CPCU 551: Chapter 2

  1. What coverage parts are required in a commercial package policy under ISO's Commercial Lines Manual (CLM) rules?
    One of the coverage parts of a commercial package policy must cover buildings and/or business personal property, and another coverage commercial general liability.
  2. What components are included in each coverage part of a commercial package policy?
    • Each coverage part of a commercial package policy includes these components:
    • a. One or more declarations forms
    • b. One or more coverage forms
    • c. A general conditions form (for some lines of insurance)
    • d. Any applicable endorsements
  3. What coverages are typically provided in business owners policies?
    Businessowners policies typically provide building and business personal propertry coverage, business income and extra expense coverage, and the equivalent of commercial general laibilty coverage.
  4. How does an output policy differ from a commercial property policy?
    An output policy combines all or most of an organization's commercial coverages in one policy form and associated endorsements; in a CPP, each coverage is provided by a seperate coverage part or coverage form. In addition, outpt policies often provide property coverage enhancements not contained in the standard forms used in CPPs.
  5. Describe how a policy may be cancelled by an insured according to the Commom Policy Conditions.
    According to the Common Policy Conditions, an insurer can cancel a policy by mailing or delivering written notice of cancellation to the first named insured at least ten days before the cancellation date if cancellation is for nonpayment of premium, or thirty days for any other reason. The insured may cancel a policy anytime by mailing or delivering written notice of cancellation.
  6. According to the Commercial Policy Conditions, over what time period is the insurer permitted to examine and audit the insured's books and records related to the policy?
    According to the Common Policy Conditions, the insurer is permitted to examine and audit the insured's book and records at any time during the policy period and for up to three years after the policy's termination.
  7. According to the Common Policy Conditions, under what circumsances can the insured transfer rights or duties under a policy?
    The insured must have the insurer's written consent to transfer rights or duties under a policy. However, if an individual named insured dies, the coverage automatically transfers to the insured's legal representative or the person having proper temporary custody of the insured property.
  8. Summarize the importatnt exception to the No Benefit to Bailee condition.
    The No Benefit to Bailee condition does not void coverage if the named insured is a bailee of property that sustains damage.
  9. According to the Common Policy Conditions, how is the amount payable under a CPP determined if another applicable policy covers the same loss on the same terms and conditions as the CPP?
    The insurer of the CPP pays for the loss on a pro rata basis. The insurer's share is calculated by dividing the applicable policy limit of the coverage part by the total of all policy limits covering on the same basis, and multiplying the resulting numbers times the amount of the loss.
  10. What are the three common approved approaches *to valuation* that are used in the Building and Personal Property Coverage Form?
    Actual cash value, replacement cost, and selling price are valuation approaches used in the BPP Form.
  11. How does coinsurance support the goal of insurers to encourage 'insurance to value"?
    Coinsurance requires the insured to carry insurance at least equal to a specicifed persentage (typically 80-100 percent) of the covered property's value.
  12. In a commercial property policy subject to coinsurance, how is the amount of loss payable calcualted if an insured suffers a covered property loss and did not insure the property to at least the specified percantage of value?
    {[Limit of Insurance/(Value of covered property * Coinsurance value)] * Amount of Covered Loss} - Deductible
  13. How are the following affected when the insured selects a higher coinsurance percentage (such as 100 instead of 80)?
    a. The amount of insurance needed to comply
    b. The applicable rate
    • a. The insured will have to purchase higher amounts of insurance to satsfy the Coinsurnance condition
    • b. The rate charged by the insurer will be lower than the rate that would have been charged for the lower conisurnace percentage.
  14. What are the insured's duties in the event of a loss covered by the BPP?
    • The insured's duties are:
    • 1. Give prompt notice of loss, including a description of the property
    • 2. Notify the police if a law may have been broken (like theft)
    • 3. Take reasonable steps to protect the property from further loss
    • 4. Provide a complete inventory of damaged and undamaged property (if requested by insurer)
    • 5. Allow the insurer to inspect the property
    • 6. Sign a sworn proof of loss and submit to examination under oath (if requested by the insurer)
  15. Why might an appraisal be requested to settle a loss, and which party may demand one, according to the Appraisal condition of the BPP?
    An appraisal might be requested to settle a loss if the insurer and the insured disagree about the valu of the covered property or the amount of a covered loss . The appraisal condition allows either to demand an appraisal.
  16. Under what circumstances might an insurer use loss payment options other than paying the value of the lost or damaged property or the cost of repairing or replacing it?
    note: insurer may take all or part of the property by paying agreed or appraised value or insurer may repair, rebuild, or replace property with other property of like kind and quality.
    An insurer might use loss payment options other than paying the value of the lost or damaged property or the cost of repairing or replacing it to resolve irreconcilable differences in opinion regarding a property's value, extent of damage, or cost of repairs; or if the insurer suspects but cannot prove that the insured has comitted arson or otherwise intentionally damaged the property.
  17. Explain the effect of the BPP Vacancy condition if the building has been vacant (as defined in the BPP) for sixty consecutive days before a loss occurs.
    The insurer is not obligated to pay for loss caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft. For all other covered perils, loss recovery is reduced by 15 percent.
  18. What special rights does the mortgageholders provision give to mortgagees?
    The mortgage holders provision gives the named mortgagee the right to collect for covered losses to the extent of its financial interest in the property, even thoughthe insurer might have denied the insured's claim because of the insured's acts (such as arson) or because the insured has failed to comply with policy conditions. The mortgagee also has the right to receive written notice of cancellation from the insurer.
  19. Smith's garage owns a building with an actual cash value of $100,00. How much would smith's Garage recover under its BPP in each of the following situations?
    Limit of insurance - Coinsurance - ACV of Loss - Deductible
    1. $80,000 - 80% - $10,000 - $1,000
    2. $60,000 - 80% - $10,000 - $1,000
    3. $80,000 - 90% - $10,000 - $1,000
    4. $80,000 - 80% - $90,000 - $1,000
    5. $100,000 - 80% - $50,000 - $1,000
    • 1. $9,000
    • 2. $6,500
    • 3. $7,899
    • 4. $80,000 ( The deductible is subtracted from the $90,000 loss before aplication of the limit)
    • 5. $49,000
Card Set
CPCU 551: Chapter 2
CPCU 551 Chapter 2