Commercial Property Coverage Forms and Endorsements PDF

Section 1: Commercial Property Coverage Forms and Endorsements Section 1: Commercial Property Coverage Forms and Endorsements Section Goal In this section, participants will analyze the components of the ISO Commercial Property and blanket coverage), and examine the Building And Personal Property...

Section 1: Commercial Property Coverage Forms and Endorsements Section 1: Commercial Property Coverage Forms and Endorsements Section Goal In this section, participants will analyze the components of the ISO Commercial Property and blanket coverage), and examine the Building And Personal Property Coverage Form in through endorsement. Due to its length, Section 1 has been broken into four parts (Parts 1–4). There is a summary at the end of each part as well as a self-quiz to reinforce key concepts and enhance learning. Learning Objectives: Part 1: The Commercial Property Policy 1.1 1.2 1.3 Part 2: The Building And Personal Property Coverage Form, A (1–3) and Methods of Writing Commercial Property Insurance 1.4 1.5 1.6 1.7 Commercial Property |1  Section 1: Commercial Property Coverage Forms and Endorsements Part 3: The Building And Personal Property Coverage Form, A(4)–D 1.8 1.9 1.10 1.11 1.12 1.13 Part 4: The Building And Personal Property Coverage Form, E–H and Additional Coverage Forms 1.14 1.15 1.16 2 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Part 1: The Commercial Property Policy Structure of a Commercial Property Policy Components of a Commercial Property Policy modular approach. This section will examine the components of the Commercial Property Policy (CPP), which consists of the Common Policy Declarations, Common Policy Conditions, Commercial Property Coverage Part Declarations, Commercial Property Conditions, Commercial Property Coverage Forms, Commercial Property Causes Of Loss forms, and Endorsements, as indicated in the following graphic. Commercial Property |3  Section 1: Commercial Property Coverage Forms and Endorsements and can apply to more than one line Policy. Common Policy Declarations (IL DS 00 09 08) The Common Policy Declarations consist of the following parts: Named Insured Mailing Address Policy Period Business Description Premium for Coverage Parts Forms Applicable Alert It should be noted that the policy Declarations refer to the mailing address, rather than the location of the property. Insureds, especially those with multiple locations in different time zones, should exercise caution when differentiating between mailing address and location of properties, as coverage begins and ends at 12:01 AM in the time zone of the mailing address. Common Policy Conditions (IL 00 17 11 98) Learning Objective: 1.1 The provisions of this form are common to all coverage parts. Some of the Common that do not apply to other insureds. Other conditions may reference rights of the insurer. Each Common Policy Condition is included below, followed by further explanation. 4 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE Section 1: Commercial Property Coverage Forms and Endorsements A. Cancellation Named Insured is the only person or entity who is authorized to cancel the policy and to receive notice of cancellation. This means that when multiple insureds are Named Insured will be authorized to cancel the policy or receive notice of cancellation. Note on Endorsements: Nearly every state has an endorsement provision. An insurer can add a notice of cancellation/non-renewal endorsement that will notify other parties if the policy is going to be canceled or non- renewed. For example, a notice of cancellation provision may obligate the insurer to provide advance written notice to a canceled or not renewed. The most commonly required cancellation notice period is 30 days (except for nonpayment of premium) though, in some cases, up to 60 days may be required. B. Changes person who is authorized to request changes to the terms of the policy. All change requests are subject to the carrier’s consent. Alert other persons act on its behalf. After all, a corporation cannot make a phone call or send an email. This means that someone within the organization will need to be authorized to make contractual changes on behalf of the legal entity. Commercial Property |5  Section 1: Commercial Property Coverage Forms and Endorsements C. Examination Of Your Books And Records Many insurance agents and insureds are unaware that the insurance company has the right to review books and records for up to three years following the policy period. It is not unheard of for an insurance company to decide to audit a client during the third year following the end of the policy period, even if they have not conducted an audit for the previous two years. D. Inspections And Surveys This condition gives the insurance carrier the right to conduct inspections at any time. It should be noted that surveys and inspections are conducted to determine insurability, eligibility, and premium pricing. As such, inspections conducted by the insurance company do not ensure that conditions are safe or that the insured is in compliance with laws and regulations. The insurer also has the right to opt not to conduct inspections or surveys and is also not required to make reports or recommendations to the Named Insured. 6 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements E. Premiums the payment of all premiums and is also the only person or entity who can receive return premiums. F. Transfer Of Your Rights And Duties Under This Policy Insurance policies are non-transferable except in the case of the death of an individual named insured. This means that if a company is sold, the insurance policy cannot be transferred to the new owner. Summary of the Five Rights and Duties of the First Named Insured Insured rights and duties that are not granted to nor imposed upon other insureds named on the policy, as summarized by the graphic. authorized to cancel a policy and to receive notice of changes to the policy, with the consent of the insurer. The of all policy premiums and will be the payee if any premiums are returned. Commercial Property |7  Section 1: Commercial Property Coverage Forms and Endorsements Check-In Directions: Indicate whether each of the following statements is true or false. 1. According to the Common Policy Conditions, any Named Insured is authorized to cancel the policy or make changes, with the consent of the insurer. True False 2. The insurance company is authorized to examine the insured’s books and records even after the policy period has concluded. True False 3. that the insured is adhering to all laws, regulations, and codes. True False 4. Any return premiums will be divided evenly among all Named Insureds. True False 5. The rights and duties outlined in the insurance policy cannot be transferred to another party, except in the case of the death of an individual named insured. True False 8 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE Section 1: Commercial Property Coverage Forms and Endorsements Commercial Property Declarations CP DS 00 10 00 Commercial Property |9  Section 1: Commercial Property Coverage Forms and Endorsements The Commercial Property Coverage Part Declarations include the effective date, the Named Insured, and the Description of Premises. Named Insureds and Insurable Interest One important issue that can arise during a claim is whether the Named Insured has an insurable interest in the property. Individuals cannot simply purchase insurance for any property—they must have a reason for doing so. There are four primary areas of insurable interest: Ownership—when the Named Insured is the owner of the insured property. Contractual requirement to carry insurance—an example of this is when a landlord requires a tenant to carry insurance on the building. Bailment—having a legal responsibility for property belonging to another person or entity can create insurable interest. Examples of bailments include parking garages, dry cleaners, or repair shops. Factual expectation—a strong expectation of an occurrence that will result in insurable interest, for example, if a son has a factual expectation to one day inherit his father’s business. He has an insurable interest in the property, even though he currently does not have an ownership interest. Think About It* In your day-to-day practice, do you verify the insurable interest of the Named Insured? If so, what measures do you take to determine whether the Named Insured has an insurable interest in the property? can prevent an insured from having a claim denied in the future. Description of Premises The Description of Premises includes the number of the premises, the number of the building, the location, the construction, and the occupancy. 10 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Other Items The Declarations also show other items, such as the Coverages Provided and Optional Coverages, if activated. For ease of understanding, these items will be examined in greater detail in the discussion of the Building And Personal Property Coverage Form, which is presented later in this section. The more immediate concern is to address one of the items found in the Other Coverages section: coinsurance. Learning Objective: 1.2 Coinsurance Coinsurance can be described as a rating and underwriting concept that is designed to encourage an insured to purchase an amount of insurance of the property being insured. When insurance is carried in the amount required by the coinsurance percentage, usually 80% of the value or more, the insurance company pays the entire loss, not to exceed the limit of insurance. Thus, if the limit of insurance is adequate to comply with this provision, If the amount carried is than the amount required, then the Named Insured is considered underinsured and a penalty. The insurance amount required is the value of the covered property for the valuation chosen (actual cash value or replacement cost) multiplied by the coinsurance percentage shown on the Declarations. A property valued at $250,000 at the time of a loss with an 80% coinsurance requirement would need to have a limit of insurance of at least $200,000 to be in compliance with the coinsurance requirement. Industry studies have shown that as many as 75% of commercial buildings are underinsured.1 https://www.verisk.com/insurance/visualize/three- attributes-of-commercial-properties-that-underwriters-shouldnt-take-for-granted/ Commercial Property | 11  Section 1: Commercial Property Coverage Forms and Endorsements Best Practice When writing policies, it is important to anticipate what the value of the property will be 12 months in the future, because the coinsurance penalty will be calculated. This means that if the limit of insurance is calculated based on the value of the property at the start of the policy, the insured could face a coinsurance penalty if the value has increased by the time of the loss. The following formula is used to determine the loss settlement amount for properties subject to the coinsurance provision. (This is sometimes referred to as Did/Should x Loss). The following example illustrates how the formula is applied. Table: 1.1 Example of Inadequate Limits (Underinsurance) ) $ 100,000 Deductible $ 1,000 Insurance $ 40,000 Coinsurance clause (from the Declarations) 80% Insurance ($100,000 x 80%) $ 80,000 A loss occurs and the building damage is $10,000. The settlement is $4,000. 12 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements In this example, because the Named Insured carried a limit of insurance that was 50% of what was required, they incurred a coinsurance penalty, and only 50% of the $10,000 loss is paid minus any existing deductible ($1,000 in this case). Had they carried the required amount of insurance—in this case, $80,000—they would have received a settlement of $9,000 (the full $10,000 loss amount minus a $1,000 deductible) as opposed to the $4,000 that they received with a limit of insurance of only $40,000. Knowledge Check Directions: Answer the following questions. 1. If the Named Insured has a building valued at $1,000,000 and 80% is indicated on the Declarations for coinsurance, what is the minimum limit of insurance needed to avoid a coinsurance penalty? _____________________________________________________________________________ 2. The Named Insured from the scenario above has a $600,000 limit of insurance and suffers a property loss with damage totaling $100,000. If the building is valued at $1,000,000 at the time of the loss and the policy has a $10,000 deductible, how much will the Named Insured receive in the settlement? _____________________________________________________________________________ Optional Coverages can elect to activate a number of optional coverages. It is important to understand that these coverages are , but rather are activated from the Declarations. Commercial Property | 13  Section 1: Commercial Property Coverage Forms and Endorsements The following is a brief overview of the Optional Coverages listed on the Declarations. They will be discussed in greater depth toward the end of this section. Agreed Value Agreed Value suspends the Coinsurance clause and can be applied to covered property and/or business income. Activation of this optional coverage indicates the underwriter and the Named Insured agree that an adequate limit of insurance is being carried for eligibility, and as such, the coinsurance provision can be suspended for a period of time. expiration date and will not last longer than 12 months. This expiration date means that the coinsurance provision is not waived or removed entirely, but rather for a period of Named Insured reduces the limit of insurance during the policy period to an amount below the agreed value, the coinsurance provision will be reinstated. Replacement Cost Actual Cash Value (ACV) applies unless Replacement Cost (RC) is activated by marking an “X” on the items to be covered on the Declarations. The following chart illustrates the Actual Cash Value Replacement Cost Traditionally the valuation method found in Method of valuation commonly desired property insurance policies but oftentimes must be requested Cost to replace the covered property at The amount needed to replace covered the premises at the time of the loss minus property at a premises with like kind and depreciation due to the fact that the quality in today’s dollars property has been used for a period of time Depreciation is not considered. Simply put: Replacement cost minus depreciation Extension Of Replacement Cost To Personal Property Of Others If Replacement Cost Coverage is shown on the Declarations, coverage can also be activated for Extension Of Replacement Cost To Personal Property Of Others by having it indicated on the Declarations. This extension does not appear on the ISO Commercial Property Coverage Part Declarations. It would have to be requested and added to the Declarations for RC 14 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements coverage to be activated for the personal property of others. Some insurance companies often include this extension under Optional Coverages on their Declarations to be marked “X” to activate the coverage. Because the value of property can increase over time, it is important that the insured maintain adequate limits of insurance. When is activated, the limit of insurance will automatically increase at an annual percentage, and limits will be prorated daily throughout the year. To activate that is selected on the Declarations. Business Income If Business Income Coverage is also provided, these Optional Coverages entries may also be (these will be discussed in much greater detail later in Section 3). Monthly Limit of Indemnity Enter a fraction for this optional coverage to apply. Maximum Period of Indemnity Mark “X” for this optional coverage to apply. Extended Period of Indemnity Enter the number of days for this optional coverage to apply. Commercial Property | 15  Section 1: Commercial Property Coverage Forms and Endorsements Mortgageholders Mortgageholders should be listed per building. Deductible A $500 deductible is standard in most states, but other deductibles are available. These will be discussed in greater detail throughout the section. Commercial Property Conditions The Commercial Property Conditions essentially represent the “rules” of the policy. A. Concealment, Misrepresentation Or Fraud This condition states that this Coverage Part will become void in any case of fraud by the Named Insured at any time. The Coverage Part will also become void if any insured intentionally conceals or misrepresents a material fact relating to this Coverage Part, the Covered Property, the Named Insured’s interest in the Covered Property, or a claim under this Coverage Part. Insureds need to be fully aware of this condition because an insured who fails to act in good faith or who attempts to conceal or misrepresent facts pertaining to a claim may have a claim denied. B. Control Of Property This condition states that acts of others beyond the Named Insured’s direction or control will not affect coverage. Additionally, a breach of conditions at one location will not affect coverage at other locations where a breach has not occurred. 16 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements C. Insurance Under Two Or More Coverages It is possible that more than one section of the policy could apply to the same loss. For building or as your business personal policy will not pay more than the actual loss amount, regardless of how many coverages might apply. D. Legal Action Against Us lawsuit against an insurer until all terms of the Coverage Part have been met, and any legal action must be brought within two years of the date on which the loss or damage occurred. Some states may have provisions that modify the two-year timeframe; thus, insurance professionals must be aware of the laws in their local jurisdictions. E. Liberalization If coverage is broadened on an already issued policy, those policies will have the condition only applies if there is no additional premium for the broadened coverage. In bailment situations, in which the insured has entrusted their personal property to another party (a bailee), the policy only protects the Named Insured, not the person or entity to whom they have entrusted their property. Commercial Property | 17  Section 1: Commercial Property Coverage Forms and Endorsements This condition states that if other insurance covering the same property with the same terms, conditions, and provisions exists, this coverage part will pay on a pro-rata basis. If the other insurance does not have the same terms, conditions, and provisions, this coverage part will be excess over other insurance, H. Policy Period, Coverage Territory This condition states that coverage only applies to losses * during the policy period shown in the Declarations and within the coverage territory, which is the U.S., its territories and possessions, Puerto Rico, and Canada. *Note that the loss must only commence during the policy period; if the peril continues after the policy period has ended, the loss or damage will still be covered. For of the policy period and continues after the policy period has ended, any losses or The following endorsements can be used to modify the coverage territory of the Commercial Property Policy. Business Personal Property Limited International Coverage CP 04 32 04 02 This endorsement provides coverage for Business Personal Property that is in or is en-route to or from the foreign coverage territory listed in the Schedule. 18 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Property In Process Of Manufacture By Others Limited International Coverage CP 04 33 04 02 This endorsement provides coverage for raw materials and goods that are in the process of manufacture in a foreign coverage territory listed in the Schedule provided that the manufacturing is done by others at a location that is not owned or operated by the insured. Alert Insurance professionals should exercise caution when requesting endorsements that modify the coverage territory to include international locations. Certain foreign countries will require coverage to be purchased in that country from a company authorized to transact business within that country. Commercial Property | 19  Section 1: Commercial Property Coverage Forms and Endorsements Check-In Directions: Match each description to the corresponding Commercial Property Condition. A. Concealment, _____ A lawsuit cannot be brought against the Misrepresentation Or insurer until all terms of the coverage part have Fraud been met, and legal action must be brought within two years, subject to state provisions. B. Control Of Property _____ The policy will not pay more than the actual C. Insurance Under Two Or loss amount, no matter how many coverages More Coverages apply. D. Legal Action Against Us _____ No person having custody of Covered Property E. Liberalization policy. F. _____ Coverage only applies during the policy period and within the U.S, its territories and Other Insurance possessions, Puerto Rico, and Canada. _____ This Coverage Part is void if the insured H. Policy Period And conceals or does not accurately represent Territory information pertaining to the coverage or to a I. Transfer Of Rights Of claim. Recovery Against Others _____ Other insurance covering the same property To Us with the same terms, conditions, etc., will be paid on a pro-rata basis. Other insurance with different terms, conditions, etc., will be paid on an excess basis. _____ broadened coverage as long as no additional premium applies. _____ The Named Insured can waive the rights of recovery (in writing) to anyone prior to a loss and to certain responsible parties after a loss. _____ Actions of others outside the control of the Named Insured will not affect the policy. A breach of conditions at one location will not impact coverage at unaffected locations. 20 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Learning Objective: 1.3 I. Transfer Of Rights Of Recovery Against Others To Us This condition is commonly known as the Waiver of Subrogation Clause. Commercial Property | 21  Section 1: Commercial Property Coverage Forms and Endorsements Prior to a Loss This condition states that the Named Insured may waive their rights of recovery (in writing) against prior to a loss. a new roof on their building and must sign a contract stating that they will not pursue recovery for any damages caused by the replacement. While installing the new roof, insurance company pays the Named Insured and would then like to sue the paid. Because the contract was signed prior to the loss and it does not violate any policy conditions, the insurance company After a Loss This condition also permits the Named Insured to waive their rights of recovery after a loss, but only if in writing and , as follows: Another insured A business owned and controlled by the Named Insured, or a business that owns or controls the Named Insured (parent company or a subsidiary) A tenant of the Named Insured after a loss will not violate the policy conditions and thus will not restrict the insurance. Commercial Property Coverage Forms The purpose of commercial property coverage forms is to: Identify the subject of insurance Describe additional coverages and coverage extensions Provide additional conditions not Conditions or the Commercial Property Conditions Provide the same coverages regardless of the Causes Of Loss form(s) selected. 22 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Commercial Property Coverage Form Types The following is a list of the available Commercial Property Coverage Forms: Building And Personal Property Coverage Form CP 00 10 10 12 Condominium Association Coverage Form CP 00 17 10 12 Condominium Commercial Unit-Owners Coverage Form CP 00 18 10 12 Builders Risk Coverage Form CP 00 20 10 12 Business Income (And Extra Expense) Coverage Form CP 00 30 10 12 Business Income (Without Extra Expense) Coverage Form CP 00 32 10 12 Legal Liability Coverage Form CP 00 40 10 12 Extra Expense Coverage Form CP 00 50 10 12 Leasehold Interest Coverage Form CP 00 60 06 95 Mortgageholders Errors And Omissions Coverage Form CP 00 70 10 12 Tobacco Sales Warehouses Coverage Form CP 00 80 10 12 This course will explore the Building And Personal Property Coverage Form in great depth and will also examine Business Income Coverage Forms (with and without Extra Expense), the Extra Expense Coverage Form, and the Leasehold Interest Coverage Form, as well as aspects of the Legal Liability Coverage Form. Knowledge Check Directions: Describe how and when a Named Insured can waive their rights of recovery against another party. _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Commercial Property | 23  Section 1: Commercial Property Coverage Forms and Endorsements Part 1: Summary An ISO Commercial Property Policy is built using a modular approach containing the following components: Common Policy Declarations Common Policy Conditions Commercial Property Coverage Part Declarations Commercial Property Conditions Commercial Property Coverage Form(s) Commercial Property Causes Of Loss Form(s) Endorsements the right to authorize cancellation of a policy, the right to receive notice of cancellation from the insurer, the right to make changes with insurer consent, the responsibility to pay all insurance premiums, and The Commercial Property Declarations state the coinsurance requirements. If a limit of insurance is adequate to comply with the coinsurance provision, no penalty will apply. If the amount carried is less than the amount required, then the insured is underinsured, and a penalty may apply. The insurance amount required is the value of the covered property for the valuation chosen (actual cash value or replacement cost) at the time of the loss multiplied by the Coinsurance percentage shown in the Declarations. The formula for coinsurance for commercial party is amount carried (Did) divided by the amount required (Should) multiplied by the loss, which equals the settlement, which is the recovery amount minus any deductible. There are four optional coverages available: Replacement Cost Extension of Replacement Cost to Personal Property of Others 24 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements The Commercial Property Conditions represent the “rules” of the policy. Endorsements are also available to modify the commercial property coverage territory. These endorsements are: Business Personal Property Limited International Coverage (CP 04 32 04 02) and Property in the Process of Manufacture by Others Limited International Coverage (CP 04 33 04 02). Insured can apply the Waiver Of Transfer of Rights Of Recovery From Others To Us condition, commonly known as the Waiver of Subrogation clause. The Condition states the Named Insured may waive their rights of recovery against anyone, if in writing and prior to a loss. A Named Insured can also waive their rights of recovery after a loss, but only if in writing and only for certain persons or entities, namely, another insured, a tenant of the Named Insured, or a business owned and controlled by the Named Insured or a business that owns or controls the Named Insured (parent company or subsidiary). Commercial Property Coverage Forms identify the subject of insurance. They also describe additional coverages and coverage extensions. Commercial Property Coverage Forms Commercial Property Conditions and provide the same coverages, regardless of the Causes Of Loss form(s) selected. Commercial Property | 25  Section 1: Commercial Property Coverage Forms and Endorsements Endorsements in Part 1 Below is a list of the endorsements mentioned in Part 1 of this section. Business Personal Property Limited International Coverage CP 04 32 04 02 Property In The Process Of Manufacture By Others Limited International Coverage CP 04 33 04 02 26 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Part 1: Self-Quiz 1. a. _________________________________________________________________________ b. _________________________________________________________________________ c. _________________________________________________________________________ d. _________________________________________________________________________ e. _________________________________________________________________________ Directions: Select the best answer(s) for the following questions. Some questions may have more than one correct response. 2. carried? Amount carried/amount required X Loss = Recovery minus deductible equals settlement Amount required/amount carried X Loss = Recovery minus deductible equals settlement Amount carried/amount required X (Loss minus Deductible) = Recovery settlement Amount required/amount carried X (Loss minus Deductible) = Recovery settlement 3. A Named Insured has a building valued at $1,000,000 with an 80% coinsurance requirement. The Named Insured has a $400,000 Limit of Insurance and suffers a property loss with damage totaling $100,000. If the building is valued at $1,000,000 at the time of the loss and the policy has a $10,000 deductible, how much will the Named Insured receive in the settlement? $25,000 $40,000 $50,000 $90,000 Commercial Property | 27  Section 1: Commercial Property Coverage Forms and Endorsements 4. Which of the following statements are accurate regarding the rights of recovery? (Select all that apply). Rights of recovery can be transferred through verbal agreement. Transfer of rights of recovery must always be waived in writing. The Named Insured can only transfer rights of recovery to certain persons or entities both before and after a loss. After a loss, the rights of recovery can only be waived against certain persons or entities. 5. Following a loss, the Named Insured can transfer the rights of recovery to which of the following persons or entities? (Select all that apply). Another insured An immediate family member not named as an insured on the policy A parent company or subsidiary of the Named Insured A tenant of the Named Insured A company contracted to work on the insured’s property 28 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE Section 1: Commercial Property Coverage Forms and Endorsements Part 2: The Building And Personal Property Coverage Form, A(1–3) and Methods of Writing Commercial Property Insurance The Building and Personal Property Coverage Form Coverage for real and business personal property is essential for any commercial operation. The ISO Building And Personal Property Coverage Form is the most commonly used coverage form to insure commercial buildings and their contents. Throughout the remainder of this section, each part of this form will be examined in detail, beginning with the Preamble. The graphic shown here provides a brief overview of the sections of the Building And Personal Property Coverage Form that will be covered. Preamble Paragraph 1 of the preamble (shown below) states that various policy provisions restrict broadness of coverage, and it is the responsibility of the insured to read through the policy carefully to understand rights, duties, and coverages. Paragraph 2 is used to identify There is an endorsement that can be used to modify Commercial Property | 29  Section 1: Commercial Property Coverage Forms and Endorsements Additional Insured – Building Owner CP 12 19 06 07 This endorsement is used to identify the building owner described in this endorsement as a Named Insured, but only with respect to direct physical loss or damage to the building(s) described in the Schedule. The Additional Insured – Building Owner endorsement is used for situations where the tenant agrees to pay costs related to the building that would typically be paid by the building owner, for example, building maintenance costs, taxes, and insuring the building. The building owner under this endorsement, but the owner. Learning Objectives: 1.4 1.5 A. Coverage (Insuring Agreement) The Insuring Agreement states that the following conditions must be met in order for the policy to pay: There must be direct physical loss or damage. The loss or damage must be to Covered Property. The Covered Property must be at the premises described in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss. 30 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements 1. Covered Property There are three categories of covered property: a. Building b. Your Business Personal Property c. Personal Property of Others a. Building The Building category of property includes in the Declarations but also a number of other types of property. The following table provides more information regarding the types of property considered to be Building, according to the coverage form. Commercial Property | 31  Section 1: Commercial Property Coverage Forms and Endorsements Table: 1.2 Buildings and Covered buildings and structures that structures: are complete at the time of the loss completed additions are subject to the building’s limit of insurance. Fixtures Flagpole, furnace, light Permanently Machinery and equipment (considered installed: permanently installed) can be covered as Building in certain instances. (a) Machinery; and Generator (b) Equipment Note: The determination of whether a piece of machinery or equipment is considered Building depends both on how the Named Insured intends to have the property covered and of what permanently installed means. Think about it: it and take it with them when they move out of the building, does that count as permanently installed? insured has no intention of removing the machinery or equipment. It is important for this to be taken into account at the inception of the policy. 32 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Personal property This category includes: used to service the building or structure Fire extinguishing equipment or its premises Outdoor furniture such as park benches Floor coverings Cooking appliances, refrigerators, dishwashers, washers, and dryers Note: This is potentially a broad category of items that could include cleaning/grounds-keeping equipment and vehicles used to service the premises, including those listed above. If not covered by other insurance: Additions under This category includes: construction Additions under construction Alterations and repairs to the building or structure Building materials, These items can be considered Building supplies, and as long as they are: temporary structures on or within 100 feet of the described premises used to complete an addition, alteration, or repair to the building or structure It is not uncommon for agents and insureds to be unaware that many of the items listed agent and insured must consider the value of all items described in this section of the policy. Commercial Property | 33  Section 1: Commercial Property Coverage Forms and Endorsements Additional Building Property CP 14 15 07 88 This endorsement may be used to clarify that certain items which might be in a gray area are covered under Building. For example, machinery and equipment now be considered Building. This endorsement will allow the building rate to apply to all property scheduled under this endorsement. As the building rate is typically less expensive than other property coverage rates, this is another reason that use of this endorsement can be advantageous for the insured. In order to add this endorsement, the insured must already have Building coverage. Soak n’ Suds carwash has a $500,000 Building Limit of Insurance and an additional $500,000 Limit of Insurance for Your Business Personal Property to cover the carwash equipment that the owner would dismantle and take with them if they moved to a different location. You explain to the Named Insured that they could cover the carwash equipment under Building coverage with the endorsement Additional Building Property. The Building Limit of Insurance will need to be raised to $1,000,000 to avoid problems with coinsurance and the Your Business Personal Property Limit of Insurance can be decreased as well. Additional Property Not Covered CP 14 20 11 91 Not Covered” if the Named Insured or insurer does not want or need to cover such property (e.g., tenants’ improvements and betterments for the owner of the building where the lease requires the tenant to provide such insurance). Limit of Insurance or in the coinsurance calculations. This endorsement may make an unacceptable risk acceptable. 34 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Check-In Directions: Which of the following would MOST LIKELY be considered as Building on an unendorsed Building And Personal Property Coverage Form? (Check all that apply). An incomplete building addition that is not covered by other insurance Building materials located 500 feet from the described premises Welding machinery that the insured intends to remove An indoor rug covering the entranceway to a building b. Your Business Personal Property It is important to note that Your Business located in or on the building or structure or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises described in the Declarations, whichever distance is greater. Consider an example: Frida stores some of her “stock” in a shed located 75 feet from the main building. While the building is described in the Declarations, the shed is not. One and all of the stock stored inside it is destroyed. Would this property be covered by Frida’s policy? Answer: Commercial Property | 35  Section 1: Commercial Property Coverage Forms and Endorsements The following table explains the types of Your Business Personal Property in greater detail. Table: 1.3 Types of Your Business Personal Property the building is vacated. A shop owner installs shelving which he will remove and take with him when he vacates the building. Machinery and The machinery and equipment referred equipment permanently installed. Commercial sewing machines, computers, and industrial presses at manufacturing plants “Stock” the coverage form. All other personal This encompasses all remaining personal property owned by you and used in your Named Insured owns and uses in their business business. 36 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE Section 1: Commercial Property Coverage Forms and Endorsements Types of Your Business Personal Property Labor, materials, or This covers the labor and/or materials the services furnished or Named Insured has put into customers’ arranged by you on property. Note that this does not insure the personal property of value of the property when turned over to others the Named Insured, but rather the value of the improvements that the Named Insured makes to the property while it is in their care, custody, or control. The labor and materials furnished by a dry cleaner Use value to a tenant Improvements and betterments are of improvements and betterments additions: made a part of the building or structure the Named Insured occupies but does not own; and the Named Insured acquired or made at the Named Insured’s expense but cannot legally remove. New countertops installed by the tenant Leased Property that Note that it is not enough to have you have a contractual contractual responsibility for loss or obligation to insure damage. Copiers and printers leased by a business requiring insurance to be purchased Commercial Property | 37  Section 1: Commercial Property Coverage Forms and Endorsements There are several endorsements that can be used to modify Your Business Personal Property. Additional Property Not Covered CP 14 20 11 91 In addition to modifying Building, this endorsement can also modify Your Business Personal Property. The insured operates a large stone quarry. Their “stock” consists of large amounts of stone aggregate used for making concrete, which is loose and in the open. The stone is constantly exposed to the elements and faces very little risk from a Covered Cause of Loss. Using the endorsement Additional Property Not Covered CP 14 20 07 88, the Named Insured can add “stock” to the Property Not Covered. Accordingly, the Named Insured would not need to include the value of the “stock” in their Limit Of Insurance for Your Business Personal Property. Leased Property CP 14 60 07 88 This endorsement is used to insure business personal property leased to the Named Insured as Your Business Personal Property instead of categorizing it as Personal Property of Others. This is especially needed when there is a contractual responsibility for loss but not a contractual obligation to insure. This endorsement should be on every Building And Personal Property Coverage Form because it includes indicated in the Schedule. While leased property that carries a contractual obligation to insure is automatically considered Your Business Personal Property, leased items that the insured is not contractually obligated to insure are considered Personal Property of Others. This endorsement allows all leased business personal property to be insured as Your Business Personal Property. Schedule. This is an advantage when there is a clause in the lease stating that the Named Your Business Personal Property – Separation Of Coverage CP 19 10 06 95 This endorsement can separate out and specify a Limit of Insurance for any of the seven categories of Your Business Personal Property. The Your Business Personal Property Limit Of Insurance on the Declarations does not apply to property scheduled in this endorsement. This can be used for tenants’ improvements and betterments. The value of the improvements and betterments will be listed separately on the endorsement and the Building rate will apply rather than the Your Business Personal Property rate. 38 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE Section 1: Commercial Property Coverage Forms and Endorsements Erica’s Accoutrement is a small clothing retailer. The leased space is in a new strip shopping center and the space is this location, the Named Insured—Erica employee restroom, and a built-in sales counter. Additionally, Erica has to insure all of the items traditionally associated with a clothing retailer (e.g., inventory, shelves, cash registers, computers, etc.). Erica signed a 10-year lease on the location and will need to be able to replace the improvements made to the space during that time. Erica asks her agent if she can insure the renovations she completed, even though her lease states that the improvements belong to the owner of the building. The agent explains that even though Erica does not own the improvements and betterments, her lease gives her an insurable interest in its use (i.e., a use interest). The agent goes on to explain that even though the renovation would be considered Your Business Personal Property, her coverage for the improvements and betterments could be insured under the lower building rate by having a separate Limit of Insurance using the endorsement Your Business Personal Property – Separation Of Coverage CP 19 10 06 95. Commercial Property | 39  Section 1: Commercial Property Coverage Forms and Endorsements Check-In Directions: Indicate whether each of the following examples should be 1. A conference table Building YBPP 2. A table and chairs kept outdoors on the back patio of the property Building YBPP 3. A washer and dryer Building YBPP 4. An industrial sewing machine that the insured intends to remove when they vacate the building Building YBPP c. Personal Property Of Others This generally applies to property that has been entrusted to the Named Insured: to work on on consignment has been sold but not delivered, or has been leased to the Named Insured. This only covers the personal property of others for direct damage, not for loss of use. The Legal Liability Coverage Form CP 00 40 could be used for loss of use exposures; this will be discussed in greater detail later in the section. 2. Property Not Covered There are 17 categories of Property Not Covered. Property can be excluded for a variety of reasons, including: It is customarily insured under more specialized policies. It is relatively unsusceptible to loss. It is more susceptible to loss. Certain types of property held for sale by the Named Insured that were not intended to be covered by the Building And Personal Property Coverage Form. 40 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements There is also restricted coverage for certain types of property. Commercial Property | 41  Section 1: Commercial Property Coverage Forms and Endorsements Endorsements that can Modify Property Not Covered Additional Covered Property CP 14 10 06 95 buy back coverage for certain property that is included in Property Not Covered. It is important to include the values in the Limit of Insurance. The Named Insured has a paved surface for which coverage is desired. The insured uses the Additional Covered Property endorsement to buy back coverage for the paved surface, which would otherwise be excluded. Alert The value of Property Not Covered items should be included in the Limits of Insurance 42 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements The following exhibit shows the 17 categories of Property Not Covered and possible methods of buying back coverage. Table: 1.4 Type of Property Not Covered Possible Coverage Buy-Back Accounts, bills, currency, food stamps or Commercial Crime Coverage other evidences of debt, money, notes or securities (Lottery tickets held for sale are not securities.) Animals, unless boarded or “your stock” Additional Covered Property CP 14 10 or Animal Mortality Coverage Form IH 00 69 Autos held for sale Auto Dealers Coverage Form CA 00 25 Bridges, roadways, walks, patios, or other Additional Covered Property CP 14 10 or paved surfaces Inland Marine Coverage Forms Contraband, illegal transportation/trade Not insurable under current laws Additional Covered Property CP 14 10 Foundations of buildings, structures, Additional Covered Property CP 14 10 machinery, or boilers, if their foundations are below: The surface of the ground, if there is no basement Land (including land on which property Crop Hail Coverage or Multi-Peril Crop is located), water, growing crops, or lawns Insurance (MPCI) (other than lawns which are part of a vegetated roof) Airborne or waterborne personal property Inland Marine Coverage Forms or Ocean Marine Coverage Forms Bulkheads, pilings, piers, wharves or docks Additional Covered Property CP 14 10 or Inland Marine Coverage Forms Property covered elsewhere BPPCF pays excess Retaining walls that are not part of the Additional Covered Property CP 14 10 building Additional Covered Property CP 14 10 Commercial Property | 43  Section 1: Commercial Property Coverage Forms and Endorsements Type of Property Not Covered Possible Coverage Buy-Back Electronic data (except stock of E-Commerce CP 04 30 (Limited) or Inland prepackaged software or electronic data Marine Coverage Forms which is integrated into the building operational systems) Research, replace, or restore information on Accounts Receivable Coverage Form valuable papers and records Coverage Form CM 00 67 Additional Covered Property CP 14 10 Limited Coverage For Unmanned Aircraft (Scheduled And/Or Blanket Coverage) CP 04 14 Commercial Auto Coverage Forms Inland Marine Coverage Forms Certain outdoor property Fences—Additional Covered Property CP 14 10 Trees—Outdoor Trees, Shrubs And Plants CP 14 30 Antennas—Radio Or Television Antennas CP 14 50 or Radio And Television Towers And Equipment Coverage Form IH 00 77 44 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Knowledge Check Directions: a. Circle the correct item to indicate whether each of the following items are Covered Property or Property Not Covered. b. If it is Covered Property, state whether it is Building, Your Business Personal Property, or Personal Property of Others. c. If it is Property Not Covered, state which endorsement or coverage form (if any) could help the insured to buy back coverage. 1. An underground pipe Covered Property Property Not Covered Building ________________________________ Your Business Personal Property ________________________________ Personal Property of Others 2. A riding lawnmower Covered Property Property Not Covered Building ________________________________ Your Business Personal Property ________________________________ Personal Property of Others 3. A chair that has been purchased by a customer is in a delivery truck 50 feet from the building described in the Declarations. Covered Property Property Not Covered Building ________________________________ Your Business Personal Property ________________________________ Personal Property of Others 4. Store shelving that is not permanently installed Covered Property Property Not Covered Building ________________________________ Your Business Personal Property ________________________________ Personal Property of Others Commercial Property | 45  Section 1: Commercial Property Coverage Forms and Endorsements Methods of Writing Commercial Property Insurance Learning Objective: 1.6 Before going further into the BPPC Form, the methods of writing Commercial Property insurance will be addressed. There are three primary options: Scheduled Coverage Blanket Coverage Specific Coverage most the insurer will pay to repair or replace it. Location #1 Building $500,000 Your Business Personal Property $300,000 several individual policies, each having their own Causes Of Loss forms, Conditions, and exclusions. Most organizations (and agents) may choose to consolidate all their property under one policy that covers all locations. Scheduled Coverage When a policy shows separate limits of insurance applied to two or more individually listed properties, these are called Scheduled Limits of Insurance. With Scheduled Coverage, there location scheduled. Location #1 Location #2 Building $500,000 Building $800,000 Your Business Your Business $400,000 $300,000 Personal Property Personal Property 46 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Scheduled limits require the business owner to select a limit of insurance for each building and property type individually. As each limit represents the maximum the insurance policy will pay per location, ensuring that the limits are adequate requires due diligence for both the agent and the policyholder. This means that the policy needs to be adjusted if the insured acquires additional property, moves personal property from one location to another, Blanket Coverage A blanket limit includes the value of all reported properties. This total limit is available to pay losses regardless of which property or location has suffered the loss. There are two options for Blanket Coverage. 1. One limit that applies to more than one type of property (e.g., Building and Your Business Personal Property) Location #1 Building $500,000 Your Business Personal Property $300,000 Blanket Limit on Building and YBBP $800,000 2. One limit that applies to one or more types of property (e.g., just buildings, just business personal property, or buildings and business personal property combined, at two or more locations) One Type of Property at More than One Location Location 1 Location 2 Location 3 Building $200,00 Building $300,000 Building $500,000 Blanket Limit on Buildings $1,000,000 More than One Type of Property at More than One Location Location 1 Location 2 Location 3 Building $200,000 Building $300,000 Building $500,000 BPP $100,00 BPP $200,000 BPP $300,000 Blanket Limit on Buildings and $1,600,000 Your Business Personal Property Commercial Property | 47  Section 1: Commercial Property Coverage Forms and Endorsements The following example further illustrates how Blanket Coverage is applied and how it differs from Scheduled Coverage. Hammering Hank’s Hardware has three locations with the following limits at each location: One Type of Property at More than One Location: Hammering Hanks Location 1 Location 2 Location 3 BPP $100,00 BPP $200,000 BPP $300,000 Blanket Limit on Your Business Personal Property $600,000 Every year Hammering Hanks has an end-of-summer sale at Location #1 and brings in $100,000 of inventory from each of the other two stores. On the destroys $250,000 of business personal property at Location #1. If Hammering Hanks had Scheduled Coverage, it would only pay $100,000. Because they have Blanket Coverage the total limit is available, meaning that the entire loss of $250,000 will be covered. Coinsurance There is a coinsurance requirement for blanket coverage. Normally, there is a minimum 90% coinsurance requirement, with a 100% coinsurance option available as well. In the previous example showing the blanket limit on Buildings and Your Business Personal Property of $1,600,000, with a 90% coinsurance requirement, the insured would need to carry a minimum limit of $1,440,000 to be in compliance with coinsurance. Rates Either the highest 80% coinsurance rate of any type of property included in the coverage applies to all items, or an average rate may be used. Note that average rates apply to all items. A 90% coinsurance requirement receives the 80% coinsurance rates, and a 100% coinsurance requirement receives the 90% coinsurance rates. The rate remains in effect for no more than one year before re-computation, and a sworn 48 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Coverage could be written for stock only or for improvements and betterments only. Advantages, Disadvantages, and Special Considerations The following table lists several advantages, disadvantages, and special considerations when writing Blanket Coverage. Table: 1.5 Advantages and special considerations Disadvantages and special considerations The Named Insured can apply insurance 90% or 100% coinsurance is required. where needed when more than one type of property is covered on a blanket basis. Blanket Coverage may not be possible because of underwriting or form restrictions. divisions. A statement of values must be obtained from the Named Insured Reporting forms can be easier to handle. listing each item and the amount of coverage. The Named Insured may have 100% insurance to value at each location, Rates are for one year only. but only has to carry a minimum of 90% insurance to value for all locations The Named Insured must have the same causes of loss for all covered combined. property. When there are multiple locations, all ownership interests must be listed. Think About It Can you think of any other advantages and disadvantages to using Blanket Coverage? exhibit, the rate is being multiplied by the 100% value of the buildings, but the rate is lower because the buildings will only be insured at 80% of their value to satisfy coinsurance. Commercial Property | 49  Section 1: Commercial Property Coverage Forms and Endorsements Statement of Values Item Location/ 100% Coverage 80% Rate Premium # Occupancy Value Hardware Store 1 Building $250,000.05 $125 101 Main Personal Property 2 PP $100,000.10 $100 101 Main Auto Parts Store 3 Building $500,000.20 $1,000 103 Sycamore Personal Property 4 PP $250,000.10 $250 103 Sycamore Sum of Premiums = $1,475 = $1,100,000 Blanket Rate = $1,475 divided by $1,100,00 = 13.4 cents per $100 of insurance CP Coverage Parts Declaration Page Quicksand Mutual Insurance Company Eddie’s Hardware and Automotive, Inc. Cause of Premises Bldg. Coverage Limits Coinsurance Loss 1&2 Blanket A $1,100,000 Special 90% 1&2 Blanket B Included Special 90% N/A C N/A -- -- If indicated by “X” the following apply: RC (X) 4% B = Business Personal A = Building C = Personal Property of Others Property 50 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Knowledge Check Directions: Read the scenario and answer the question that follows. throughout the year. The buildings are valued at $500,000 each and his business personal property is valued at $500,00 total. What advantages and disadvantages would Eddie face if he covered these items on a blanket basis? Advantages: _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Disadvantages: _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Commercial Property | 51  Section 1: Commercial Property Coverage Forms and Endorsements Endorsements that Address Changing or Fluctuating Values Learning Objective: 1.7 Limitation On Loss Settlement – Blanket Insurance (Margin Clause) CP 12 32 06 07 This endorsement limits the maximum amount payable for any item to the percentage shown in the Schedule multiplied by the value reported on the last The margin clause percentage options are 105%, 110%, 120%, and 130%. Margin Clause Application How Margin Clause Applies Buildings #1 through #3 are covered under a Blanket Limit of Insurance of $4,500,000. The combined value of these three buildings at the time of loss is $5,000,000. There is a coinsurance requirement of 90% (.90 X $5,000,000 = $4,500,000); therefore, no coinsurance penalty. Margin Clause Percentage 110% Maximum Loss Payable Building #1 ($1,000,000 x 1.10) $1,100,000 Amount of Loss to Building #1 $1,200,000 Deductible $10,000 Amount of loss minus Deductible: $1,200,000 – $10,000 = $1,190,000 $1,190,000 is more than the maximum loss payable Insurer pays $1,100,000 52 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Peak Season CP 12 30 06 95 in business personal property insurance. It may be written for any number of periods within the policy term, but cannot extend beyond the policy term. The additional premium is prorated for the selected periods. shows the additional amount needed during the peak season, not the total limit. The Peak on a blanket basis. CP Exhibit Seasonal Fluctuations in Sales Value at Risk January through December 700 600 500 400 300 200 100 0 Sept. June Jan. Dec. Aug. Feb. Oct. Nov. March April May July Sales (in Thousands) Commercial Property | 53  Section 1: Commercial Property Coverage Forms and Endorsements Value Reporting Form CP 13 10 04 02 personal property values or changing locations. It provides a means to accurately measure changing values of business personal property in order to provide adequate coverage and charge the appropriate premium. Eligible property includes: Business Personal Property of the Named Insured Personal Property of Others Stock only ability to make accurate and timely required periodic reports. Premiums The following excerpt from the endorsement describes how premiums are paid. The premium paid at the policy inception is considered an advance premium. The premium is determined at the end of the policy year based on the average reports of value submitted by the Named Insured. At the end of the policy year, the difference between the advance premium and the either paid by or returned to the Named Insured. Reporting Provisions Table: 1.6 Report Type Provisions New policy the “reporting period,” and the second report is due concurrent Renewal policy Subsequent reports each “reporting period.” 54 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Reports can be based on daily, weekly, monthly, quarterly, or policy year values, with the following stipulations: Daily, weekly, and monthly values must be reported within 30 days of each month in which they fall. Quarterly reports must be reported within 30 days of the last day of the quarter, based on the inception date. Policy year reports are due within 30 days of the end of the policy anniversary date. Correct Reporting Even if the loss amount exceeds the reported amount, the entire provisional Limit of Insurance, which is the limit selected at the beginning of the policy period, is available when the loss follows an accurate report. Sturgess and Son Hardware has a value reporting form with a provisional limit of $1,000,000. Their report for February was received on March 15th showing values of $800,000. On April 26th their books showed the actual values for the month of February were accurate. How much will their policy pay? Answer: $1,000,000 Full Reporting Reports must be accurate. If they are inaccurate, the coinsurance penalty (calculated using the Did/Should formula) will apply. Sturgess and Son Hardware has a value reporting form with a provisional limit of $1,000,000. Their report for March was received on April 17th showing values of $400,000. On April 26th books showed the actual values for the month of March were $800,000. How much will their policy pay? Inventory Reported (DID) x Loss = Recovery (up to the provisional limit Actual Inventory (SHOULD) of insurance) Answer: $100,000 Commercial Property | 55  Section 1: Commercial Property Coverage Forms and Endorsements Reports in Excess of the Limit of Insurance in the event of loss, the policy will not pay more than the Limit of Insurance. Sturgess and Son Hardware’s April report was received on May 24th showing accurate values of $1,200,000. On May 30th destroyed $1,100,000 of inventory. How much will their policy pay? Answer: $1,000,000 Failure to Submit Reports of what it would otherwise have paid. Holly’s Wholesale Hosiery was originally written on a value reporting form with a provisional limit of $800,000 effective January 1st. Holly had never been on a reporting form before, and she completely forgot to assign someone to send in the reports. On April 20th, she had a theft loss of $100,000 of inventory. How will her policy respond? Answer: The policy will only pay $75,000 Subsequent Reports Late pay no more than the values shown on the most accurate recent report for that location. time and accurate. The May report showed values of $300,000. No further th , Holly received a large shipment of goods, and on August 11 th policy pay? Answer: $300,000 Reports must include values of any insurance,” but the policy is excess over values will not be included in premium calculations. 56 | © 2024 RISK & INSURANCE EDUCATION ALLIANCE  Section 1: Commercial Property Coverage Forms and Endorsements Table: 1.7 Value Reporting Penalties Limit of Insurance: $100,000 Policy Period: 1/1/22-1/1/23 Subsequent Reports First Report Late Under-Reported In Excess Report Late Policy pays 75% of Policy pays no more amount that would Policy pays the than last report of Policy limit applies otherwise have been percentage reported values paid Examples No report submitted Last report received July report received September report on 5/15/22 with April on 8/25/22 received on 10/20/22 values of $82,000 Reported values: with values of $50,000 $125,000 Actual values: $100,000 $100,000 loss on $100,000 loss on $40,000 loss on $125,000 loss on 4/20/22 8/10/22 9/5/22 10/27/22 Policy pays $75,000 Policy pays $82,000 Policy pays $20,000 Policy pays ($50K/$100K=50%) $100,000 Knowledge Check Directions: Read the following scenario and consider how the policy would respond. Form with a monthly reporting period on the Business Personal Property (BPP). The insured has a limit of $500,000 on BPP. After four months, the Named Insured, who has never submitted a report, has a $10,000 covered loss to BPP. How much of the covered loss will the Named Insured be able to collect? ______________________________________ Commercial Property | 57