Commercial Property Conditions
- Concealment, Misrepresentation, Fraud
- Control of property (If loss happens, but insured can't do anything because its not his property, ex: installing a security camera in a rented apartment)
- Insurance under 2 or more coverages (only one policy triggers)
- Legal action against us (2 years to bring up lawsuit in a breach of contract)
- Liberalization (insurer can change policy if it broadens language and benefits insured)
- Transfer of rights or recovery against others (subrogation)
- No benefit to bailee (bailee's insurance coverage triggers, not bailor)
- Other insurance (can't produce betterment, only one policy applies)
- Policy period, coverage territory (US, Canada)
Specific Limits
Each loss category has a specific limit that the insurer will pay a max amount for
Blanket Limits
One blanket amount for the entire policy. No matter how many different losses occur, the insurer will only pay up to a certain max amount
Loss payment options for the insurer
Option always belongs to insurer
1. Pay the full amount of loss or damage
2. Pay the amount to repair or replace (burden to insured to fix)
3. Take over all or any part of the property and pay its agreed or appraised value
4. Repair, rebuild, or replace the damaged property with other property of like kind and quality (more exposure of risk to insurer)
Valuation
1. Actual cash value (market price - depreciation)
2. Replacement costs (replacement without depreciation, causes moral hazard)
3. Agreed value
Coinsurance
An insurance-to-value provision in many property insurance policies providing that if the property is underinsured, the amount that an insurer will pay for a covered loss is reduced.
Rate
- Property insurance is priced per $100 of coverage
ex: Property rate of $0.35 per $100, $100,00 of coverage
(0.35/100) * 100,000 = $350
Business Income Loss Exposures ("Time Element Coverage")
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Continuing Expenses
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Extra Expenses
Expenses in addition to normal expenses that occur to mitigate the effects of business interruption
- Over-time labor
- Renting a temporary workspace
- Rental of substitute equipment
Contingent Business Interruption
Direct loss happens to someone else, yet causes you an indirect loss
Ex: Business may close due to off-premise damage at a property that provides electricity OR closing of a road that blocks entrance to your business
4 Optional BIC coverages
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Requirements for a loss
1. Direct damage to property caused by a covered loss (can be indirect damage if coverage allows, road closed down, etc)
2. Occurred at described premises
3. Suspension of operations and or incurring extra expense
4. PROVEN financial loss (income statements, TAXES)
BIC Insuring Agreement
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Three options for BIC coverage
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Period of restoration
- Begins 72 hours after damage occurs
- No waiting period for extra expense
- Ends when property should reasonably be restored or repaired
- Ends when business resumed at a new permanent location
- 72 hour waiting period considered deductible
BIC additional coverages
- Civil authority (if reason is because of a covered loss)
- Alterations and new buildings (payment for income lost between when a building should have opened and when it actually did)
- Extended business income (gives time for business to return to normal, 60 days)
- Interruption of computer operations ($2,500 payment when the suspension of business is this reason)
Loss determination for business interruption
1. Net income (before loss occurred)
2. Probable net income (if no loss occurred)
3. Operating expenses that must continue during period of restoration
4. Other relevant sources of information (tax info)
5. Not the unusually good earnings that were atypical
Coinsurance for BIC
Coinsurance = (Amount of insurance carried/ Amount of insurance required) * Loss Amount
Canons
Direct all CPCUs and CPCU candidates to always perform their professional activities ethically
What is the purpose of the Code of Professional Conduct?
To clearly communicate the minimum standard of conduct expected for CPCU and CPCU candidates
Parties affected by the Code
Applies to applicants who are awaiting to become future CPCUs and current CPCUs
5 sanctions the Board of Ethical Inquiry may impose
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Canon 1
Insurance professionals should endeavor to place the public interest above their own
Canon 2
Insurance professionals should seek continually to maintain and improve their professional knowledge, skills, and competence.
Need to keep up with new risks, technology, regulations because you are going to be asked these questions.
Canon 3
Insurance professionals should obey all laws and regulations, and should avoid any conduct or activity that would cause unjust harm to others.
Good faith in the conduct of business. It is your responsibility to know the law.
Canon 4
Insurance professionals should be diligent in the performance of their occupational duties and should continually strive to improve the functioning of the insurance mechanism.
Support efforts to effect improvements in all aspects of insurance operations
Canon 5
Insurance professionals should aspire to raise the professional and ethical standards of the insurance and risk management profession.
Encourage and assist others to enhance their professional competence. Do not withhold information or assistance officially requested by regulatory authorities.
Canon 6
Insurance professionals should strive to establish and maintain dignified and honorable relationships with those whom they serve, with fellow insurance professionals, and with members of other professions.
When you don't know the answer to something, seek counsel of other professionals to get the right answer.
Canon 7
Insurance professionals should assist in improving the public understanding of insurance and risk management.
Support efforts to provide members of the public with objective information concerning their risk management and insurance needs.
Canon 8
CPCUs should honor the integrity of the CPCU designation and respect the limitations placed on its use.
Can't show off the designation like a toy, license plate, etc
Canon 9
CPCUs should assist in maintaining the integrity of the CPCU Code of Professional Conduct
Ethics
A set of principles that govern how you act, branch of knowledge that deals with moral principles
Why is it good to be ethical in insurance?
Insurance is a small world and word spreads quickly
An insurance professional resolves an ethical problem by
CPCU Professional Code of Conduct, laws, qualification standards, standards of practice, company standards, peers, common sense, etc
Statute
Broad goal that is passed and regulations to enforce.
Regulators have to effectively apply these statutes, using details
Dealing with conflicts of interest
Disclosure:
1) Affected party decides if the conflict is acceptable (ex: employer in a claim)
2) Impact is reduced - likelihood of unethical conduct is reduced
3) Affected party could factor the conflict into their decision making
4) Disclosing your own reduces suspicion
Consequences of Ethical Breach
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Resolving the ethical dilemma, consider:
1) Situation - What is the issue
2) Rules - Help with deciding (Sometimes laws can be unethical)
3) People - How are they affected (People may cloud your judgement)
4) Decision - What you should do
Unfair Claims Practices Act
Claims supposed to be handled in "X" days, varying by state and jurisdiction
1st Party Bad Faith
Refusal to pay a claim without a reasonable basis even if insurer has a reasonable basis for denial, failing to properly investigate the claim in a timely manner. Policyholder.
3rd Party Bad Faith
Failure to defend or indemnify or settle claim within policy limits without a reasonable basis, or failing to properly and timely investigate or defend the claim (ex: Madrigal vs Allstate) Stranger to the Policy.
2nd Party?
The insurer
The failure to _ _ _ _ _ _ is broader than the duty to _ _ _ _ _ _ _ _.
The failure to defend is broader than the duty to indemnify
Madrigal vs Allstate
- Madrigal and Tang sued Allstate together
- $14 million for bad faith, insufficient funds for injury and not carefully evaluating settlement
- Madrigal had no insurance
- Madrigal paralyzed from incident
- Allstate offered way too little money to pay for medical bills for a life-long injury
- 1st lawsuit: Madrigal vs Tang
- 2nd lawsuit: Madrigal vs Allstate
Fundamentals of Contracts (5 parts)
1. Required contractural elements
2. Requirements of an offer
3. Requirements of acceptance
4. Circumstances which may render a contract enforceable
5. Different types of contracts
1. Required Contractural Elements
1. Agreement (Offer + Acceptance)
2. Capacity to contract
3. Consideration
4. For a legal purpose
Offeror and Offeree
Offeror - Person who makes the offer
Offeree - Person to whom the offer is made
3 things to make an offer valid
1. Intent to enter a contract
2. Definite terms
3. Communication to the offeree
3 requirements of a valid acceptance
1. Acceptance must be made by the offeree
2. Acceptance must be unconditional and unequivocal
3. Offeree must communicate the acceptance by appropriate word or act (handshake, signature, etc)
Who have the incapacity to contract?
Minors, insane people, intoxicated, artificial entities (need a legal person to sue, not a company, in case it is improperly formed)
Consideration
Something of value given by both parties to a contract that induces them to enter the agreement
Legal Purpose
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Statute of Frauds
Law to prevent fraud and perjury by requiring that certain contracts be in writing and signed
What are the 6 types of contracts that need to be in writing?
1) Sale of real estate
2) Goods worth over $500
3) Marriage - contract in consideration of marriage (pre-nup)
4) Performed over a year/ can't be performed in under a year
5) Paying someone else's debt
6) If executor of state and you agree to pay the decedent's debt
Parol Evidence Rule
Rule states that when the parties have a written contract, other written or oral agreements, conversations and negotiations that were made prior to or simultaneous with the writing are inadmissible for the purpose of changing the terms of the original agreement.
Can't add anything to a contract after it is already signed. They can only explain the contract.
4 essential elements of all insurance contracts
1) Agreements
2) Capacity
3) Consideration
4) Legal Purpose
Insurance Contract Characteristics (6)
1. Conditional
2. Involves fortuitous events and the exchange of unequal amounts
3. Contract of utmost good faith
4. Contract of adhesion
5. Contract of indemnity
6. Non-transferable contract
Conditional
A contract that one or more parties must perform under certain conditions (ex- in a covered loss, the insurer must perform action)
What does the insured perform?
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Conditions in an insurance policy
notice of a lawsuit (early so you can defend), cooperation with claims investigation, cooperation in defense of lawsuit, appear for examinations under oath, submit to medical examinations, sign proof of loss, make a police report, prevent further damage to property
2. Fortuitous Events/ Unequal Events
- Insurance contract provides payment in the event of a "sudden or accidental" loss
- If no loss, amount insured has paid in premium is more than what insurer paid
If there is a loss, amount insured has paid in premium is less than what the insurer paid
3. Utmost Good Faith
- Insurance contract requires good faith and complete honesty on both sides
"Material" is when there is information by the insurer/insured that is untrue that the underwriter would have changed their mind about writing the policy or insurer pays back the premium
4. Contract of Adhesion
- Any contract where one party must either accept the agreement as written by the other party or reject
Ex: Only the insurer/agent can draft the contract, the potential policyholder can only accept or deny, they can't counteroffer
5. Contract of Indemnity
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Betterment
Someone is better than they originally were after loss, not indemnity
6. Non-transferable Contract
- The insured cannot freely transfer or assign the policy to some other party
- Ex: Auto Policy - Based on individual's characteristics, so the risk is not the same
DICE
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Reasons for Exclusions
1. Eliminate coverage for uninsurable losses
2. Manage moral/morale hazard
3. Reduce duplicate coverage
4. Eliminate coverage that typical insured wouldn't need
5. Keep premium reasonable
Fixtures
Anything with the intention of being permanent in the house.
Ex: Expensive machinery, flag pole, fences
Commercial Property Declaractions
1. Description of property
2. Kinds and amounts of coverage
3. List of mortgagees
4. Amounts of deductible
5. List of property coverages, forms, endorsements
6. The applicable coinsurance percentages (insurance to value premium)
7. Any optional coverages
8. Named insureds
BPP can cover what 3 broad categories of property?
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BPP Additional Coverages
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Debris removal
Could cover debris removal of non-covered property (ex: your neighbor's house blows on your land)
Preservation of property
All risk coverage for property moved to another location - also includes while in transit
Fire Department Service Charge
Covers up to $1,000 and no deductible
Pollution clean up
Limited coverage for clean up of pollutants, up to 10,000 aggregate.
Pollution are long-tail claims, hard to predict, and the definition is very broad.
CERCLA
Comprehensive Environmental Response, Compensation, and Liability Act
- Superfund for pollution disasters to respond fast
Increased Cost of Construction
- If replacement cost is selected
- Not allowed to just replaced based on ordinances regulating the repair
- Small amount of coverage, $10,000 or 5% of policy, whichever is less
Electronic Data
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Basic Form Perils Covered
1. Fire (fire +hostile fire)
2. Lightning (naturally occurring)
3. Explosion
4. Windstorm/ hail
5. Smoke (Sudden + Accidental)
6. Aircraft or vehicles (Not belonging to insured)
7. Riot or civil commotion (3 or more people)
8. Vandalism
9. Sprinkler Leakage
10. Sinkholes (Damage to building, not cost to fix land)
11. Volcanic eruptions
Broad Form
Basic form plus
1. Falling objects (no coverage for personal property outside)
2. Weight of snow, ice, and sleet (no coverage for vegetation on roof)
3. Water damage (from leakage of water or steam from damage from heating, AC, or other system appliance inside building, water coming from INSIDE the building)
Basic and Broad Form Exclusions
1. Ordinance or Law
2. Earth Movement (unless it causes fire or explosion)
3. Government Action
4. Nuclear Hazard (except nuclear fire)
5. Utility Services (If it happens away from premises)
6. War and Military Action
7. Water (If a named peril or comes from inside the house it is covered, if from the outsides not covered)
8. Fungus, Wet Rot, Dry Rot, and Bacteria
9. Mechanical breakdown
10. Loss from neglect to preserve property
Special Form (almost an "all risk" policy)
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Burden of proof to Basic, Broad, and Special Forms?
Basic - Insured
Broad - Insured
Special - Insurer
Additional Exclusions in Special Forms
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Loss conditions of BPP form
- Abandonment (can't abandon damaged property)
- Appraisal conditions (Establish value for property or amount of loss)
-Reasonable steps to prevent further loss
- Submit to examination under oath
- Sign sworn proof of loss
- Vacancy (can't be vacant for more than 60 days)
Vacancy
Excluded if vacant for more than 60 days
Losses caused by these events are excluded if vacant for more than 60 days
- Vandalism
- Sprinkler leakage (unless freezer protected)
- Broken glass
- Water damage
- Theft
- Other perils - loss reduced by 15%