis Coverage: Specified Articles or Blanket Basis: Insureds can choose to cover specific items or opt for broader blanket coverage. No Co-Insurance: Typically issued without a co-insurance requirement, subject to a deductible. CAIB Extending and Protecting Valuable Papers Coverage Extended Coverage: Outside the Premises: Covers valuable papers in transit (e.g., legal papers, architect's drawings). At Other Locations: Temporary coverage at off-site locations, without stringent storage conditions. Limitations and Exclusions: 10% or $5,000 Limit: Coverage for off-premises losses capped at 10% of insurance or $5,000. Electrical/Magnetic Exclusion: Excludes loss due to electronic disturbances, with some exceptions. Storage and Protection Requirements: Approved Receptacles: Documents must be stored in approved receptacles when not in use (e.g., filing cabinets, safes). Determining the Need: Applicable to Various Businesses: Legal, medical, insurance offices, engineering firms, and others that handle valuable records. CAIB Electronic Data Processing (EDP) Policy Overview Importance of EDP Establishing the Need: No Standard Policy Coverage: Form: Critical for businesses reliant on Business operations can face Variability in coverage across automation. significant disruption due to insurers. Protects against risks unique to computer failures. Brokers must understand the computerized systems. Standard commercial property specifics of each form used. forms are insufficient. EDP policies provide all risks coverage. CAIB Key Coverage Components of EDP Policies Three Primary Coverage Sections: Hardware Coverage:  Includes loss to data processing systems, equipment, and component parts.  Covers items like computers, terminals, printers, and modems. Active Data Processing Media:  Covers media like CDs, DVDs, and backup drives.  Includes data, customized programs, and operating systems. Extra Expense:  Covers additional expenses incurred to maintain operations after a loss.  Examples: Renting temporary automated services. CAIB Additional Coverages, Exclusions, and Practical Considerations Practical Additional Coverages: Exclusions: Considerations: Broad Water Damage No coverage for "Data On-Premises Coverage: Exclusion or Data Limitation: Includes seepage, Problem." Coverage typically leakage, freezing, and Excludes loss due to restricted to on- flooding. errors in programming or premises losses. Mechanical and instructions. Portion of coverage Electrical Breakdown: limit available for in- Covers errors in transit or temporary off- machine programming, premises losses. short circuits, and Basis of Settlement: temperature extremes. Available on an actual cash value or replacement cost basis. Importance of maintaining proper backup procedures to minimize loss. CAIB Introduction to Equipment Breakdown Insurance Overview: Formerly known as Boiler and Machinery Insurance. Coverage Necessity: Named Perils and Broad Form policies typically exclude critical coverages such as explosion of boilers and mechanical/electrical breakdowns. Who Needs It: Essential for businesses operating boilers or pressure vessels exceeding 15 psi and those relying heavily on mechanical/electronic equipment. CAIB  Common Losses: Burst boilers, mechanical failure, electrical arcing, and more. Key Risks Types of Equipment: Covered by Telecommunications, computers, printers, HVAC systems, Equipment generators, transformers, and more. Breakdown Insurance Potential Impacts: Substantial repair or replacement costs and operational disruptions. CAIB  Equipment Breakdown Coverage Form #S0002 Specialized Coverage: Components: Insuring Insurer Example: Royal & Sun Targeted for risks related to agreement, definitions, and Alliance Insurance Company of mechanical/electrical breakdown. general exclusions. Canada’s form #S0002. CAIB Insuring Agreement & Sub-Limits Sub-Limits: Expediting expenses, Insuring water damage, Agreement: Covers ammonia property damage due contamination, to accidents to hazardous insured objects. substances, and professional fees. CAIB Definitions & General Exclusions General Exclusions: Definitions: Excludes fire, nuclear "Accident" and events, war-related "Object" are key losses, flood, defined terms. spoilage, and business interruption. CAIB  Optional & Indirect Coverages Optional Coverage: Unique Features: Indirect Losses: Business Production machinery, Inspection services interruption, spoilage providing specific coverage provided by insurers, damage, and additional for manufacturing meeting regulatory indirect coverage options. equipment. requirements. CAIB Overview of Earthquake Shock Endorsement (IBC 4039) Consumer Demand for Challenges for Insurers Coverage Increased after significant earthquakes Risk Spread: Difficult to achieve like the 1990 San Francisco event. proper spread of risk. Standard commercial property forms High Demand Areas: Coverage exclude earthquake coverage. demand typically comes from high-risk Coverage can be purchased from most areas with a history of earthquakes. insurers. Catastrophic Potential: High potential for large-scale losses. CAIB  Key Features and Limitations of Earthquake Shock Endorsement Coverage on an Coverage Period Deductibles Excluded Perils Occurrence Basis Restrictions Treats multiple shocks within a Effective only during the Can be a percentage of property Fire, explosion, theft, or flood period as a single occurrence. endorsement’s active period. value or a fixed amount. caused directly or indirectly by an Includes snowslides, landslides, or No coverage for damages before Higher deductibles common in earthquake are not covered. other earth movements directly the endorsement or after policy high-risk areas or properties resulting from an earthquake. expiration. lacking earthquake-resistant features. CAIB  Water Escape Endorsement Introduction to Coverage Details Underwriting and IBC Endorsement Forms Endorsement Coverage Limits Response to demand from Scope: Covers sudden backing- Selective Coverage: Allows Three separate forms developed brokers, consumers, and market up or escape of water. insurers to assess risk and avoid by IBC for insurer use. pressures. Sources: Includes sewer, sump, indiscriminate coverage. Amends standard water escape septic tank, eavestrough, Actual Cash Basis: Coverage exclusion in commercial property downspout. may be provided on an actual policies. Location Restriction: Coverage cash value basis only. applies only to the location Deductibles and Limits: May described in the Declarations involve higher deductibles or Page. dollar limits compared to the base policy. CAIB  Flood Coverage in Commercial Policies Current Flood Coverage Combined Coverage Definition of Flood Options Options No standard form for occupied Availability of combined flood and Broad coverage includes: commercial properties. earthquake coverage. Waves, tides, tidal waters. Builders Risk Flood Endorsement by Often provided for a minimal additional Overflow or breaking of boundaries of IBC and Informco Inc. premium. lakes, ponds, reservoirs, rivers, Specialized commercial package Typical minimum deductible: $1,000, harbours, streams, etc. policies with optional flood coverage. with some policies up to $10,000+. Contrast with narrower definitions in some policies. CAIB  Consequential Loss Assumption Clause - Cold Storage (IFC 18000) Importance of Cold Coverage Extension Coverage Limitations Broader Coverage Storage Coverage Options Businesses with temperature- Loss, destruction, or damage to Only applies if damage is directly Some insurers offer a sensitive stock (e.g., stock due to temperature caused by an insured peril. comprehensive clause covering supermarkets, hotels, butcher changes. Excludes losses due to power losses from temperature changes, shops). Coverage applies when the failure or interruptions not caused including both heating and Standard policies exclude loss damage results from an insured by insured perils. cooling issues. from temperature changes. peril affecting refrigeration equipment on the premises. CAIB By-Laws Exclusion and Coverage Standard Policy Exclusion Excludes costs due to enforcement of by-laws, regulations, or laws. Applies to zoning, demolition, repair, or construction. Types of By-Laws Impacted New construction and substantial damage repairs. In some areas, damage exceeding 75% of value is considered a total loss. CAIB Costs Related to Building By-Laws Coverage for Increased Costs Separate endorsements available: Increase in cost of construction. Loss of value of undamaged portion. Costs of demolition and debris removal. IBC Endorsements IBC 4001: Value of undamaged portion. IBC 4002: Demolition and debris removal. IBC 4003: Increase in cost of construction. CAIB Broker's Role and Considerations Broker Recommended Policy Responsibilities Investigate by-law Actions Ask clients about known by- Adjustments Consider a Blanket requirements. laws. Endorsement for Inform clients about Ensure policies cover comprehensive coverage. potential additional costs. potential by-law-related Ensure Replacement Cost expenses. Endorsement is purchased. CAIB  CAIB 2 Section 2 Insuring Off Premises Exposures  Standard Coverage Limitation Coverage restricted to locations specified on the Declarations Page. Need for Extended Coverage Coverage for property away from the business premises. Off Premises Includes stock and equipment. Coverages in Common Off Premises Coverages Commercial Temporary Locations Property Buildings at Newly Acquired Locations Contents at Newly Acquired Locations Insurance Property in Transit Sales Representative Coverage Restrictions Temporary Locations, Buildings, or Contents: Limited to Canada. Property in Transit, Sales Representative: Canada and continental USA. CAIB  Understanding Temporary Locations Coverage Definition of Temporary Criteria for Temporary Examples of Temporary Location: Location: Locations: Equipment and stock at an unspecified Not at a location specified on the Property at a customer's location for location. policy. trial. Excludes property in transit. Not in transit. Property undergoing repair at another Excludes locations owned, rented, or Not at any location owned, rented, or business. controlled by the Insured. controlled by the Insured. Property held for pick-up at a local depot. CAIB  Coverage Limits at Specified Locations: Coverag Coverage limit applies only at locations specified on the policy. e No compensation for under-insured property at specified locations. Limitatio Ineligible Locations for Coverage: Insured’s garage or owned locations. ns and Recently sold or rented locations. Controlled but non-rented locations. Exclusion Implications for Policyholders: s Importance of accurate policy specifications. Risk of under-insurance at specified locations. Clarification on what qualifies as a temporary location. CAIB  Automatic Coverage for Newly Acquired Building Locations: Coverage applies immediately upon acquisition. Extends for 30 days, or until endorsement, or policy at Newly expiry—whichever comes first. Applies to locations within Canada. Acquired Conditions and Limitations: No coverage for buildings under construction. Location Coverage ceases upon endorsement before the 30-day period ends. Prevents stacking of coverage limits in case of under- Coverag Implications insured losses. for the Insured: Importance of timely endorsement. e Risk of under-insured losses if coverage is not endorsed within 30 days. Understanding the automatic coverage's limitations. CAIB  Contents at Newly Acquired Location Coverage Automatic Coverage for Contents: Applies to contents at any newly acquired location in Canada. Coverage begins at acquisition and lasts for 30 days, until endorsement, or policy expiry. Covers locations owned, rented, or controlled by the Insured. Similarities to Building Coverage: Functions similarly to coverage for newly acquired buildings. Includes contents in locations like exhibitions or trade shows. Key Considerations: Brokers must check for exclusions related to exhibitions. Importance of timely endorsement to avoid gaps in coverage. Implications for Policyholders: Essential for businesses displaying merchandise at temporary locations. Risks associated with delayed endorsements or potential exclusions. CAIB Overview of Property in Transit Coverage Coverage Scope: Applies to contents in transit within Canada or the Continental U.S. Coverage lasts until delivery is complete. Why This Coverage is Important: Many businesses underestimate their transit exposure. Incoming and outgoing goods are at risk during transit. Common Transit Scenarios: Goods shipped via air, rail, or land. Items delivered using the Insured's vehicles or carriers for hire. Includes contents shipped by Parcel Post. CAIB Risks and Considerations Assumed Responsibility: Insured often assumes responsibility once goods leave the supplier. Creates a clear property in transit exposure. Exposure to Loss: Risks associated with delivery, whether by own vehicles or carriers. Importance of having coverage for all commercial operations. Parcel Post Considerations: Coverage necessary for frequent Canada Post users. Select a limit based on maximum value per package. CAIB  Enhancing Property in Transit Coverage Off-Premises Coverage Advantages of Direct Consideration of Integration: Insurance: Deductibles: Basic limits ($250 - $500) often Lower overall coverage costs. Potential for policy deductible to included with other off-premises Faster claims settlement compared to exceed parcel value. coverages. using Canada Post insurance. Option to purchase separate coverage Increasing limits may require additional from Canada Post for smaller items. underwriting. CAIB  Mitigating Theft Risk in Transit Locked Vehicle Securing Goods in Proactive Risk Warranty: Transit: Management: Commonly required for theft Importance of adhering to the Regularly review and update transit coverage in transit. Locked Vehicle Warranty. coverage limits. Insures against theft from vehicles, Implementing best practices to Ensure all employees are aware of subject to conditions. reduce theft risk. security protocols for goods in transit. CAIB Sales Representative Coverage Overview Coverage Scope: Applies to contents within Canada or the Continental U.S. Covers property in transit or in the custody of a sales representative. Coverage Limits: Two limits: total insured and maximum limit per representative. Protects property at various locations: Representative’s home. Trade shows or exhibitions. Representative’s automobile. Other locations ("otherwise"). CAIB Key Considerations and Custody Definition Important Considerations: Broad coverage parameters. Insurer restrictions possible based on property type. Locked Vehicle Warranty often required for theft-prone items. Custody Definition: Property must be in the custody (care or control) of the sales representative. Physical possession at the time of loss is not required for coverage. CAIB Miscellaneous Endorsement Forms Key Endorsement Forms: 1. Instalment Sales Contract Floater 2. Peak Season Endorsement 3. Replacement Cost Endorsement 4. Inflation Protection 5. Fire Department Charges 6. Vacancy Permit CAIB Overview of Instalment Sales Contract Floater (IFC 51023) Background: 1980s growth in instalment plan purchasing. Business concerns about property loss on partial payment plans. Purpose of the Floater: Protects businesses (manufacturers, wholesalers, retailers). Satisfies insurance needs of financial institutions. Coverage Options: Single interest (vendor) or dual interests (vendor and vendee). Named perils basis coverage. CAIB Coverage Details and Exclusions Applicable Property sold under Deferred Payment or Conditional Sales Property Agreements. Property loaned, leased, rented, or sent out on Classes: approval/demonstration. Covers direct damage: Coverage From vendor’s premises. During transit. Scope: On vendee’s premises. Ceases when payments are completed. Exclusions: Losses due to vendee’s infidelity, non-payment, wrongful conversion, or concealment. CAIB Peak Season Endorsement (IBC 4021) Overview Seasonal Stock Value Changes: Stock levels are consistent except for identifiable peak months. Examples: Retailers' peak sales before Christmas, florists, toy stores, etc. Purpose of the Endorsement: Insures predictable stock value increases in advance. No need to contact the broker when stock value increases. Cost-Efficient: Saves premium dollars by not paying for unneeded coverage year- round. CAIB  Decline in Use: Diminished popularity due to Diminishin package policy coverages. g Use of Automatic peak season increases by some insurers (e.g., 25% of current Peak insured values). Season Important Considerations: Endorsem Automatic percentage increases do not always add 25% to policy limits. ent Example: Some policies only allow increases if they exceed the average monthly values of the previous 12 months. CAIB  Replacement Cost Endorsement Overview Initial Scope: Defining Replacement Benefits to Insured: Cost: Originally for buildings only. Insurer covers the cost of Settlement on a new-for-old Later extended to equipment and replacing, repairing, or basis. selected stock items. reconstructing with new property No out-of-pocket cost for of similar kind and quality. depreciation. No deduction for depreciation. CAIB Conditions for Replacement Cost Coverage Qualifying Coverage Conditions: a) Due Diligence in Replacement: Limitation: If conditions are not met, Insured must replace property promptly. b) Replacement on the Same or Adjacent coverage is on an actual Site: Prevents moral hazard; some flexibility for cash value basis only. non-profits and institutions. c) Payment Post-Replacement: Payment is based on actual expenses; interim payments may be made. CAIB Inflation Protection Endorsement Overview Purpose of Endorsement: Addresses inflationary increases in building costs. Ensures insured values reflect current building costs. Building Values Increased Interim: Adjustments based on Statistics Canada Construction Building Material Price Indexes (Non- Residential). No additional cost to the Insured for interim increases. CAIB Policy Renewal and Considerations Policy Renewal Adjustments: Renewal reflects both previous insured values and inflationary increases. Prevents discrepancies between insured values and actual costs. Important Considerations: Inflationary increases might not perfectly match actual building values. Regular review of insured values with brokers is recommended. CAIB  Fire Department Charges Coverage Overview: No standard industry form; typically included in commercial package policies. Coverage amount is usually minimal, often a few hundred dollars. Insurer's Liability: Covers sums billed for fire department services to save or protect insured property. Often requires the insured to be legally liable for the costs. General Liability: Insureds are generally not liable for fire department costs, as local governments fund fire services through taxes. Coverage applies when neighboring or non-tax-funded fire departments assist. Some insurers resist payment of bills deemed illegal, but many have removed this requirement from endorsements. CAIB  Vacancy Permit Overview Standard Vacancy Permit: Endorsement Loss Exclusion: of property is excluded Endorsement to cover vacant Forms: Two types of Vacancy for locations vacant, properties. Permits: No. 1 and No. 2. unoccupied, or shut down for Higher rates compared to more than 30 consecutive occupied properties; days. typically, in the $1/$100 to $2/$100 range. Rates may vary depending on coverage for vandalism. CAIB Vacancy Permit Types Vacancy Permit No. 1: Provides permission for the building to be vacant or unoccupied for a specified period. Premium is charged; duration depends on factors like the building's age and risk level. Vacancy Permit No. 2: Similar to Permit No. 1 but includes co-insurance clause. Insured is responsible for a portion of fire and lightning losses: payment limited to three-fifths of the actual cash value. Aims to reduce moral hazard associated with vacant properties. CAIB  Package Policies and Additional Coverages Endorsements and Importance of Package Policies: Riders: Review: Focus on Commercial package Package policies and endorsements, riders, policies may include commercial policies or forms to address additional coverages can vary significantly. standard policy not found in standard Brokers should review exclusions. forms. all coverages and Brokers often use Increasingly common compare policies these to enhance among insurers and before making coverage. often tailored to recommendations. specific market Obtain and compare segments. prior policies when available to ensure comprehensive coverage. CAIB