1. Chapter 13 Commercial Property Insurance

2. Agenda Commercial Package Policy
Building and Personal Property Coverage Form
Causes-of-Loss Forms
Reporting Forms
Business Income Insurance
Other Commercial Property Coverages
Transportation Insurance
Businessowners Policy (BOP)

3. Commercial Package Policy
Business firms can purchase a commercial package policy (CPP)
A package policy is one that combines two or more coverages into a single policy
A multiple-line policy combines coverages for property and liability into a single policy
A monoline policy contains only one type of coverage
Advantages include: fewer gaps in coverage, lower premiums, and convenience
The CPP is tailored to cover most property and liability loss exposures

4. Components of Commercial Package Policy( CPP)
Under the ISO program, each commercial package policy contains:
1- A common policy declarations page
2- A common policy conditions page
3- One or more coverage forms
The two or more coverage parts are selected from these coverages: Commercial property coverage, commercial general liability coverage, commercial crime coverage, equipment breakdown coverage, inland marine coverage, commercial auto coverage, and farm coverage. (Exhibit 13.1 shows various parts of a commercial package policy)

5. Exhibit 13.1 Components of a Sample Commercial Package Policy (CPP) (Endorsements omitted)

6. Common Policy Conditions
Common policy conditions that apply to all lines of insurance include:
1- Cancellation rights for each party
2- Changes. A provision stating that the only permissible changes are endorsements
3- Examination of books and records. The insurer as the right to audit the insured’s books at any time during the policy period and up to three years after coverage expires.
4- Inspections and surveys. The insurer has the right to make inspections and surveys that relate to insurability and premiums charged.
5-The first named insured in the declarations is responsible for premium payments.
5-Transfer of rights and duties. The insured’s rights and duties under the policy can’t be transferred to another party without the consent of the insurer.

7. Building and Personal Property Coverage Form
The building and personal property (BPP) coverage form is a commercial property coverage part that is widely used to cover a direct physical damage loss to commercial buildings and personal property

8. Covered Property
The insured can select the property to be covered.
-Buildings
-Named insured’s business personal property
-Personal property of others in the care, custody, or
control of the named insured
1-Building
The building that is described in the declarations includes any completed additions, fixtures and permanently installed machinery and equipment.
Equipment used to maintain or service the building (fire-extinguishing equipment, appliances for cooking and dishwashing, floor buffers, and vacuum cleaners) is covered.

9. 2-Named insured’s business personal property
Business personal property of the named insured inside or on the building or within 100 feet of the premises is covered.
All personal property owned by the insured and used in the insured's business includes furniture and fixtures; computer systems, machinery and equipment; stock or inventory; and other properties.
The insured’s use interest in improvements and betterments as a tenant is also covered as business personal property.
Example: fixtures, alterations, installations, or additions that are made part of the building at the insured’s expense,e.g., installation of a new air conditioning.

10. Coverage includes the insured’s use interest in improvements and betterments as a tenant
Example: fixtures, alterations, installations, or additions that are made part of the building at the insured’s expense.
3-Personal property of others . Personal property of others in the care, custody,
or control of the named insured is also covered
Example: A tornado destroys a machinery repair shop ,and the equipment belongs to customers is damaged. The loss is covered.

11. Causes-of-Loss Forms
A causes-of-loss form must be added to the policy to have a complete contract
The form specifies the covered perils for the business and personal property coverage
The causes-of-loss basic form provides coverage for 11 basic causes of loss:
Fire
Lightning
Explosion
Windstorm or hail
Smoke
Aircraft or vehicles
Vandalism
Riot or civil commotion
Sprinkler leakage
Sinkhole collapse
Volcanic action

12. Causes-of-Loss Forms
The causes-of-loss broad form includes all causes of loss covered by the basic form plus:
Falling objects
Weight of snow, ice, or sleet
Water damage
Also, collapse is covered for certain causes, such as hidden decay
The causes-of-loss special form insures against “risks of direct physical loss” unless specifically excluded

13. Reporting Forms
A reporting form requires the insured to report periodically the value of insured business personal property
The value reporting form is used to insure fluctuations in business personal property
Premiums are based on the actual value of the covered property
If the insured underreports the property values at a location, and a loss occurs at that location, recovery is limited to the proportion that the last value reported bears to the correct value that should have been reported.
Example: If the actual value of business personal property on hand, including inventory, is $500,000 , and the insured reports only $400,000, only four-fifth of any loss will be paid( less deductible).

14. A peak season endorsement increases the amount of insurance in force during a specified period to reflect higher inventory values.

15. Business Income Insurance
Business income insurance covers indirect(consequential) losses that occur as a
result of direct physical damage to covered property.
Business income insurance is designed to cover the loss of business income, expenses that continue during the shutdown period, and extra expenses because of loss from a covered peril
The business income (and extra expense) form covers the loss of business income due to suspension of operations
Business income is defined as the net profit or loss before income taxes that would have been earned, and continuing normal operating expenses, including payroll

16. Business Income Insurance
The extra expense coverage form is a separate form that can be used to cover the extra expenses incurred by the firm in continuing operations during a period of restoration
Can be used by firms that must continue to operate after a loss occurs, such as a newspaper
The form does not cover loss of business income
Expenses to continue operations are covered, subject to certain limits

17. Other Commercial Property Coverages
Some firms have certain needs that require more specialized property coverage
The builders risk coverage form can be used to insure buildings under construction
Covers the insurable interest of a general contractor, subcontractor, or building owner
Insurance is purchased equal to the full value of the completed building
A builders risk reporting form can be attached as an endorsement which requires the builder to report monthly the value of the building under construction.

18. Other Commercial Property Coverages
A condominium association coverage form covers commercial and residential condominiums
Coverage includes the association’s personal property, such as exercise room equipment
Coverage also includes personal property in the association’s care, such as leased lawn mowers
Businesses that own units in a condominium building can purchase a condominium commercial unit-owners coverage form
Not used for residential condominium units
The form covers the business property of the unit owner, such as furniture, fixtures and improvements, machinery and equipment

19. Other Commercial Property Coverages
Equipment breakdown insurance covers losses due to the accidental breakdown of covered equipment, such as steam boilers, refrigeration equipment, and computer equipment
These losses are not covered under the causes- of-loss forms
A breakdown is a direct physical loss that causes damage to covered equipment
Covered equipment includes the boiler, machinery, electrical, mechanical, communication and computer equipment insured under the policy

20. Other Commercial Property Coverages
The current ISO form for equipment breakdown insurance may include, for example:
Property damage
Expediting expenses
Business income and extra expense-extra expense only
Spoilage damage
Utility interruption
Errors and omissions
Brands and labels

21. Other Commercial Property Coverages
Difference in Conditions (DIC) insurance is an “all-risks” policy that covers other perils not insured by basic property insurance contracts
The coverage fills gaps in commercial property coverage
The coverage can be used to insure unusual and catastrophic exposures that are not covered by the underlying contracts
A substantial deductible must be satisfied for losses not covered by the underlying contracts
Many multinational corporations(MNCs) use a DIC policy to insurer their overseas properties.

22. Transportation Insurance
Ocean marine insurance provides protection for goods transported over water
Ocean marine insurance comes in several different forms:
Hull insurance covers physical damage to the ship or vessel
A collision liability clause (running down clause) covers the owner’s legal liability if the ship collides with another vessel or damages its cargo
Cargo insurance covers the shipper of the goods if the goods are damaged or lost
Regular shipments can be covered with an open-cargo policy

23. Transportation Insurance
Protection and indemnity (P&I) insurance is usually written as a separate contract that provides comprehensive liability insurance for property damage or bodily injury to third parties
Freight insurance indemnifies the ship owner for the loss of earnings if the goods are damaged or lost and are not delivered

24. Transportation Insurance
Ocean marine insurance is based on certain fundamental concepts, or implied warranties:
The owner implicitly warrants that the vessel is seaworthy
The ship can only deviate from its original course to avoid an accident, or to save the life of an individual on board, or rescue persons from another vessel
The purpose of the voyage is legal
The ocean marine policy provides broad coverage for perils of the sea, such as bad weather, high waves, collision, sinking, and stranding

25. Transportation Insurance
A particular average is a loss that falls entirely on a particular interest
Under the free-of-particular average (FPA) clause, partial losses are not covered unless the loss is caused by certain perils, such as stranding or sinking
A general average is a loss that falls on all parties to the voyage, incurred for the common good
Each party must pay its share of the loss based on the proportion that its interest bears to the total value in the venture
Conditions for a general average loss include imminent peril, voluntary sacrifice, preservation of at least part of the value

26. Transportation Insurance
Inland marine insurance provides protection for goods shipped on land
The coverage grew out of ocean marine insurance
Conflicts between fire and marine insurers were resolved with a nationwide marine definition in 1933, to define the types of property that marine insurers could write
The current definition includes imports, exports, domestic shipments, means of transportation and communication, personal property floater risks, and commercial property floater risks

27. Transportation Insurance
Commercial property that can be insured by inland marine contracts include:
Losses to domestic goods in transit
Property held by a bailee, such as dry cleaner
Mobile equipment, such as a tractor
Property of certain dealers, such as jewelers and dealers in fine art
Means of transportation and communication, which is property at a fixed location that is used in transportation or communications, such as a bridge or television tower

28. Transportation Insurance
Inland marine contracts are classified as either filed or nonfiled forms
Filed forms are filed with the state insurance department, and are typically used in situations where there are a large number of potential insureds
Forms under the ISO simplified commercial inland marine program include, for example:
Accounts receivable coverage
Camera and musical instrument dealers coverage
Film coverage form

29. Transportation Insurance
Nonfiled inland marine forms are used to meet specialized needs
An annual transit policy can be used to cover the shipment of goods on public trucks, railroads, and coastal vessels
A trip transit policy is used by firms to cover a single shipment
A business floater covers property that frequently moves from one location to another, such as contractors equipment and garments in the process of manufacturing

30. Businessowners Policy
A businessowners policy (BOP) is a package policy specifically designed for small- to medium-sized retail stores, office buildings, apartment buildings, and similar firms
The ISO BOP provides both property and liability coverage in one policy
Businesses are ineligible if their loss exposures are outside those contemplated for the average small- to medium-sized firm
Coverage includes buildings described in the declarations, fixtures, permanently installed machinery and equipment

31. Businessowners Policy
Property losses are covered on an “all-risks” basis
Business personal property, including property in the insured’s care, is also covered
A peak season provision provides for a temporary increase of 25% of the amount of insurance when inventory values are at their peak
Some addition coverages include debris removal, collapse, and interruption of computer operations
A standard deductible of $500 per occurrence applies to all property coverages

32. Businessowners Policy
For an additional cost, businessowners can also cover:
Outdoor signs
Money and securities
Employee dishonesty
Mechanical breakdown
The BOP also includes business liability coverage similar to the commercial general liability policy (CGL)
The businessowner is insured for bodily injury and property damage liability, and advertising and personal injury liabilit