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CPCU 551 Overview
Final Preparation
| Question | Answer |
|---|---|
| Describe 3 of the insured's duties in the event of a loss. | Report the Loss, take precaution to prevent further damage, take inventory of property lost or damaged. |
| Contrast Standard forms and Nonstandard forms and give an advantage of each. | Standard forms are published by agencies such as ISO and have agreed on court tested wording. Nonstandard forms are developed by specific insurers or brokers for exclusive use. Standard is easy to compare quotes. Nonstandard can fit individual insd needs |
| Describe an insured whose needs could be met by a businessowners policy and another whose needs could be met by an output policy. | a flower shop or clothing boutique would be good for the BOP and a Furniture manufacturer who ships products to various states would be good for an Output Policy. |
| List 3 common approved methods of valuation in the BPP | Actual Cash Value, Replacement Cost, Stated (agreed) Value |
| Contrast Common Policy conditions and Common property conditions forms. | Common Policy Conditions apply to all types of insurance, include things like cancellation proceedures. Common Property Conditions are property focused, like what to do after a loss to prevent further damage. |
| List 3 physical protection measures that can deter burglars. | Security guard, locks, Alarm System |
| Identify the three elements required to create and sustain fire: | Heat, Fuel, oxygen |
| Identify four types of personal property that the BPP EXCLUDES | Vehicles, Illegal Substances or items (contriband), Money and Securities (better covered elsewhere), Electronic Data and Valuable papers (better covered elsewhere) |
| Elysian Fields Apartments has a BPP that includes coverage for the building but not any business personal property. | For each of the following, explain if there is coverage or not. |
| A.) A Covered peril damaged the laundry room and the washers and dryers in it | Yes, cleaning equipment is considered part of the building. |
| b.)The tenants clothing that was in the dryer | No, property of others is not covered |
| C.) A tenant had asked for and received permission to install bookshelves in the tenants unit, w/ provision that they would be removed and the walls repainted when the tenant moved. A covered peril damaged the unit and bookshelves | No, since the bookshelves are to be removed. The need to be permanent to be covered. |
| D.) Elysian Fields was getting ready to install a new AC unit. The AC unit was left in a carport in the parking lot overnight and was damged due to a covered peril. | Yes, its still on the property within 100 feet and real property is used to service and maintain. |
| Describe three examples of business that would have a bailee exposure. | Dry Cleaners, Shoe Repairs & car washes because they have temporary possession of personal property of another party for a specific purpose, beneficial to both parties. |
| Animals are usually excluded from BPP Coveragel; under what conditions might animals be covered? | If the animals are owned by the insured but held for sale. Or if in the care, custody and control of the insured but owned by someone else and is the insured's business, like a vet's office. |
| Dennis's Domains is a Game and Hobby shop that has a BPP with a $50k per occurance limit and a $1K Deductible. For each of the following losses, explain what dennis would recover. | Ignore any coinsurance clause. |
| A.) A Covered peril caused $35K worth of damage. | $35k (loss) - $1K (Deductible) = $34k |
| B.) A Covered peril caused $55k worth of damage and also caused paints and solvents worth $5k to spill into the soil around the premises. | $55K (damage) - $1k (deductible) = $50k (loss exceeded policy limit) + $5k for pullution clean up which is a separte limit. The total payout would be $50k for the damage plus the $5k for pullution cleanup = $55k total. |
| C.) a covered peril caused a loss of $30k, including $10k worth of property owned by Dennis's employees that had been left on the premises in preparation for a tournament and show the next day. | *Only $2,500 applies to property of others* $30k - $10k = $20 - $1k (ded) = $19k + $2,500 (prop of others) = $21,500 payout. |
| Identify two types of property that not subject to replacement cost coverage under the BPP | Property of others and Stock. Replacement cost can be endorsed but is not automatically covered. |
| For newly acquired or constructed property, coverage can end at the earliest of three times: | -End of policy term -After 30 days if the insured doesn't notify the insurer. -When the insured reports it to the insurer. |
| U are explaining various property options to a prospective insd. U would write the insd's property coverage on a Cuase of Loss - Special Form basis. The Prospective client says "I have basic coverage and that's cheaper, why should I pay for special form?" | Advise the client that basic coverage is cheaper but it's a stripped down policy and only provides coverage for items specifically named. While the special form costs more, ur much more protected because if covers virtually all risks except those named |
| List Six perils covered by the cause of Loss - Basic Form. | Windstorm Hail Aircraft Riot Vehicles Explosion Smoke |
| Explain why explosion of cooking gas escaped from pipes is covered but explosion of a boiler is not covered under the basic and broad form? | A boiler poses a much higher risk and needs to be underwritten and insured separately (better covered elsewhere). |
| Contrast friendly fire and hostile fire. | A friendly fire is controlled and remains in the controlled area, such as a fire place. A hostile fire is uncontrollable and escapes from the intended area |
| Gert's Gourmet Goodies has insurance under a broad form policy | Explain weather each of these losses would be covered: |
| a.) Gert left a window opened. It rained and the rain blew in and damaged some inventory | Not covered as the rain did not enter through an opening caused by the rain. The insd neglected to close the window and so it was within the insd's control to prevent the loss. |
| b.) A vandal broke in through a window. | Yes - willful or malicious mischief (vandalism) is covered |
| c.) The vandal ate some of the food held for sale | no, vandalism peril does not include coverage for theft. |
| d.) the vandal took some cash from the register and left through the door. | No, again, the vandalism peril does not include coverage for theft. |
| e.) The roof of the storage area collapsed and the cause was determined to be previously unsuspected dry rot in the support beams - Loss $12k | Yes, because it was unsuspected & therefor unknown to the insured. However, dry rot can be considered decay and it is the insured's responsiblity to maintain the building and its integrity and hidden decay is not covered. |
| f.) Gert Didn't know that the property was build over an abandoned mine. The ground caved into the old minesahft and the foundation was damaged. | No, man-made mines are not covered. |
| As a broker, ur prospects inventory coverage has limits of $2m at each of 5 locations, each w/ separate limits w/ inventory moved among each and R not likely to have more than $10M most of the year, they could have $4M at one warehouse. | The insd could have a specific limit of insurance to cover the $2M in inventory maintained at each location and a blanket coverage amount to reduce paper work required for value reporting form but still provide adequate coverage. |
| If a prospects sales peak in late Nov and Dec, inventory values may be up to $15M for Oct - Dec and then dramatically drop in Jan and stay low the rest of the year. Inventory limits are $2M at each of 5 locations, insd separately. | Explain to the prospect the benefits of adding the peak season endorsement to the policy. |
| If the propect has frozen foods stored and is worried about the possiblity of power failure or other problems that could cause foods to thaw and be unsellable - they currently have Utility Services Endorsement | Suggest adding the Spoilage coverage endorsement to the policy as the coverage is broader than the Utility Svcs endorsement because it includes mechanical breakdown/failure at the insd location. |
| Explain how the Functional Building Valuation endorsement might benefit an insured whose business is located in a 100-year-old office building. | If there is a total loss, this endorsement will enable the insured to rebuild using different (less expensive) building materials, such as drywall as opposed to plaster, to acheive the same look and quality for less $$. |
| Give one advantage and one disadvantage from the insured's standpoint of blanket insurance. | An advantage would be the convenience of one policy to cover multiple locations - its easier to track and maintain and can also be more cost effective. A disadvantage would be the insd may have to buy more insurance to meet the coinsurance clause of 90% |
| Condominium Association agreements usually select 1 of 3 approaches to insuring property. One approach is the single entity concept, what are the other 2? | The 2nd approach would be the Bare walls concept which means the unit owner is responsible for everything from the drywall in. The 3rd is the All in concept which covers additional installations or upgrades like flooring. |
| Explain an advantage and a disadvantage of using the Legal Liability Coverage Form to cover your interest in the property of others rather than relying on the Personal Property of Others in the BPP? | An advantage is the form tends to be less expensive. A disadvantage is the BPP is broader cov and is regardless if the insured is found to be legally liable and so is better protection depending on the circumstances. |
| Describe two examples of properties that might be insured under a Standard Property Policy rather than a BPP | 1 - An old building w/ no updates, fuse box, wood shingles, etc. 2 - a building used for storage & located in a high crime area. |
| Identify two provisions included in the Condominium Additional Provisions Endorsement | 1-Acts or Omission - the owner can still seek recovery of a loss regardless of an act or omission unless on behalf of the Assoc. 2-Notice of cancellation or Nonrenewal - the insurer will give at least 30 days notice to the first named insd. |
| Explain why a Condominium Commercial Unit Owners Coverage includes only business personal property and personal property of others. | This policy is targeted towards business personal property and personal property of others because the building itself is usually covered elsewhere, leaving only a need for Personal Properties. |
| Explain why insd's may prefer to cover Flood w/ ISO flood endorsement added to the BPP instead of purchasing NFIP flood coverage, and why insurers prefer to write ISO as excess of NFIP? | With the ISO added to the BPP there is less limitation and more coverage's such as: Business income or extra expense (which are generally excluded from NFIP). ISO as excess provides higher limits and the NFIP acts as a substantial deductible under the ISO |
| What does an insured need to know about the waiting period for flood coverage, both on the GFP and on the ISO flood endorsement? | There is a 72 hour waiting period |
| Contrast the deductibles on the commercial forms 1040, EQ and Volcanic eruption Endorsement and 1045, EQ and Volcanic Eruption(sub-limit form) | Both forms have a deductible that is a % of the coverage form its attached to. Form 1040 is a % of the Limit of insurance. Form 1045 is a % of the Value. |
| Give two advantages for the insured using a DIC policy to cover exposures such as Flood and EQ. | The DIC policy is designed to fill in gaps in coverage so it is meant to be an advantage by providing broader coverage and the forms are easier to modify to meet the insureds needs because DIC forms and non-filed in many states. |
| Give two disadvantages for the insured using a DIC policy to cover exposures such as Flood and EQ. | Some of the Disadvantages of the DIC policy are that it's typically a limited market available and out of the limited options, ther are generally non-admitted carriers and take longer to negotiate and prepare due to the non-standard forms. |
| Compare rating an output policy to rating a BPP | a BPP policy is manually rated based on wether or not the risk qualifies and then based on the actual manual risk factors, an underwriter determins the rate. an Output policy is based on the judgement of the underwriter and their personal assesment. |
| Explain the advantages of using a layered program to write a property program for a large company | Adequate and flexible limits as there is no conisurance. Pricing - cost is low for excess layers because losses dont often reach them. Availability - its easier to obtain Flood and EQ in layered programs. |
| Identify three time factors of a business income loss | 1)When the loss occurs. If its during a peak season then it greatly effects the amount. 2) How long the Business income is being reduced. 3) how long it will take to repair the damage. |
| Explain why the income worksheet is prepared using the previous 12 months information but the figures are adjusted to show exposure for the upcoming 12 months of policy inception | The figures are pulled from the past because that's how they can calculate the estimations for the future 12 months. The future is what you are trying to protect, not the past so calculations need to be accurate. |
| Explain why EML for business income must take peak periods into account rather than being a flat percentage of the years income depending on the length of the estimated max period of closure. | Peak periods must be accounted for due to the fluctuation in revenue. If loss occurs in the off season the EML would be much less than if a loss occured during Peak. |
| Contrast continuing and Non-continuing expenses | Continuing expenses have to be paid even though business is closed. Non-continuing expenses cease during the period of loss. |
| List three of the expenses excluded from the coinsurance calculations | -Returns and allowances -Discounts -Bad Debts |
| Describe two of the special exclusions included in the business income and extra expense coverage form, including endorsements that might be used to buy back coverage. | Two special exclusions are Finished stock and Antennas. Both can be bought back with endorsements. Finished stock with the Manufacturers Selling Price end on a valuation basis and Antennas by adding the Radio or TV Antennas end. |
| Common Carriers are liable to owners of goods shipped except in certain specific circumstances. Identify three exceptions to common carrier liability: | -Acts of God -Inherent Vice -Acts of Public Enemy |
| Contrast scheduled and blanket contractors' equipment floaters and give an example of one contractor that would schedule equipment and another that would use Blanket. | An independant contractor would be more likely to use a scheduled floater as everything used wld need to be specifed. A large corp wld do better w/ blanket as it wld be more difficult to account for a higher # of inventory and may have multiple job sites |
| Megan is a professional Cellist who plays in various countries and brings her cello w/ her. What type of policy could cover Megans cello at her home, in transit and at the various sites she plays? | An Equipment Floater as it is specifically for exposure of equipment used away from the insured's premises and does not remain at a fixed location. |
| Identify three types of dealers eligible for inland marine dealer policies. | -Jewelers, Fine arts dealers, musical instrument dealers |
| Explain what the Nationwide Marine Definition does and why it exists. | It specifies the different types of property that can be insured on Inland and Ocean Marine Ins forms and was introduced to help resolve disputes between fire Underwriters and Marine underwriters in regards to competitiveness. Fire is more strict. |
| Compare Theft and Robbery | Theft is a mysterious or unexplained disappearance or unlawful taking of property. Robbery is taking of propery from a person by force or with someone bearing physical witness of the act. |
| Identify three types of items that would be included in the definition of "Money" as defined in the commercial crime policy. | "Money" is currency and bank notes in current use. Three current types are: coins, travelers checks and Money orders held for sale to the public. |
| Define "custodian" as used in a crime policy. | A "Custodian" means you, or any partners or memebers or any employee while having care and custody of property while inside the premises, excluding a watch person or janitor. |
| List two extensions to the "inside the premises - Robberty or Safe Burglary of other property" insuring agreement | The first extension covers damage to the premises or their exterior resulting from actual or attempted robbery. The second extension covers loss of or damage to a locked safe or vault located inside the premises resulting from actual or attempted robbery |
| Explain why an insured might want to have Employee Theft - Name of Position Schedule rather than a blanket employee theft policy. | Because the name or position schedule allows them to insure against only specific names or positions. Good for a small company with low turn over ratios so employees are easily tracked. |
| Contrast fired pressure vessels and unfired pressure vessels. | Fired pressure vessels are heated by direct fire of burning fuel while an unfired pressure vessel is heat generated by a chemical action or by a heating medium such as steam |
| Explain the reasoning behind the "joint and disputed loss" provision in equipment breakdown insurance. | Equipment breakdown insurers and commercial property insurers were disagreeing on which insurer was to cover a loss. Disputes would cause delays in the insd being indemnified so now the insd is indemnified first and the insurers then dispute and resolve |
| Identify three means of determining deductibles for equipment breakdown insurance. | A dollar deductible is the $$ amount selected and shown in the Dec. Time Deductibles are often used for time element coverages such as Business income. And Equipment breakdown deductible can be expressed as a specified % of loss - common w/ spoilage Cov |
| Three advantages of having an Equipment Breakdown policy to cover computer equipment rather than a BPP | 1) BPP is limited to a specified amount and named perils. 2)Equipment Breakdown covers accidental breakdown of equipment normally excluded in the BPP. 3) BPP excludes damage caused by artificially generated electrical current |
| Why is Business Owners Policy (BOP) perferable to a commercial package policy for small and medium size business owners? | The BOP generally offers lower premiums and broader coverage. The convenience of one policy that meets most of their property and liability needs. |
| Three types of businesses that are NOT eligible for a BOP | Automobile related business, Bars and Financial institutions. |
| Identify three of the four optional coverages provided under the BCF | Employee Dishonesty, Mechanical Breakdown, and Money and Securities |
| An example of how a business that does not own or rent vehicles might have a nonowned automobile liablity loss | A Business has an employee run to Staples to get more copy paper, they employee takes their own car. However since its a business errand on company time, the company would be held liable if the employee were involved in an accident on their way to or from |
| Three types of property no covered by the BCF | 1)Aircraft, automobiles and other vehicles. 2) Contraband, or property in the course of illegal transportation. 3) Land, water, growing crops or lawns. |
| Contrast Mortgage impairment insurance and Mortgage guarantee insurance | Mortgage impairment insurance is if there is an error or omission on behalf of the lender and Mortgage Guarantee protects the mortgage if the borrower defaults |
| Explain why the ISO has developed a Market Segment Program for Certain classes of business and list two types of businesses that might use forms available in this program | the ISO developed the program to expand commercial prop and GL coverages to meet the insurance needs -1 or more endorsement for each business type. Apartments and Florists are two examples of businesses. |
| Contrast animal Mortality Insurance feedlot insurance. | Animal Mortality is basically term life insurance on animals and used to cover farm animals such as cattle and valuable horses. Feedlot insurance provides cov for animals in the custody of a commercial feedlot operator and is limted to named perils. |
| What is covered under Coverages E and F, the farm personal property coverages of the farm insurance policy? | Cov E: Scheduled Farm personal property (has no coinsurance), lists classes of equipment and covers the limits shown in the Dec. Cov F: Unscheduled farm proper under a single limit unless otherwise excluded (has coinsurance limit) |
| Describe the two classes of court bonds | Judicial Bonds-posted by a plaintiff/defendant(the principal) in court to protect the party if the principal doesn't win in the court. Fiduciary Bonds hold the principals and the sureties jointly liable to obligees for faithful performance |
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Lmartin7
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