Property & Casualty Broker Course notes

6 Major Topics:

   1. Law

        State Law

        Contract Law

  2. Fire Insurance (1/3 of state test)  Fixed location

        Homeowners

        Dwelling

  3. Inland Marine

        Things that can be moved

        Schedules ie: fine art, jewelry

  4. Auto Insurance

        Personal-most common

  5. Commercial General Liability

  6.  Crime Insurance

4 Minor Topics

   1. Bonds

         Fidelity Bonds-employee dishonesty

  

   

2. Workers Compensation

       Benefits provided under law

3. Accident/Health

    As a licensed broker, can sell everything except life insurance/annuities

 4. Ocean Marine

      Planes, ships-

        -no set policy forms, no rules or set exclusions.

           Origin of  property and casualty insurance

Law of Contract and Negligence

  Broker: a person who acts on behalf of the insured in negotiating insurance.

              (iow: represents the client v the insurance company)

      -has no binding authority, however, a broker is considered to be an agent for the       company in the collection of premiums.

  Agent: a person who acts on behalf of an insurance company with whom they are contracted.

-have binding authority-oral binders are valid.

Agents authority stems from 3 separate sources:

1)     Expressed authority- the actual written contract

2)     Apparent authority- this would include company supplied signs, business cards and/or letterhead.

3)     Implied authority-exceeding binding authority and the company takes no action or accepting premiums after cancellations.

2 types of agents:

1. captive agent: aka: exclusive agent representing only one company

(only agent license)

 2. independent agent: can represent more than one company, can be broker licensed.

-must be 18 years of age or older to be and agent or broker

Duties of a Broker to the Insured

1. advise insurance coverage to best suit the needs of the insured/client
2. attempt to bind a line of coverage immediately upon request
3. review each policy to ensure that it is written correctly
4. explain the coverage under the policy
5. secure adequate amounts of insurance to avoid co-insurance penalty
6. serve the insured in the event of a loss
7. adapt policies to the special needs of the insured through the use of endorsements

riders or schedules

      note: a broker MUST as a public duty, disclose all information about the insured to the company, even if such information is derogatory in nature.

Duties of an Agent to the Insured

  The agent has a contract with the company and is bound by the terms of that agreement.

Fair Credit Reporting Act :_ FCRA

Included among the duties of an agent/broker is the duty to comply with the FCRA.

This is a federal law which

1. helps assure fair, accurate and confidential reporting  about consumers obtained from outside agencies
2. prohibits insurance companies from obtaining such reports unless the applicants are advised in advance that such reports may be obtained
3. provides for signed disclosure to assure compliance with the act
4. within guidelines, consumers may demand to know what information the agencies have on file about them and to whom reports were made.

Duties of the State Insurance Department

The Dept of Insurance is headed by a Superintendent of Insurance. The position is appointed by the Governor.

1. first duty is to issue rules and regulations
2. license insurers, agents and brokers
3. suggests laws to the appropriate legislative committee to the governor
4. examine insurer’s financial operations and take steps to assure prudent risk management and asset/investment procedures.
5. oversee policy forms and rates
6. oversee marketing practices.

Contract or Policy of Insurance

Insurance contracts are 2 party contracts between the insured and the insurer.

There are 2 basic types of insurance:

1.     Indemnity Insurance-the loss or damage to one’s own property

 Ie: auto collision, fire and theft

(to indemnify-to be made whole- and paid for losses)

2.     Liability Insurance- the protection from the lawsuits of others.

  Ie: Auto liability

       Personal liability

       Commercial liability

       Professional liability (medical malpractice, error and omissions)

Parts of a Policy:  DICED

D. Declarations- name and address, policy period, coverages, limits of insurance, deductibles, premiums and endorsements

I.  Insurance agreement- a statement, which in very broad terms, describes the coverage granted by the insuring agreement. 

C.  Conditions- this sets for the rights, duties and responsibilities of both parties of the agreement. Premium, proof of loss, timeliness,

E. Exclusions- this is a limitation or restriction of the coverage granted by the insuring agreement

D. Definitions- this defines the terms used in the policy (burglary v theft)

Aleatory Contracts:  All insurance contracts -unequal values are exchanged;

       Premium vs indemnification

Unilateral Contracts- insurance contracts are unilateral in that only one side makes enforceable promises.

Adhesion Contract- Policy construction and interpretation

1.     the policy is the best evidence of the agreement between the parties

2.     if the terms of the policies are clear and explicit,, they cannot be ignored by a court or jury.

3.     if however, any part of the policy is not clear or ambiguous , the court will adopt a construction that favors the insured over the company.

Insurable Interest- in order to collect under a policy of indemnity insurance, the insured must have, at the time of loss, an insurable interest.

Classes of Insurable Interest

1. Ownership (or part ownership)
2. Creditor/Debtor relationship  (mortgagor-bank//-mortgagee-person
3. Possession-such as a tenant or life tenant
4. Bailor (owner of property who gives up possession of custody for a specific purpose) / Bailee (custodian of property that belongs to another)  ie: dry cleaner, repair shops

Types of Insurance Companies

1. Domestic Insurance Company-organized under the laws of NY State
2. Foreign Insurance Company-organized under the laws of a state other than NY
3. Alien Insurance Company-organized under the laws of another country
4. Stock Insurance Company-owned by stockholders who receive profit in the forms of stock dividends
5. Mutual Insurance Company- owned by the policy holders who receive profits in the form of policy dividends
6. Authorized Company-aka: Admitted Company-a company permitted to do business in NY
7. Unauthorized Company-aka: Non-Admitted- not permitted to do business in NY

Premiums: aka: consideration: is the money the insured pays for the undertaking by the insurance company.

1. gross premium- the amount paid by the insured
2. net premium- gross premium minus commissions
3. earned premium- this is in proportion to the expired policy term. The premium is earned as time passes.
4. unearned premium- this is in proportion to the unexpired policy term.

Cancellations:

-the insured may cancel at any time

-the company may cancel under certain circumstances

    (ie-non payment of premiums)

Types of Cancellations:

1. Pro Rata cancellation (proportionate) –this is a cancellation without a penalty.

            When the insurance company cancels, it is on a pro-rata basis

2. Short rate- this is a cancellation with a penalty. When the insured cancels, it is usually on a short rate basis.
3. Flat Cancellation-this is a cancellation without any charge

Negligence:

This is the careless invasion by one party of the personal or property rights of another party.  It is the failure to act as a reasonable and prudent person. It is never an intentional act.

-for an act to be declared ‘negligent’, the injured party must prove 2 things:

1. an act of carelessness

2. money damages

Damages: 2 types:

Compensatory Damages: these are awarded on the basis of 2 considerations:

1. Special damages- actual out of pocket expenses incurred by insured such as:

            Medical bill and replacement of lost or damaged property.

2. General Damages- these are to compensate for non-monetary losses such as the difficulty of day to day activities, ie: pain and suffering.

Punitive Damages: these are awarded to punish for the outrageous acts. 

Note: Insurance only covers compensatory.

Inferred Negligence- aka: vicarious responsibility

A person can be found guilty of negligence even though they had nothing to do with the negligent act. 

Elements of Negligence:

1. There must be a duty or responsibility
2. There is failure in the duty or responsibility
3. Injury must occur
4. The failure in the duty or responsibility must be the Proximate Cause of the injury.

Proximate Cause: Peril which can be traced back in an unbroken chain of events as the act or cause of loss.

Subrogation: this is the substitution of the insurance company into the place of the insured with respect to any rights or claims the insured may have against a 3^rd party.

Peril: a possible cause of a loss. Insurance contracts provide coverage for perils considered insurable.

Hazard: this is a condition which increases the frequency or severity of a loss or the chance that a loss will occur.

A hazard gives rise to a peril.

4 Types of Hazards: 

1. Physical: ie: icy roads, broken steps, dead tree.

2. Morale: acts of indifference or laziness

3. Moral: criminal ie: vandal, arsonist, thief

4. Legal: actions of a civil authority and changes in building codes

Risk: the uncertainty or chance of loss

2 Basic types of risk:

1. Pure Risk- (insurable) involves only the chance of loss
2. Speculative Risk-(not insurable) involves chance of loss or a gain is possible

ie: stock market

Methods off Risk Management

1. Risk avoidance
2. Risk reduction- ie-alarm system in home
3. Risk retention-ie-deductible
4. Risk transfer- ie: insurance

ISO: Insurance Services Office: a private service bureau supported by member companies.

-ISO membership is on a voluntary basis

-ISO is a policy drafting and rate making organization that files for its members on an   advisory basis.

FIRE INSURANCE

In NY, fire insurance policies are based on the original Standard Fire Policy (SFP)

It is the oldest fire insurance form.

Fire Insurance basics:

A fire is combustion sufficient to produce a spark, flame or glow.

The following coverages are included in the peril of fire.

1. water, chemical and other damage caused by the attempt to extinguish fire. (ie-ax)
2. smoke damage is covered by *hostile fire only

  *hostile fire: a fire that burns outside its intended place of confinement

    Friendly fire: burns with its intended place of confinement (fireplace).

Rating: two basic ways to property is rated:

1. class rates-these are used when the insured property is one of a numerous, normal, non-hazardous class ie: brick or frame private dwelling.

      Private dwellings are all class rates. No inspection necessary for the risk.

2. Specific or Scheduled rates- these properties are rated on an individual basis subject to an appropriate rate schedule. Ie: mercantile (seller) vs Manufacturer.

2 Types of Losses:

1. Direct Loss- this is a loss to property sustained directly by a covered peril.

2. Indirect Loss- loss resulting from or as a consequence of a covered peril.

Removal Damage-aka- Preservation of Property

This coverage is for any direct loss from any peril while removed from a premises endangered by a covered peril

ACV: Actual Cash Value-the cost of repairing (RC) or replacing damaged property with material of a like, kind and quality minus allowance for depreciation (D).

ACV= RC-D

Replacement Cost Endorsement- this waives depreciation. This requires the insured to carry insurance equaling at least 80% of the full replacement value. In order to collect on a replacement cost basis, the property must be restored. If property is not restored, recovery is on ACV basis only.

What voids a fire policy?

-Fraud

-Concealment

-Material Misrepresentation

Coverage Suspension Under Fire Insurance-

1)     Any unreported increase in hazard with the insured’s knowledge or control that would increase the possibility of loss.

2)     Any vacancy or unoccupancy beyond 60 days

Note: a suspended policy pays no loss to the insured. However, a mortgagee will collect if one is listed in the policy and the company gets reimbursed by the insured.

Coverage Restrictions Under Fire Policy

-coverage is restricted when a riot or explosion occurs.

-the company will pay the actual fire damage but will not pay for the explosion damage which precedes the fire.

Cancellation under Fire Insurance

-the insured may cancel at anytime on a short rate basis after surrendering the original policy or by the use of a lost policy release form (LPR)

-the company may cancel under certain conditions on a pro rata basis after giving the insured advance written notice.  A mortgagee will receive written notice as well if one appears on the policy.

Mortgagees Interest in a Fire Policy-

1. pay any premium if the insured fails to do so.
2. the right to file a proof of loss if the insured fails to do so.
3. They are protected against acts of the policy holder and therefore have coverage during periods of suspension.

Insured’s Requirements at the Time of Loss

1. give immediate notice to the insurance company
2. protect property from further damage
3. separate damaged from undamaged property
4. prepare an inventory of the destroyed, damaged and undamaged property listing in detail quantities, costs and amount claimed.

Proof of Loss Form

-this form must be signed and sworn to by the insured and it must be submitted to the company within 60 days.  However, this time limit can be extended by the company in writing.

The Following Information Must be Contained on a Proof of Loss Form

1. interest of all parties in the property in order to establish insurable interest.
2. time, date and origin of loss
3. list of all other insurance policies, whether collectible or not, which could be called upon to contribute to the loss.
4. the ACV of each item and amount of loss on each.

Note:  The insured may be requested to submit to an examination under oath and to produce all records/receipts

The Appraisal Provisions

-When the insured and the company fail to agree on the ACV or the amount of loss, either party may request the use of this provision.

-after the request has been made each party has 20 days to select a competent, disinterested appraiser.

-if the appraisers can’t agree, they have 15 days to agree upon an umpire.

-each party pays for their own appraiser and share the cost of the umpire.

Company Options at the Time of Loss

-the company can take all or part of the damaged property for its agreed or appraised value or it can repair, rebuild or replace damaged property with material of like, kind and quality.

Abandonment Clause-the insured cannot abandon property to the company in return for settlement. The insured has no options.

Loss Payment

The loss is payable within 60 days after agreement.

Suits Against the Company

-The insured can sue the company provided all steps outlined in the policy have been complied with. The suit must be brought within 2 years after the date of loss.

Specific and Blanket Insurance

1. Specific Insurance is written to cover a certain specified location for a certain specified amount of insurance
2. Blanket Insurance is written to cover 2 or more locations or classes of property. The overall amount is known but the amount at individual locations is unknown.

Fire Insurance Clauses

1. Liberalization Clause-states that any broadening of coverage that is granted w/out an increase in premium will apply automatically to all outstanding policies.
2. Inflation Insurance- an endorsement that increases the amount of insurance to counteract the effect of inflation on building cost. In order to purchase, this insurance is required to carry 100% of the replacement cost.
3. Guaranteed Replacement Cost Endorsement-the insurance company agrees to replace the property even if it costs more than the insurance provided.
4. Functional Replacement Cost Endorsement- replacement of similar materials but of today’s standards.

The Other Insurance Clause  aka: Pro Rata Liability Clause

-When more than one policy covers a loss, each company establishes its liability for payment in proportion that the value of its policy bears to the total insurance whether collectible or not.

Pro Rata Liability Formula:  

Company amount    X  loss = settlement

Total amount

Co-Insurance Clause- - this states that the insured must carry insurance equaling a given % of the ACV of the insured property at the time of loss. If the insured fails to carry the proper amount they will become a co-insurer to the % of their deficiency.  The standard co-insurance is 80% of the ACV.  Co-Insurance Formula:  (carls)

Insurance carried (ca)

Insurance required (r)  X loss (l) = settlement (s)

ACV= $500k                                                          $300k

Policy= $300k                    (80%0f $500k)           $400k       x $200k = $150k

Loss=$200k

80% co.

Pro Rata Distribution Clause- this is used to distribute the total amount of the insurance in force over each location covered in proportion that the value of each location bears to the total value of all locations.  The effect of this clause is to convert blanket insurance into specific.

Warrantees- this is a statement of fact that a condition does exist today and will continue to exist into the future.

Private Dwelling Warrantee- a warrantee that the described building is occupied exclusively for dwelling purposes only by not more than 4 families.

*incidental business operations do not restrict the use of a private dwelling form.

Apartment Dwelling Warrantee-this is a warrantee that the described building is occupied by more than 4 families.

Dwelling Property Program (DP)

*Usually purchased by landlords

*Does not need to be owner occupied

*Covers a 1 family private dwelling w/ up to 5 roomers/boarders

DP Insurance is designed to cover the 1-4 family private dwellings. There are 3 forms available:

1. DP-1- basic form
2. DP-2- broad form
3. DP-3- special form

The Following Insuring Agreements are included in the Standard DP forms:

1. Coverage A-dwelling- this insures the residential building, any structures attached to it as well as materials and supplies located on or next to the premises which is used for construction, alteration or repair of any structure at the location.
2. Coverage B-other structures-this covers other structure at the location that are not attached to the main dwelling and are at least separated by a clear space. Coverage B is in the amount of 10% of Coverage A.
3. Coverage C-personal property- this is optional coverage.  If purchased, it would cover the personal property owned or used by the insured. The amount of coverage purchased is an on premises limit but the policy would provide for a worldwide (off premises) limit of 10% of the Coverage C amount.

Coverage D-Fair Rental Value-this provides compensation to the insured if the premises are unusable as a result of a covered loss or if use of the premises is restricted by the actions of a civil authority.  Coverage D is in the amount of 20% of Coverage A.  

ie: indirect loss, landlord lives in building and incurs expenses due to having to relocate. 

*note: if the loss of use is caused by the actions of a civil authority, this coverage is limited to 2 weeks time.

       5. Coverage E-Additional Living Expenses-this is optional coverage and is only                         available on a DP2 or 3. This provides compensation to the insured for the increased living expense when they are forced to live elsewhere under the same provisions as

DP1-Basic Form- this insures the dwelling and other structures for the perils of fire, lightening and internal explosion.

-For an additional premium the insured may add the following endorsement

1. Extended Coverage Endorsement: aka: EC Perils aka: WCSHAVVER

W- WINDSTORM

C- CIVIL COMMOTION (large group of unrest)

S- SMOKE- included friendly fire excluding: fireplaces, industrial operations and 

                        agricultural smudgings

H-HAIL

A-AIRCRAFT

V-VEHICLES-excludes vehicles owned or operated by insured/tenant

V-VOLCANO

E-EXPLOSION-excludes steam boiler explosions

R-RIOT- 3 or more

2. VMM-vandalism and malicious mischief- includes glass breakage

DP-2- Broad Form

This insures the dwelling and other structures for the same perils as a DP-1 and automatically includes: EC Perils, VMM and broad form perils: BIG AFFECT

B-BURGLARY DAMAGE (not stuff taken)

I-ICE, SLEET AND SNOW WEIGHT

G-GLASS

A-ACCIDENTAL DISCHARGE- accidental discharge, leakage or overflow from within plumbing and HVAC systems but not repair of source.

F-FALLING OBJECTS

F-FREEZING PIPES

E-ELECTRICAL-this covers damage to the electrical appliances caused by artificially generates electricity except for tubes or transistors.

C-COLLAPSE-if caused by:

     1. a peril in the policy

     2. weight of rain on roof

     3. weight of contents, equipment, animals and people

     4. defective building material

     5. hidden decay

     6. hidden insects and vermin

T-TEARING ASSUNDER- steam boiler explosion

Under a Broad Form-DP-2 form policy or better, the following coverages are included:

1. smoke-including fireplaces
2. vehicles-this would include vehicles owned or operated by insured/tenant but except for losses to fences, driveways and walks.

DP-3- Special Form Policy- insures the dwelling and other structures on an

ALL RISK basis.

-if personal property coverage C has been included, that coverage is only on a

Broad Form basis.

All Risk Coverage- this is coverage against loss caused by any accidental external circumstance subject to specific exclusions.

Note: the term “All Risk” has been replaced by either of the following:

1. Risk of Direct Physical Loss
2. Open Peril

Additional Coverages in the Dwelling Policy:

1. Debris Removal: this states that the company will pay the cost of cleaning up the property after a loss subject to a policy limit.  These expenses are included within the limit of coverage
2. Reasonable repairs- this covers the reasonable expenses incurred by the insured at the time of loss to protect covered property.

3. Preservation of Property-

-under DP-1-coverage for 5 days after removal

-under DP2-3-coverage for 30 days after removal  

4. Trees, Shrubs, Plants and Lawns-

-under DP-1-no coverage

-under DP2-3-coverage is provided on a named peril basis but excludes loss caused by wind, hail, weight of ice, sleet, snow and vehicles of the insured/tenant.

-coverage is limited to 5% of the dwelling amount in total but not more than $500/tree, plant/shrub. Lawn can be 5%

.

5. Fire Department Service Charge-limited to $500.
6. Ordinance of Law Coverage-DP2-3 only and covers the increased cost of construction, repair or demolition regulated by any ordinance or law.  An additional 10% of the insurance provided is available for these expenses.

Loss Settlements in the Dwelling Program:

-under DP-1-recovery is on an ACV basis only

-under DP-2 and 3-buildings under Coverage A and B are at replacement cost without deduction for depreciation provided the insured is carrying the sufficient amount of insurance.

Personal Property losses under Coverage C are covered on an ACV basis

DP-1 is designed to older dwellings not considered eligible for replacement cost coverage.

General Exclusions In the Dwelling Program:

1. Earth movement unless fire ensues
2. Water damage-ie: flood or the backup of sewer or drains
3. neglect of property after a loss
4. intentional acts on the part of the insured
5. war
6. nuclear

Property not covered in the Dwelling Program:

1. accounts, bills, deeds, evidences of debt, money, securities, bullion and manuscripts
2. animals, birds and fish
3. aircraft and motor vehicles
4. boats (other than rowboats and canoes which can be covered on premises)

Deductible Clause- the standard deductible is $250.

Cancellations: the company may cancel as follows:

-non-payment of premium-15 days notice.

-any other reason, 30 days notice

Non-renewal cancellations require at least 45 days but not more than 60 days.

HOMEOWNERS POLICIES: HO2000 (for test)

-a homeowners policy is a package policy consisting of:

- Fire 

-Contents

-Theft

-Liability

The following homeowners forms are available:

HO2, HO3, HO4 (renter), HO5, HO8

Who is eligible for a homeowner policy??

1.     owner/occupant of a 1-4 family private dwelling (HO2,3,5,8)

2.     a tenant in a private dwelling or apt

3.     owner/occupant of condo or co-op

HO-8-Modified Form- Replaced HO-1as a Basic Form.

-insures the dwelling, other structures and personal property for the perils of fire, lightening, EC perils, VMM, theft and glass.

-Theft Coverage as follows:  no coverage off premises; on premises limit $1000

HO-2 Broad Form- like DP-2, insures the dwelling, other structures and personal property for the perils of fire, lightening, EC perils, VMM, broad form perils, BIGAFFECT and theft.

HO-3-Special Form- insures the dwelling and other structures on an all risk basis.

 However, personal property Coverage C is only covered on a broad form basis.

HO-5- Comprehensive Form-this insures the dwelling, other structures and personal property on an All Risk Basis.

HO-4- Contents Broad Form-renters insurance, tenants - -this is designed for the tenants of rental property. It insures personal property on a Broad Form basis and also provideds 10% of Coverage C to cover tenant’s improvements and betterments.

HO-6-Unit Owners Broad Form-designed for the owner/occupant of a condo or co-op. This covers personal property on a broad form basis and also provides a limited amount of Coverage A-dwelling-to cover additions and alterations. It would also cover property which is the insured’s responsibility under the by-laws.  Minimum coverage A is $1000.

TYPE:                     COV A                 COV B                                          COV C

                             DWELLING        OTHER STRUCTURE          PERSONAL PROP

HO2-BROAD            BROAD                  BROAD                                   BROAD

HO3-SPECIAL     ALL RISK               ALL RISK                                  BROAD

HO5                            “”                               “”                                        ALL RISK

HO4-RENTER          N/A                            N/A                                          BROAD

HO6-CONDO          BROAD                        “                                                  “                                                                                                    

SECTION I  (HO-8,2,3,5)

COVERAGE A-DWELLING

COVERAGE B- OTHER STRUCTURES  10% OF A

COVERAGE C-PERSONAL PROPERTY-50% OF A.

-for a 3 family homeowner, coverage is reduced to 30% of Coverage A

-for a 4 family homeowner, coverage C is reduced to 25%.

COVERAGE D-LOSS OF USE

-coverage is in the amount of 30% of coverage A

*under HO8, coverage D is only 10% of coverage A.

SECTION I-HO4-renter

Coverage A-dwelling-  N/A

Coverage B-other structure- N/A

Coverage C-personal property- 10% is included for improvement & betterments

Coverage D-loss of use- 30% of C

SECTION I-HO6- co-op/condo

Coverage A-dwelling-$1000 min

Coverage B-other structure- N/A

*Coverage C-personal property 50% of A

Coverage D-loss of use- 50% of C

*Coverage C-personal property

-this covers personal property owned or used by the insured worldwide for the entire amount applying to coverage C.  The only exception to the worldwide limit is property usually kept at a secondary residence premises where coverage is limited to 10% of the coverage amount.

Limitations on Certain Classes of Personal Property

1. $200 on money, bullion and coins
2. $1500 on securities, accounts, manuscripts and stamps
3. $1500 on watercraft and trailers
4. $1500 on trailers not used w/ watercraft
5. $1500 for loss by theft of jewelry and furs
6. $2500 for loss by theft of firearms/accessories
7. $2500 for loss by theft of silverware, goldware, pewterware and platinumware.
8. $2500 for loss to business property on residence premises, off premises: $500
9. Grave markers covered up to $5000- cemetery plots considered insured locations.

Recovered Property-

-the insured has the option to retain recovered property or let it become property of the insurance company.  Should the insured choose to retain recovered property, they need only payback the amount received for the settlement.  All salvage and recovery losses are that of the insurance company.

Loss Settlements in the Homeowner Program

HO8- an ACV contract.  It is designed for older homes not considered eligible for replacement cost coverage.

HO2, 3, 5

Buildings under coverage’s A and B are at replacement cost without deduction for depreciation provided that the insured is carrying the sufficient amount of insurance. (at least 80% of replacement cost)

Personal Property losses under Coverage C are covered on an ACV basis. (unless scheduled)

Additional coverages in Homeowners Program

1. Debris Removal-this states that the company will pay the cost of cleaning up the property after a loss subject to a policy limit. These expenses are included within the limit of coverage.  However, if the amount of direct physical loss and debris removal is more than the limit of insurance, an additional 5% of the dwelling amount is available for those expenses.
2. Reasonable Repairs-same as dwelling policy
3. Trees, shrubs, plants and lawns-coverage is in the amount of 5% of dwelling amount in total but not more than $500/tree, plant or shrub.

Note: HO4,6-total amount of trees, etc is 10% of C

           HO8- per item limit is only $250/tree, etc

4. Fire Dept Service Charge- same as DP-1-$500
5. Preservation of Property-this coverage is for 30 days after removal (except DP-1 which is 5 days)
6. Credit Card-forgery, counterfeit money- $1000
7. Loss Assessment- limited to $1000-policy can be endorsed to higher limit.
8. Ordinance of Law Coverage-same as DP2,3- additional 10% to rebuild house to code.

SECTION II

  -Coverage E- Personal Liability

Note: all homeowners forms have identical Section II coverage.

For any claim or suit brought against an insured for damages resulting from Bodily Injury (BI) and/or Property Damage (PD) caused by a covered occurrence, the company will pay up to the limit of liability shown in the declarations for any coverage. The minimum coverage E is $100k

     1. PD-property damaged caused intentionally by an insured 13 years of age or older will not be paid by the company.

    

2. PI-personal injury claims are excluded but can be added by endorsement.

This refers to any injury other than BI such as:

-slander

-libel

-defamation

-invasion of privacy

      3. Watercraft liability is covered up to the following limitations:

–outboard motorboats-max hp 25

-inboard/outboard motorboats-max hp50

       -sailboats with or without power must be 26’ in overall length

Coverage F- Medical payments to others

The company will pay the necessary medical expenses incurred within 3 years of an accident causing bodily injury up to the limit of liability shown in the declaration for Coverage F.  The minimum Coverage F is $1000 and it is a no fault coverage.

Mandatory Coverage under Section II

1. all additional residence premises
2. all residence employees not required to be covered under workers comp
3. incidental office occupancies on residence premises

COMMERCIAL PACKAGE POLICY-

There are 4 basic sections to the CPP

1. Property
2. Liability
3. Crime
4. Boiler and Machinery

Note: any 2 of above form a package

SECTION I

-BUILDING AND PERSONAL PROPERTY FORM

Coverage A-Building

-This includes the building or structures described in the declarations including:

- completed additions

- fixtures

-outdoor fixtures

-permanently installed machinery and equipment

- personal property owned by insured used to maintain or service the premises.

-would also cover materials, equipment and supplies located at, on, next to or w/in 100’ of building at described location which is used for construction, alteration or repair of any structure at the location.

Coverage B- Business and Personal Property

-Covers business personal property at, on, next to or within 100’ of the described location.  It includes:

-furniture and fixtures

-machinery and equipment

-stock or inventory

-leased equipment

-tenants improvements or betterments (ie: wall to wall carpet, dividing walls)

Coverage C- Personal Property of Others

-This covers the personal property of others in the insured’s care, custody and control located at, on, next to or within 100’ of the described location.

-Incidental ie: small exposure

-Bailee coverage-custodian of property owned by another-repair shops, coat checks, a kennel.

-NO CARS

Property not covered under the Building and Personal Property Coverage Form:  (A and B)

1. accounts, bills, deeds. Evidence of debt, money and securities
2. Animals unless boarded by the insured or if owned by the insured only as stock while inside a building. (ie: pet store. 
3. Bulkheads, piers, pilings, wharves and docks
4. growing crops and lawns
5. automobiles

Additional coverage under the Building and Personal Property Form:

1. Debris removal- this coverage is limited to 25% of the damage to the property insured. These expenses are included within the limit of liability for that loss.  However, if the amount of direct physical loss and debris removal expense is more than the limit of liability, an additional $10lk is available for those expenses.
2. Preservation of Property-this coverage is for 30 days after removal
3. Fire Dept surcharge limited to $1000
4. Pollutant clean up and removal- limited to $10k
5. Electronic Data- limited to $2500 in any one year
6. Personal Effects of Insured and/or Employees- limited to $2500
7. Property off premises is for $10k
8. Trees, shrubs. Plants and lawns is limited to $1000 but no more than $250 per tree, plant or shrub
9. Coverage Extensions: also referred to as: Newly Acquired Property Clause
1. Buildings-newly acquired or constructed buildings under Coverage A are covered automatically for up to a maximum of $250k.
2. Business  personal property at newly acquired locations are covered automatically up to $100k.

              Note: newly acquired building and/or contents are covered for 30 days or the end of the policy period, whichever is earlier.

Cause of Loss Forms:

1. Basic Cause of Loss Form- the following perils are included:
1. fire
2. lightening
3. EC Perils
4. VMM
5. Sprinkler
6. Sinkhole collapse

2. Broad Cause of Loss Form-this insures the same perils as the basic cause of loss form and included 5 additional coverages:
1. Falling objects
2. Weight of ice, sleet and snow
3. Water damage-this is the commercial version of accidental discharge
4. Collapse
5. Glass breakage- if the breakage is caused by VMM or other than a peril in the policy, coverage is limited to $500 in any loss but not more than $100/pane.

3. Special Cause of Loss Form- provides coverage on an ‘all risk’ basic.

-        typically includes theft but NOT theft committed by the insured or an           employee.

Vacancy Provision:

-a building is considered vacant unless 31% of the total square footage is in use.

-if the building is vacant for more than 60 consecutive days the following losses will not be paid:

1. VMM

2. sprinkler leakage

3. glass breakage

4. water damage

5. theft

For covered losses other than those, the company will reduce payment by 15%.

Builders Risk Insurance

-This is designed to cover building in the course of construction against insured peril damage. When the building is finished, the policy is cancelled and rewritten subject to appropriate rules.

There are 2 forms in general use:

1. Completed value form: the policy is written in an amount equaling the completed value of the structure but at greatly reduced rates. This is the safest form as it eliminates chance of being under insured at the time of loss.
2. Monthly Reporting Form- this permits the insured to make monthly reports of progress and values going into the building.  There is automatic coverage between reports provided the reports were correct.

Time Element Coverages are designed to cover loss which is brought about through the loss of the insured property due to insured peril damage. Recovery is measured on the basis of time. These would include:

1. business income coverage
2. extended business income coverage
3. business income from dependent properties
4. extra-expense insurance.

1.     Business Income Coverage-aka: Business Interruption Insurance

-This does for the insured that the business would have done if no loss occurred.

(including net profit and ongoing expenses)

-coverage starts 72 hours after the loss and continues until the premises are ready to resume operations or the policy limit is exhausted.

-if the loss of use is caused by the actions of a civil authority then coverage is limited to 3 weeks.

-Co-insurance applies to business income the insured may elect to cover: 50%-110% of their annual gross earnings including payroll.

Business income formula:

Gross sales-cost of merchandise =  Gross earnings

Using 80% as an example of co-insurance…

gross sales =                  $500k

cost of merch=               $200k

gross earning=               $300k

80% of $300k

$240k of insurance needed.

However, if sales doubled:

Gross sales              $1m

Cost of merch:        $400k

Gross earnings        $600

80% of $600

$480 would have been needed; company would only pay $240k 

1. methods of avoiding the co-insurance penalty under business income:

         -for additional premium, insured may add the following

      a. maximum period of restoration-limits the period of time benefits to a pre-set period of time

      b. maximum monthly indemnity- a factor shown as a fraction is listed in the policy which limits the amount of insurance for any one month.

1/8, ¼, 1/6, 1/12

Time element coverages continued…

2. Extended Business Income Coverage-this extends coverage after a property has been restored up to a maximum of 30 days.
3. Business Income from Dependent Properties

aka: Contingent Business Income Coverage –this provides coverage to the insured for their business when the losses occur to other premised such as a supplier or customer.

4. Extra Expense Insurance-this is designed for business which MUST continue to operate at the time of loss regardless of expenses incurred (ie: hospital)

Business Owners Policy- BOP- (handout)

-This is a prepackage commercial form designed for small businesses covering buildings and/or business personal property.  The BOP also provides liability coverage on an occurrence form basis.

Boiler and Machinery-aka-Equipment Breakdown Coverage Form

National Flood Insurance Program (handout)

N.Y.P.I.U.A.

New York Property Insurance Underwriters Association

Aka: F.A.I.R. : (authorized involuntary)

Fair Access to Insurance Requirement-like assigned risk

-market for those who can’t find insurance.

-a joint underwriting association started for the purpose of providing basic fire

Insurance coverages to those individuals unable to obtain coverage in the voluntary market.

The following coverages are available in the FAIR plan:

-fire

-lightening

-EC perils

-VMM

-sprinkler leakage

-time element coverage (indirect loss coverage)

Inland Marine (covers things that move)  Fire àInlandàOcean

-Nationwide Marine Definition:

This is an agreement between the insurance companies and the State Insurance Departments concerning the insurance powers of inland marine companies by outlining which coverage’s  may or may not be written.

Inland Marine Policies would cover:

1.     Personal floaters

2.     Commercial floaters

3.     Bailee Forms

4.     Import/Export Floaters

5.     Instruments of Transportation and Communication

     Ie: bridges, tunnels, radio/TV towers and pipelines

1.     Personal Floaters: no deductible

-Scheduled Personal Property Endorsement

Aka: Personal Articles Floater (PAF) (not on test)

-this insures the named insured shown in the declarations as well as all family members of the same household.

-the perils are all risk of loss or damage and the coverage territory is worldwide.

General Exclusions:

1.     war

2.     nuclear

3.     wear and tear

4.     gradual deterioration

5.     insects and vermin

6.     inherent vice- something internal to the property that happens without external cause-property that can self-destruct

Pair and Set Clause-Other than Fine Arts  ie: earrings

-the insurance company is liable for a fair and reasonable portion of loss that the lost or damaged article bears to the total value of the pair or set.

Value of property before-value after=payment

Pair and Set Clause-Fine Arts                                                                                            -the insurance company agrees in the event of loss to allow the insured to surrender the remaining property and collect the full insured amount.

Section I - Jewelry

-this insures jewelry on a scheduled basis with evidence of value required.

-each item must be described with a specific amount of insurance for each.

-scheduled property is typically covered on an ACV basis but for additional premium insured may purchase a value form (aka: agreed value)

Engagement Rings

-A separate contract in the names of both parties who are not yet family members of the same household. The reason is so that the question of insurable interest is avoided.

Section II- Furs

-insures under the same conditions as jewelry

Section III

Cameras

-this insures photographic equipment on a scheduled basis

Notes:

1. -the insured may purchase a blanket amount for the small items for up to 10%

of the scheduled amount.

2. different rates apply to amateurs and professionals

Section IV- Musical Instruments

-this insures instruments on a scheduled basis

-the same 2 notes apply as to cameras.

Section V- Silverware-

-this insures silverware on a scheduled or blanket basis but it would exclude:                            

   a. pens and pencils

   b. smoking implements

   c. flasks

   d. jewelry

NOTE:

Schedule- must prove value at the time of insurance

Blanket- must prove value at the time of loss

Section VI- Golfers Equipment

-this insures on a blanket basis golf clubs, golf equipment and golf clothing.  It would also insure street clothing while in a clubhouse locker.

-golf balls are covered for fire and burglary

Section VII- Fine Arts

   Examples of Fine Arts:

1. paintings
2. statuary
3. rare books
4. antique furniture

Items of fine arts are insured on a scheduled basis with evidence of value required.  These scheduled items are automatically covered on an Agreed Value Basis,

Not ACV.

-Additional Exclusions under fine art:

  1. damage while being worked on

  2. breakage of fragile articles unless caused by: -fire, lightening, aircraft,   windstorm, explosion, VMM, theft, earthquake, flood, collision derailment or overturn of transportation conveyance.

Note: For additional premium, this exclusion can be eliminated.

2.     No coverage while on exhibition. A separate exhibition insurance can be purchased.

Section VIII and IX- Stamp and Coin Collections

-this insures stamps, coins and paper money of collectors on a scheduled or blanket basis.

Exclusions:

1. fading                             5. thinning

2. tearing                            6. transfer of color

3. denting                           7. theft from unattended car

4. scratching 

Newly Acquired Property Clause-

-as to jewelry, furs, cameras and musical instruments, the insured is granted automatic coverage on newly acquired property only of the kinds presently insured for up to 25% of the scheduled amount for that class of property or $10k (whichever is less).  This coverage is for 30 days after acquisition.

-similar provisions apply as to fine arts. Coverage is for 25% of the scheduled amount with no cap of $10k and coverage is for 90 days.

Personal Property Floater: (like Coverage C) –Blanket

-form covering personal property owned or used by the insured worldwide.  The only exception to the worldwide limit is property usually kept at a secondary residence of insured where coverage is limited to 10% of the policy amount. The perils are ‘all risk’ of loss or damage.

Personal Effects Floater:

-Blanket form designed to cover tourists and travelers.  It provides All Risk Coverage for the insured’s personal effects while traveling.

Commercial Floaters

   A Jewelers Block Coverage Form

-this insures: retail, wholesale and manufacturing jewelers.

-covers insured’s stock in trade consisting of precious and semi-precious stones, precious metals and all other articles incidental to the business.

-it would also cover similar property of others in the insured’s care, custody and control.  (automatic Bailee Coverage)

How is it insured?

-This is a completed and signed proposal which is the application which forms a part of the policy. 

-This is an annual policy and requires a new proposal be submitted each year.

-This coverage is provided on an ‘All Risk’ basis and coverage territory is:

USA, Canada and Puerto Rico.  (can expand territory for additional premium)

Exclusions Under Jewelers Block:

1.     war                                                 7. damage while being worked on

2.     nuclear                                           8. infidelity of insured employees

3.     wear and tear                                9. unexplained loss, mysterious disappearance                                  

4.     gradual detoriation                           or inventory shortage

5.     insects and vermin                       10. theft from unattended auto

6.     inherent vice                                 11. flood and earthquake

Property not covered under Jewelers Block:

1.     property sold under a deferred payment sales agreement

2.     property while on exhibition

3.     property while in the mail

4.     contraband

Similar Dealer Forms

1.     stamp and coin dealers

2.     camera and musical instrument dealer

3.     equipment dealers ie: farm tractors

4.     fur dealers-this covers their own property only

-long terms storage furs belonging to customers would be covered by a furriers customer policy, a bailee form.

Bailee’s Customer Policy:

-        this is an ‘all risk’ form

-        covers the property of customers left with the insured for cleaning and/or processing and the policy cover this regardless of negligence.

-        For repair type shops that don’t sell merchandise

Transportation Insurance:

-The following 2 policies serve different purposes but are usually similar as to perils insured against and exclusions.

-The usual named perils are:

    -fire,  lightening,  bridge collapse,  flood, earthquake, windstorm,  theft and collision or overturning

Exclusions: war, nuclear, inherent vice, delay or loss of market, strikes, infidelity of the insured or employees, money, securities and jewelry.

1. Motor Truck Cargo Policy: (own trucks, not goods)- (carriers legal liability) form

-this insures a trucking common carrier for legal liability arising out of loss or damage to the shippers goods caused by the above perils.

-the carrier is responsible for most losses except for losses such as:

   War, nuclear, neglect of shipper.  Therefore, the carrier may wind up self insuring those losses not covered.

A.Interstate Commerce Commission endorsement (ICC endorsement)

-to comply with federal regulation, this endorsement converts the policy to All Risk

but only for the benefit of the shipper. If the insurance company has to pay and the peril was not insured, the insurance company gets reimbursed by the common carrier.

-cancellation of this policy for any reason requires 30 days advance notice be given to the ICC.

2.     Transportation Policy

-this is taken out by the shipper.  It insures the shipper for loss or damage only while their goods are in the hands of a common carrier.

-This is offered in 2 versions:

    a. trip transit- covers a one-time shipment

    b. open policy- covers continuous, ongoing shipments

-Advantages to a transportation policy:

      1. prompt payment of claims to the shipper

      2. acts of god are covered

      3. higher limits of coverage than provided under the bill of lading

3.     Motor truck cargo policy- own truck, own goods- (owners form)

-        This insures the owners goods on trucks owned or leased to the named insured when no common carrier is involved.

Ocean Marine-

-the oldest form of insurance. There are no government regulations, no rate book, no set policy forms and everything is negotiable..

Basic Perils of Ocean Marine

1. Fire- fire losses are covered except when it involves the spontaneous combustion of certain cargos.
2. Perils of the sea- the would include sinking, stranding, and damage by seawater
3. Assailing thieves- pirates- this requires theft through the threat of violence, not petty theft by crew.
4. Jettison- this is the act of throwing cargo overboard in order to protect the ship and crew from harm.
5. Barratry- the willful misconduct of the captain and/or crew. A violation of the trust shown by a ship owner in the captain and/or crew
6. Explosions- while at sea or in port are covered
7. Inchmaree Clause- this is named for a court case involving a vessel of the same name.  It covers bursting boilers, breakage of shafts, defects in machinery and negligence of the crew.

General Exclusions:

1.     Damage due to dampness

2.     delay/loss of market

3.     acts of war including confiscation, detainment, seizure or revolution

4.     strikes, riots or civil commotion

A. 4 Separate Areas of Ocean Marine:

  1. Hull Insurance-the vessel itself

  2. Cargo Insurance- goods

  3. Protection and Indemnity- liability

  4. Freight Insurance-loss of income

I.                Hull Coverage-  this is taken out by the ship owner. It covers the vessel itself, not the cargo or crew.  There are 5 separate contracts within a hull policy and as a result, the policy could pay up to 5 times it’s face amount.

1. Physical loss or damage- this covers damage to the vessel itself
2. General Average- a concept unique to ocean marine insurance.

-        this involves the voluntary sacrifice of cargo or ship for the general well being of the voyage from a peril of the sea. In such situations, the owner of the vessel and the owners of all shipped goods generally share the loss. No one specific owner suffers the whole loss.

-        Requirements for General Average Loss:

1. must be impending peril
2. there must be a sacrifice
3. the sacrifice must be successful
4. the ship owner was not lacking in due diligence (ship was seaworthy)

3. Sue and Labor-the company will pay the reasonable expenses at the time of loss to minimize the loss (Y2K- pre-emptive computer back ups)

4. Defense Costs-legal fees
5. Collision Liability-this covers the other vessels damaged and the cargo on board that vessel.

II.              Cargo Insurance- covers the good. This is taken out by the owner of the goods.  There are 2 type of Cargo Insurance policies:

1.     Stray or special risk- covers one time shipments

2.     open policy- covers continuous, ongoing shipments

-Coverages under Cargo Insurance:

               1.. FPA- free of particular average or free of all partial loss. 

                        This is the cheapest as it only pays for the total loss

3.     WA- with average  this pays for partial loss and total loss on named peril        basis.

4.     AR – All Risk- pays for partial and total loss on an all risk basis

   Endorsements:

-        Air transit

-        Inland transit

-        Warehouse Coverage

Clauses:

1. warehouse to warehouse clause: this states that the cargo must reach final                destination within a specified number of days after the shipment arrives in port.
2. marine extension clause- this eliminates the timely delivery requirement if the cause for delay is beyond the insured’s control (ie: strike)

III.            Protection and Imdemnity (P and I)

   This is taken out by the ship owner. It is liability insurance. It covers 3^rd

Party bodily injury, property damage and personal injury.

Crew members are always right no matter the cause of their injury or death. (this is referred to as an absolute liability policy)

IV.            Freight Insurance- this is for the loss of use of an insured vessel.

Warrantees: (something that exists today and continues into the future)

1. Legality of purpose- any ocean marine voyage must be legal in it’s purpose
2. Prompt attachment of risk- if the voyage is delayed, the underwriter must be notified immediately
3. Sea worthiness- this is a term that includes aspects of a commercial sailing venture that are taken for granted such as a competent captain/crew and a sound vessel.
4. No deviation- this refers to the need to adhere to a planned course and schedule unless some emergency rules otherwise.

ACCIDENTAL AND HEALTH INSURANCE

-the purpose of  health insurance is to protect the insured from economic losses sustained as a result of an accident or sickness. Types of health insurance:

1. Hospital Expense Insurance

2. Surgical Expense Insurance

3. Major Medical Insurance

4. Disability Income Insurance

5. Group Health Insurance

1. Hospital Expense Insurance: this pays for medical expenses incurred while in a hospital. A typical hospital policy provides 2 basic benefits.

1. daily hospital benefit
2. miscellaneous expense benefit

a. Daily Hospital Benefit- this benefit pays for room and board charges.  The plan typically pays a stated amount for each day in the hospital up to some maximum numbers of days.

-        there are 3 different methods for the payment of the benefit

Indemnity approach- the plans pays the actual cost of the daily costs of the daily services up to some maximum

Valued approach- a fixed amount is paid for each day of hospitalization regardless of the actual costs incurred.

1.     Service approach-service benefits rather than cash benefits are paid. The company will pay the highest semi-private room and board rate.

   

b. Miscellaneous Expense Benefits

 -a hospital policy also provides a lump sum benefit for misc. expenses such as lab tests,, x-rays, medications and use of the operating room.  There are 3 different methods for the payment of this benefit.

      1. choice of maximum dollar amount- at the time of the application for insurance the insured selects a specific dollar amount.

      2. maximum of the multiple of the daily room benefit (drb).  A factor is listed in the policy which is applied to the daily room benefit which determines the max amount of this benefit ie: 30 x drb

      3. Percentage Participation clause-aka: Co-Insurance-  the insured and the company share covered expenses based on a given ratio up to some maximum.

Note: with respect to maternity, in NY it is considered and illness.

2.     Surgical Expense Insurance-this coverage can be added to hospital expense policy.  It provides for the payment of physicians fees for surgical operations performed in a hospital or elsewhere.  Benefits are typically paid based on a surgical schedule which lists various procedures and the maximum amount available for each.

3.     Major Medical Insurance- this insurance is designed to pay a large proportion of the covered expenses of a catastrophic illness or injury.  A major med policy provides very broad coverage such as:

-        hospital room and board

-        misc expenses

-        surgeon fees

-        regular doctors fees

-        prescriptions

-        private duty nursing

-        wheel chairs

-        iron lungs

-        artificial limbs and eyes

-        mechanical equipment used for treatment

      note: Major Medical policies have very few exclusions. Common exclusions are:

-expenses caused by war or military conflict

- elective cosmetic surgery

-dental care except as a result of an accident

-eye and hearing exams; eye glasses and hearing aids

Major Medical Insurance- Lifetime limits:

Written with high maximum lifetime limits ie: $1M, $2M $5M and unlimited.

Deductibles- Major Medical policies contain deductibles which must be satisfied before benefits are paid. There are 2 basic type of deductibles:

1. Individual deductible- this means that all medical expenses incurred

   By covered person can be used to satisfy their own individual deductible.

            2. Family deductible- this means that all medical expenses incurred by a covered family member can be used to satisfy the one family deductible.

Percentage Participation clause- most major medical policies contain a co-insurance clause. The insured and the company share covered expenses based on the given ratio up to some maximum.  This maximum is referred to as a stop limit after which the company will pay 100% of the covered expenses.

Corridor deductible- some major medical policies use a corridor deductible.  This applies after the stop limit and before the 100% coverage applies. This deductible is typically $1000.

Family Coverage- this coverage is available under any of the medical plans. This means that the insured may elect to cover a spouse and/or any dependent children up to age 19.

Note: coverage can be extended beyond 19 (but not beyond age 25) if the dependent child is a full time student.

Handicapped and retarded children- coverage of an unmarried, dependent child who is incapable of self sustaining employment by reason of mental illness, developmental disability, mental retardation or other physical handicap must not be terminated while the policy is in force as long as the individual in question became so incapacitated prior to age 19 (or 25 if the child is an unmarried, full time student)

4.     Disability Income Insurance

-        provides periodic income payments when insured is unable to work because of illness or injury

-        income payments are designed to restore at least a portion of the work earnings lost due to disability ie: 60-80% of monthly income

-        Probationary Period- This is the period of time beginning with the first day a policy is issued during which claims will not be paid for the disabilities caused by sickness.  Ie: 30 days.  This time period does not apply to accidents.

-        Waiting period- aka: Elimination Period- this is the period of time beginning with the first day of disability during which benefits are not paid. This acts like a deductible in days ie: 7 days, 30 days, 60 days; 6, 9 months, 1, 2 yrs.   Note: 7 days not available w/ private benefit

-        Benefit Period (higher premium, longer benefit period)- this is the period of time after the waiting period has been satisfied during which benefits will be paid.  Ie: 26 weeks, 2 yrs, 5 yrs, up to age 65 or lifetime.

-        Total Disability- in order to collect benefits the insured must satisfy the definition of total liability as shown in the policy. Examples:

1.     the inability of the insured to perform one or more of the                    important duties of their own occupation. This is the most generous definition:  “Own-Occ

2.     Inability of the insured to perform the duties of any occupation for which they are reasonably fitted by reason of education, training, and experience.

3.     Inability of insured to perform the duties of any gainful employment

BONDS- aka: Suretyship

2 basic types of bonds

I.  Fidelity Bonds- the subject of fidelity bonds is employee dishonesty

II.  Surety Bonds-the subject of surety bonds is the guarantee of an obligation

I.  Surety:

Bonds are 3 party contracts

   1. -Principle

   2. -Obligee

   3. –Surety

1. Principle- is the party who wants to fulfill a certain obligation under a contract.     Examples of principles:

-        contractor who wishes to build a building for a city

-        mayor of a city who promises to discharge their duties faithfully (any public official)

-        guardian or minor who certifies in court that they will oversee their clients financial matters properly.

2. Obligee: the party who expects the principle to perform the contract or agreement in question. If the principle fails to perform the oblige will be reimbursed for damages according to the terms of the bond.             Examples of obligee:

-        the city that requires bids from contractors on a building project.

-        The city that expects the mayor to discharge their duties faithfully.

-        The minor who has a guardian handling their financial matters.

3. Surety- aka: Guarantor- the surety is the party that guarantees the performance of the obligations of the principle to the obligee. The surety is usually an insurance company or bonding organization.

Differences between Insurance and Suretyship:

   a. Insurance party contracts are 2 party contracts.  Suretyship is a 3 party contract.

  b. Insurance contracts may be cancelled; suretyship is the guarantee of a written contract and cannot be cancelled until the contract is fulfilled.

  c. Insurance is designed to pay covered losses and is priced to reflect a loss payment.  Suretyship is not designed to pay covered loss.  In theory, no losses are expected.  It’s just one party lending their good name or credit to another party.

  d. In insurance, when losses are paid generally the insurance company cannot recover the loss amount from the insured.  The surety has the right by contract to recover any loss amount from the defaulting principle.

  e. In insurance, covered losses are beyond the insured’s control but the subject of a particular bond is w/in the principle’s control

Underwriting of Surety Bonds  aka: The 3 C’s of Underwriting:

1.     Character- the integrity of the principle is absolutely necessary before any bond can be written.

2.     Capacity- this is the principles ability to perform the obligation.

3.     Capital- this is important in those situations that requires the principle to spend their own funds.

Precautions and Guarantees available to the Surety:

1.     Indemnity- assets of an outside party are made available to the principle to complete the obligation

2.     Collateral- assets are deposited w/ the surety to meet the obligations if and when called upon

3.     Joint control- the surety must approve the spending of money or property covered by the bonds.

Classes of Surety Bonds:

1.     Contract Bonds

2.     Court Bond

3.     License and Permit

4.     Public Official

5.     Federal

1. Contract Bonds- are used to guarantee the performance detailed in a wide variety of contracts. Used for contracts involving construction, repair, maintenance and material supply.  Examples of contract bonds:

A.    Bid bond- this is a preliminary bond filed with the bid.  It’s a guarantee that if the bidder is awarded a contract that they will sign the contract, provide a performance bond and undertake the work awarded to them.  A bid bond is usually a small % of the estimated contract price (ie 5-10%)

B.    Performance bond- this bond guarantees that the contractor will complete the work awarded to them in accordance with the contract which is made part of the bond (price, time frame, quality of material, etc)

C.    Payment bond aka: Labor and material Bond- this is usually issued with a performance bond.  This bond guarantees payment of labor and materials by the contractor.

D.    Subdivision bond- this is required of real estate developers to guarantee the installation of off-site improvements such as roads, curbs, sidewalks, sewers and drains, and trees.

E.    Supply bond- this guarantees delivery of material according to specifications, price, date and place of delivery.

Methods of Settling Contract Claims

1. Bonding company may finance the contractor to enable them to complete their obligation.
2. Bonding company may authorize the obligee to re-award the contract and agree to pay any difference in cost.
3. Bonding company may complete the obligation with their own organization.

II.  Court

Bonds aka: Judicial Bonds (per handout)- they are required in a court proceedings and fall into 2 categories:

1.     Fiduciary Bond- a fiduciary is someone in a position of trust.  They are required of persons entrusted with property by the court.

2.     Litigant Bond- these bonds may be required of a plaintiff or defendant in a court case to guarantee the payment of damages that might be awarded the other party and/or cover court costs.

3.     License and Permit Bonds- these are required by local or state agencies before they can engage in certain business or professional activities.  These bonds guarantee compliance w/ the ordinances and rules governing the license or permit.  Examples are:

a.     Liquor Bonds- protect liquor authority

b.     Plumbers bond

c.      Electrician bonds

d.     Excess lines broker-protects NY Dept of ins.  $15k/license

e.    

4.     Public Officials Bond- these are designed to guarantee the performance of public officials for the protection of the public that they serve.

5.     Federal Bonds- these guarantee faithful performance in compliance w/ federal laws and regulations. They are required of:

a.     Liquor manufacturers

b.     Tobacco companies

c.      Fire arms mfrs

d.     And any other industry under federal regulation

III  Fidelity Bonds- the subject of fidelity bonds is employee dishonesty. 

1. there are 3 parties to the bond:  principle, obligee, surety.  \

      Bonds are purchased by the obligee.

2. Bonds contain conditions and limitations under which they are liable.
3. Coverage is automatically void when the employer has knowledge of a previous dishonest act of an employee and fails to disclose it and it is also void as to future acts of an employee immediately upon discovery of a loss covered by the bond.
4. The bond contains a discovery period which is a period of time allowed to the insured after the coverage ceases to exist w/in which to discover a loss which occurred while coverage was in effect.  The typical discovery period is 1 yr.
5. Superceded Suretyship clause-the company agrees to indemnify the insured against loss under a prior bond.  This is for losses which would have been covered under the earlier bond except that the discovery period has passed.
6. The term of a fidelity bond is continuous and remains in effect until formally cancelled by the obligee or surety.
7. Fidelity bonds anticipate a loss and are priced to reflect loss payment.

Classes of Fidelity Bonds:

1.     Individual Bonds- covers one person

2.     Scheduled Bonds- these are offered in 2 versions.

a.     named schedule- this lists the actual names of the employees to be bonded.

b.     position schedule- this lists the names of the positions of the employees to be bonded ie: cashier

3.     Blanket Bond- this covers all employees w/out exceptions and as a result if a loss occurs, there is no need to identify the dishonest employee.  They need only prove that the loss occurred. Blanket bonds are offered in 2 versions:

a.     Commercial Blanket Bond (CBB)- the bonds penalty/limit is the maximum amount applied to any single loss regardless of the number of employees involved.

b.     Blanket Position Bond  (BPP)- the bonds penalty or limit applies to each of the employees involved therefore it covers collusion losses. 

Examples of a Blanket Bond:

-a blanket institution bond- this form is for firms dealing in money, securities, and credit such as banks and stockbrokers.  It covers employee dishonesty on/off premises.  Optional coverages (for additional premium):

  - forgery of their own paper

  -acceptance of forged documents

  - counterfeit money coverage

Miscellaneous Bonds:

1.     Mechanics lien bond- this is for a lien against property. It may be filed for labor and materials furnished for construction of/or improvement to a building.

2.     Discharge of mechanics lien bond-pending final determination of an owners liability the owner may discharge the lien by giving bond guarantee payment of any amount that may be found due to the claimant.

3.     ERISA bond- Employee Retirement Income Security Act                               aka: Pension Reform Act- this requires a fidelity pension bond be maintained for all individuals handling funds and/or property belonging to an employee pension or welfare fund.

Small Business Administration Surety Bond Guarantee Program- this provides guarantees on surety bonds for all businesses unable to obtain them in the voluntary market on contracts of $1M or less.  Maximum guarantee is 90%

I. Auto Insurance: There are 3 types of automobile coverages:

    A. Personal Auto policies

    B. Commercial Auto policies

    C. Policies used by auto business- these would include garage liability and garage        keepers’ legal liability.

     A. Personal Auto Policy- (PAP)

-        sold primarily to cover individually owned private passenger type autos. 

-        It can be insured for a term of 1 year or less.

1.     PAP has the following 8 parts:

a.      Declarations: names, address, policy period, deductible, premiums, endorsements

b.     Definitions- defines the terms used in the policy

c.      Part A- (BI/PD) bodily injury and/or property damage liability portion

d.     Part B- medical payments- optional coverage.  (no fault w/ PIP-personal injury protection) ???????

e.      Part C- uninsured motorist coverage

f.      Part D- damage to your auto coverage- this part includes other than collision and collision (optional)

g.     Part E- duties after accident or loss

h.     Part F- general provisions- cancellation, coverage, territory

Definitions:

1.     “You and Your”- insured names in the declarations as well as a spouse if resident of the same household

2.     “We, Us and Our”- refers to the insurance company

3.     “Your Covered Auto”

a.      any vehicle shown in the declarations

b.     any “newly acquired” auto (to be defined)

c.      any trailer owned by the insured

d.     any non-owned auto or trailer while used as a temporary substitute for any other vehicle which is out of normal use due breakdown, repair, servicing, loss or destruction.

4.     “Newly Acquired Auto”- refers to any of the following types of vehicles the insured becomes the owner of during the policy period.

a.      private passenger type auto

b.     a pick-up truck or van that is primarily used for non-business purposes.

5.     “Replacement Vehicle”- if the “newly acquired vehicle” replaces one shown in the declarations, coverage is provided without the insured having to ask the company to insure it.  It will NOT be covered upon renewal unless identified in the declaration.

6.     “Additional Acquired Vehicle”- if a “newly acquired auto is in addition to any shown in the declarations, it will have the broadest coverage now provided for any vehicles shown in the declarations.  The insured must ask the company to insure it w/in 14 days after they become the owner.  If the insured asks the company to insure it after 14 days, coverage begins on the date of the request.

Coverage for damage to your auto under “Newly Acquired Auto”:

-physical damage for a newly acquired auto begins on the date the insured becomes the owner if:

-        The newly acquired auto replaces one shown on declarations

-        The company provided that coverage on the vehicle insured replaced for at least 12 months prior to the date of replacement.

As for Coverage D-Damages:  the insured must ask the company to insure it within 3 days after they become the owner.  For each of the following that fall within the 3 day period, the company will extend coverage for one day, ie: Saturday, Sunday or legal holiday (max of 6 days)

7. Trailer- a vehicle designed to be pulled by a private passenger type auto, pickup truck or van.  It also means a farm wagon or farm implement while being towed by private pass
9. nger type auto, pickup truck or van
10. Occupying- In; getting in; getting out.  On, getting on, getting off
11. Family Members- anyone related to the named insured by blood, marriage or adoption including ward and foster children who are residents of the same household.

Part A- Liability- Insuring Agreement- the company will pay for damages for BI and PD for which any insured becomes legally responsible because of an auto accident.  The company will settle or defend as they consider appropriate any claim or suit asking for these damages.  In addition to the limit of liability, the company will pay all the defense and court costs they incur.  The company’s duty to settle or defend ends when the limit of liability has been exhausted. The company has no duty to defend any claim not covered under the policy.

1. Covered Person or Who is Insured

1.     the names insured and family members

2.     any person using the insured’s auto with permission

3.     for the covered auto, any person or organization but only w/ respect to the legal responsibility for the acts of a person for whom coverage is afforded under this part.

4.     any non-owned auto or trailer, any person or organization but only w/ respect to the legal responsibility for the acts of a person for whom coverage is afforded under this part.

       Note: this provision applies only if the person or organization does not                        own or hire the auto or trailer.

(Part A) Limited Liability- minimum limits of liability in NY are:

1.     on a split limit basis, coverage is:

$25K-BI/pp/accident

$50K-BI/total per accident

$10K-PD/accident

Combined single limit is for $60K.  It combines both BI and PD under one single limit.

New York State Statutory Death Benefits- this is additional insurance.

-if the limit shown in the policy is less than $100K BI/pp?accident and cx   qq`

$200K BI/total per accident and the accident results in death, the policy will pay up to $50K BI for death of any one person and up to $100K BI for the death or 2 or more but still not more than $50K BI for any one person.

(Part A) Supplementary Payments- in addition to the limit of liability the company will pay on behalf of the insured:

1.     all defense costs they incur

2.     up to $250 for the cost of bail bonds required b/c of an accident

3.     premiums on appeal bonds

4.     interest accruing after judgment is entered in any suit the company defends

5.     up to $200/day for the loss of earnings b/c of attendance at a hearing or trial at the company’s request

6.     other reasonable expenses incurred at the company’s request

7.     expenses incurred by a covered person for the first aid to others at the time of accident.

(Part A) Liability Exclusions:

1.     any person who intentionally causes or directs another person to cause BI or PD

2.     for property damage to property owned or being transported by the insured

3.     bodily injury to an employee during the course of employment (would be covered under workers comp)

-        this exclusion does not apply to a domestic employee unless workers comp benefits are required/available for that domestic.

4.     any vehicle used as taxi or livery conveyance

-        this exclusion does not apply to ‘share the expense’ carpool

5.     while the insured is engaged in the business of selling, repairing, servicing, storing and parking automobiles

6.     any person using vehicle without the belief that they are entitled to

7.     any vehicle having less than 4 wheels

8.     any vehicle designed for use mainly off public roads unless such vehicle is being used for a medical emergency.

 Out of State Coverage: if an auto accident occurs to a covered vehicle in any state or province other than the one in which it is principally garaged the policy for the purpose of that accident will be interpreted as follows:

1.     if the state or province has a law specifying limits of liability for BI and PD that are higher than the limits shown in the declarations then the policy will provide the higher limit.

2.     if the state or province has a law requiring non residents to maintain insurance when using a vehicle in that state or province the policy will provide at least the minimum types and amount of coverage.

Other Insurance Clause: if there is other liability insurance the company will pay only their proportion of loss that their limit of liability bears to the total of all limits.

However, insurance provided for non-owned auto is excess coverage.

Part B- Medical Payments- optional coverage

-        if purchased, it would be excess to no fault

-        the company will pay the reasonable expenses incurred for necessary medical and funeral services because of bodily injury caused by an accident and sustained by an insured.  The company will pay those expenses for services rendered within 3 years after the date of the accident.

-        Insured as used in this part means: any person occupying your covered auto and also extends coverage to the named insured and family member when struck as a pedestrian.

Part C- Uninsured Motorist Coverage*-  the company will pay the compensatory damages which an insured is legally entitled to recover from the owner/operator of an uninsured motor vehicle because of bodily injury caused by an accident and sustained by an insured.  Insured as used in this part means:

-        the named insured and family members

-        any other person occupying your covered auto

The Statutory Uninsured Motorist Coverage limits are:

$25K BI/pp/accident

$50K/total per accident

This applies to accidents that occur in NY state only

Uninsured Motor Vehicle- is defined as a land motor vehicle or trailer of any type  to which:

-        no BI, liability bond or policy applied at the time of the accident

-        BI, liability bond or policy does apply at time of accident but its limits are less than the legal minimum

-        Hit and run

-        BI, liability bond or policy does apply at time of accident but the company denied coverage or becomes insolvent.

Supplemental Uninsured/Underinsured Motorists Coverage Endorsement

Aka: SUM

  -this endorsement is available up to a limit of $250/BI/pp/accident and $500/BI total/accident but never more than the insured’s own Part A limits

  - this endorsement extends the limits to accidents that occur outside NY State as well but within the coverage territory.

 - this endorsement is written on a non-stacked basis which means the at fault 3^rd party’s limits are included within the insured’s part c limits.

Part D- Damage to your Auto- Insuring Agreement

-        this part covers payment for direct and accidental loss to the insured’s covered auto or non-owned auto including equipment less any deductible indicated in the policy.

-        Loss caused by collision will only be paid if the declarations indicate that such coverage is provided.

Collision- the upset or the striking with another vehicle or object by the covered auto or non owned auto. 

The following types of losses are considered to be other than collision (OTC):

1.     missiles or falling objects

2.     fire

3.     theft or larceny

4.     explosion or earthquakes

5.     windstorm

6.     hail, water and flood

7.     VMM

8.     riot and civil commotion

9.     contact with bird or animal

10.  breakage of glass (if the breakage is caused by a collision the insured may elect to have this considered a collision loss)

Transportation Expenses- In addition, the company will pay up to $20/day subject to maximum of $600 for transportation expenses incurred by the insured in the event of loss to the auto. If the loss is caused by total theft of the auto coverage begins 48 hours after the theft and ends when the company has paid for its loss.  For losses other than total theft, coverage begins 24 hrs after the auto is withdrawn from use.

Part D- Exclusions

1.     loss while vehicle being used as a taxi or livery service                                      Note:  does not apply to expense share carpools

2.     damage due and confined to wear and tear, freezing, mechanical or electrical failure or road damage to tires.                                                                            Note: these losses would be covered if they were directly related to total theft of the auto.

3.     loss due to or as a consequence of radioactive contamination, discharge of a nuclear accident, war including rebellion, revolution, invasion, enemy attack and civil war.

4.     loss of equipment designed for the reproduction of sound unless the equipment is permanently installed in the auto. Also excludes loss to tapes, cd’s, records or any other equipment.

5.     loss to cb radio, 2 way mobile radio, telephone or scanning monitor unless the equipment is permanently installed in the vehicle.

6.     loss to custom furnishings in or upon any pickup truck or van

7.     loss to camper body or trailer not shown in the declarations.  This exclusion does not apply to a newly acquired camper body or trailer the insured acquires during the policy period and asks the company to insure it within 14 days after they become the owner.

8.     loss to radar detector

9.     loss resulting from the seizure or destruction of property from the actions of civil authority

10.  intentional loss committed by the insured

11.  loss to any non owned auto while the insured is engaged in the business of selling, repairing, servicing, storing and parking automobiles.

Part D.- Limit of Liability-

-  the company’s limit of liability for loss will be the lesser of the ACV of the stolen or damaged property or the amount necessary to repair or replace the property with other property of like, kind and quality. (cost to repair exceeds ACV)

- however, the most the company will pay for any loss is:

    1. any non-owned auto which is a trailer is $500

    2. equipment designed solely for the reproduction of sound which is installed in locations not used by auto mfr of such equipment is $1000 (after market installation)

Part D-Deductibles- there is a standard deductible of $200 for both collision and other than collision.  Note: full glass coverage means the deductible does not apply to loss.

Auto Handouts::: 

**NY State Comprehensive Motor Vehicle Reparations Act

Aka: Personal Injury Protection (PIP)

Aka: No Fault Coverage

**Rental Coverage Vehicle Endorsement

**NY State Automobile Photo Inspection Law- Regulation 79

**Commercial Coverage

NYAIP-NY Automobile Insurance Plan

Aka: Assigned risk

-this is an insurance pool started for the purpose of providing basic auto insurance coverages to those individuals unable to obtain coverage in the voluntary market.

-the minimum coverage under Part A is:

   $25k/$50k/$10

-the maximum under Part A is 10x  ($250/$500/$100)

-assignment in the plan is a 3 year assignment to the company, however, the insured is eligible to leave at any time

-coverage may be denied in the NYAIP for the following reasons:

    1. drivers license is suspended

    2. outstanding balance owed to the plan

    3. for physical damage on vehicles of 25 years of age or older.

Worker’s Compensation and Employee’s Liability-

Part I- This is the agreement on the part of the insurance company to perform on behalf of the insured all of the obligations of the workers comp laws in those states listed in the declarations.

Part II- Employers Liability Section- this obligates the insurance company to defend any legal action instituted by an employee.

Endorsements-

NY State Amendatory Endorsement

Aka: NY limit of Liability Endorsement

This must be attached to every workers comp policy issued in NY.  This removes any limit of liability for Part II for those employees not subject to the law.  The standard limit of liability is as follows:

$100k/accident

$100k/disease/employee

$500k by disease policy limit

Maritime- the constitution of the United States government gives the Federal Govt jurisdiction over maritime matters.  Therefore, the state laws do not apply to injuries or death to maritime workers employed on navigable waters of the US or high seas.

These employees are governed by the following:

1.     general maritime law

2.     Jones act

3.     Death at High Sea Act

4.     US Longshoreman’s and Harbor workers Compensation Act

Premiums- the company charges a rate to an estimated payroll per $100 for each classification of the insured’s operation.

Deposit Premium- aka: Initial or Advance Premium- this is the money the insured pays at the inception of the policy.  The insurance company will audit each policy at expiration or cancellation to verify any earned premium.

Note: there is an expense constant of $250

For an example/illustration, see notes

Miscellaneous payrolls are those for which there are not rates in the manual.  They are assigned to the governing class.  The governing class is that classification of the insured’s operation other than standard exceptions which carries the highest payroll on audit.

The standard exceptions are low rated categories such as: clerical, drivers and helpers, outside salesperson, messengers and collectors and executive officers and draftsman.

Cancellations of a Workman’s Compensation Policy- the company cancels on a pro rata basis.  The insured cancels on a short rate basis.  However, the insured would receive a pro rata cancellation if the cancellation is because they are retiring or they have completed the work for which the policy was issued.

Midterm cancellation by the company requires 10 days notice plus mailing be given to the workman’s comp board and the insured.  Non-renewal cancellations require 30 days notice plus mailing.

Note: the State Insurance fund may only cancel for non-payment of premiums.

Benefits Under Workers Compensation

-Medical Benefits- an injured employee received free medical, hospital, nursing, surgical, rehab and transportation fares w/ no limit in time or amount.

-Wage Benefits- there is a waiting period of 7 days unless the disability lasts more than 14 days in which event benefits are paid from the first day of disability.  This is referred to as a retroactive provision.

Days 1-7///  8-14/// 15-21

           0          1          2

The employee is entitled receive 2/3 of their average weekly wage subject to a maximum of $600/week net.

Types of Disabilities;

1.     Temporary total- not able to work but expected to recover

2.     Permanent total- not able to work for the rest of one’s life

3.     Temporary partial- partially disabled but can do some work

4.     Permanent partial- loss of or loss of use of an organ or body part.

Scheduled Awards- for certain injuries there are scheduled or lump sum awards where wage loss is presumed due to the nature of the injury.

Death cases-funeral expense will be paid to a maximum of $5k upstate, $6k downstate.

-Dependents of the employee will receive an award using the same formula as the employee would have received.

-Children can collect up to age 18 or 23 if full time student.

-A spouse will receive the benefit for life or until they remarry at which time they would receive the lump sum amount equaling 24 months of benefit.

-one check per household.

-No dependents – in the event an employee is killed and has no dependents the insurance carrier is required to make a contribution of $50k to the estate of the employee and is also required to make a contribution of $5k back into the workers comp program.  Of this amount, $3k goes to a reopened case fund and $2k goes to a vocational rehabilitation fund.

Obligation of the Employee, Employer and Doctor

-employee must notify the employer of any injury within 30 days or of an occupational disease within 90 days.

-the employer must notify the workers comp board within 10 days

-the doctor must file a preliminary report within 48 hours of the first treatment.  A complete detailed report must be made within 15 days of first treatment and progress reports as requested.

Minors- the employment of minor in violation of the law entitles the minor to double compensation.  The punitive portion is paid for by the employer.

Rules regarding Subcontractors- a contractor who sub contracts any part of a job is legally obligated to see that the subcontractor carries workers comp coverage for the sub contractors employee.  Otherwise the contractor will be considered the employer of the sub and is charged the premiums and losses.  To protect themselves the contactor requests a certificate of insurance from the subs carrier which certifies that there is workers comp coverage in effect and if the subcontractor’s policy is cancelled for any reason the contractor will be notified.

Payroll rule- employer must keep adequate records of payroll of employees by class so that if the employee is a standard exception they will get the benefit of the lower rate.  Other than in contracting operations, the payroll or remuneration for an employee who performs work in several classifications is assigned to the highest rated class.

In contracting operation, the payroll may be split among the various classes provided adequate records have been kept.

Exceptions Under Workman’s Comp

-Executive Officers- they are included in a workers comp policy and payrolls are computed on a maximum of $1825/week or a minimum of $600/week

-Officers may elect to opt out of this coverage but the limit is not more than 2 officers.

(if 1 or 2 officers, can opt out. More than 2, all must be in)

-Sole Owners and Partners- they may elect to be covered or not and their payrolls are computed to the same limits as executive officers.

Premium Discount Rule- a credit shown as a percentage is applied to the workers comp premium.  This percentage increases as the size of the premiums increases.  It applies to all policies in excess of $5k in the premium.  It is given in recognition that the expense of writing and servicing large premium risks is proportionately less than for smaller premium policies. (volume discount)

Experience rating- this is a system used to modify the manual premium, to qualify, a risk must have developed a premium of at least $10k in each of the past 2 years of the plan or $5k in each of the past 3 years of the plan.  Under this plan the frequency of losses is penalized more than the severity of the loss.

Employee Suits against 3^rd parties- when injury or death is caused by the negligence of a party not in the same employ, the employee may accept workers comp benefits or sue the 3^rd party or both. 

-If recovery is made by the employee, the workers comp carrier has a lien on the proceeds to the extent of payments made.

-should the employee take no action the workers comp carrier does so but only to the extent of payments made- subrogation.

NY State Disability Benefits Law (DBL)

-this law is administered by the workers comp board as it compliments the workers comp law by providing for the payment of cash benefits to employees who become disabled by reason of injury or illness which has no connection with their employment.

*see handout

Commercial General Liability (CGL)

CGL covers occurrences arising under the premises operation of commercial buildings including elevators.

          -some common liability exposures are:

                       1. premises

                       2. operations

                       3. products liability

                       4. completed operations

                       5. contractual liability

                       6. contingent liability

                       7. personal injury

                       8. advertising injury

A CGL Policy is offered in 2 versions

    1. occurance form

    2. claims made

Both forms are identical except that each has a different coverage trigger relating to coverages A and B.

*see handout

A CGL Policy is broken down into the following sections

Section I- indicates the coverage afforded which would include BI and PD. Personal and advertising injury and medical payments.

Sections II- explains who is insured.

Section III- explains the limits of liability

Sections IV- conditions

Section V- définitions

Note : Section V in a Claims Made form is for extended reporting periods so

Section VI is added for definitions.

Section I- Coverage

-this is broken down into Coverage A, B, C.

Coverage A- this is for BI and PD- the following coverage are included in Coverage A:

1.     Premises- this covers people injured or property damaged while on the premises which includes:

a.      building

b.     sidewalks

c.      parking lots

d.     vacant land

2.     Operations- this covers the operations or activities of employees and/or the products under their control away from the premises.

3.     Products- this covers injury out of the use or consumption of merchandise away from the premises of the manufacturer or vendor. The key is: off premises, non-possession of the insured.

4.     Completed Operations- this refers to construction type risks. It’s similar to the products exposure. It’s for the construction risks which have been completed and are put to their intended use. (beyond control of the insured)

5.     Contracts or contractual liability- this covers the assumption of liability as defined by the insured’s contract definition in the policy.  It covers the act of holding harmless another party.  Contracts which are deemed to be necessary and basic in order to conduct business are automatically covered under the premises operations liability exposure.  They are referred to as ‘incidental contracts’ and include the following:  (L.E.A.S.E.)

          L. lease of a premises agreement- this is a basic requirement of a tenant.  The landlord would want to be held harmless from possible liability from the tenants activities.

          E.  easement agreement- this is when the owner of land allows another party the use of land in a limited way.

          A. agreement to indemnify municipalities- village governments often require local businesses to hold them harmless from possible liability.

          S. Sidetrack agreement- a business located near a railroad track might want a sidetrack or spur leading from the main line to their place of business.  Before the railroad would agree, the business would have to agree to hold them harmless from possible liability from the improper use of the track.

         E. elevator maintenance agreement- this is for the contract between the owner of the elevator and the company that services it.  The service company would want to be held harmless from possible liability die to the improper use of the elevator.

6.     Contingent liability- this refers to liability which arises out of work done by an independent contractor. Generally, an individual business cannot be held responsible for the negligence of an independent contractor some exceptions are:

a.      the activity is illegal

b.     the work is inherently dangerous

c.      the situation involved does not permit the delegation of authority.

7.     Fire damage legal liability- this provides coverage for property damage for premises rented or leased to the named insured if caused by fire and is subject to it’s own separate limits in the policy.  Coverage is on a per fire basis.

Exclusions for Coverage A

1.     Intentional acts on part of the insured

2.     work related activities (would be workers comp)

3.     accidents as in:

a.      automobile

b.     aircraft

c.      watercraft

  note: this exclusion does not apply to the incidental parking of customers cars on premises.

4.     Dramshop- liquor liability- this exclusion does not apply to host liquor liability.

5.     Personal property of others in the insured’s care, custody or control (Bailee)

6.     Discharge of pollutants

7.     war

8.     nuclear

Section I- Coverage B- this covers personal and advertising injury

I.                Personal Injury- this means injury other than bodily injury arising out of one or more of the following offenses:

1.     false arrest or malicious prosecution

2.     invasion of privacy

3.     slander or libel

II.              Advertising Injury- this is covered if caused by an offense committed by the insured in advertising, their good, products or services.  Injury must arise out of one or more of the following offenses:

1.     oral or written publication of material that slanders or libels a person or organization or violates a persons right to privacy.

2.     misappropriation of advertising ideas or styles

3.     infringement of copyright, title or slogan.

Exclusions for Coverage B

1.     the insured knows the oral or written publication is false

2.     the insured willfully violates the law

3.     a breach of contract

4.     the failure of goods to conform to advertised form

5.     wrong description of the price of good, products or services

6.     an offense committed by an insured whose business is advertising, broadcasting, publishing and telecasting.

Supplementary Payments Under Coverages A and B- in addition to the limit of liability the company agrees to pay:

1.     all defense and court costs they incur

2.     the cost of bail bonds up to $250

3.     the cost of appeal bonds and bonds to release attachments

4.     other reasonable expenses incurred at the company’s request including loss of earning because of attendance at a hearing or trial for up to $250/day

Section C- Medical Payments- the company agrees to pay the necessary medical expenses incurred within 1 year of an accident causing bodily injury under the premised operations liability exposure.

Exclusions for Coverage C

1.     any insured’s or person hired to work for insured

2.     tenants of the insured

3.     persons involved in an athletic contest

4.     persons injured resulting from the products completed operations liability exposure (beyond control of the insured)

Commercial General Liability

Section II- Who is insured??

This insured are considered to be individuals in connection with the conduct of business such as:

     -partners

     -spouses

     -officers

     -directors

     -employees

Provided they were acting within the scope of their employment.

Other insured’s:

1.     any person or organization while acting as a real estate manager (building super)

2.     anyone having proper temporary custody of the insured’s property should the insured die (executor of estate, legal representative)

3.     any newly acquired or formed organization for which the insured has a majority interest is covered automatically for 90 days or the end of the policy whichever is earlier.

4.     anyone driving mobile equipment with permission is covered for liability but not for injury to drivers or company employee.

Mobile Equipment defined:

-mobile equipment is covered for BI and/or PD if it is a land vehicle and includes any attached equipment provided:

      1. it is designed for use primarily off public roads

      2. maintained for use solely on or next to the premises

      3. vehicles that travel on crawler treads (tractors, bulldozers)

      4. contractors and similar type equipment (crane, excavators)

      5. any other vehicle not listed above provided they do not transport persons or  property for a fee and they’re not considered autos such as:

        snow removal vehicles, street sweepers and cherry pickers.  (drivers would be covered under workers comp)

Section IV- Conditions

·       see common policy conditions handout

Section V- Definitions- explains terms used in the policy

Note: Section V in Claims Made form is for extended reporting periods so Section VI would be definitions.

How is a CGL policy rated?

The types of risks are broken down into 4 major business groups and are rated as follows:

1.     Mercantile- classified by types of goods sold and are charged at a rate per $1000 of gross sales

2.     Manufacturing- classified by final product and charged at a rate of $1000 per gross sales.

3.     Contracting and Services- the company charges a rate per $1000 of payroll for each classification of the insured’s operation.

4.     Building and Premises-

a.     apartment house-rated per unit

b.     hotels- rated per $1000 of gross sales

c.      office space rated per 1000 sq ft area

New York State Law:

Superintendent of Insurance is appointed by the Governor. The Superintendent has very broad powers.

1.     Examination of Records: the superintendent may examine the affairs, transactions, accounts records, documents and assets of each authorized insurer as often as they feel necessary.

Note: Domestic insurance MUST be examined at least once every 3 years.

2.     Notice and Hearing: the Superintendent may examine and investigate any person believed to be involved in an unfair method of competition or other deceptive practice relating to insurance.

Note: the agent or broker is entitled to a 10 day notice of hearing

3.     Penalties- individuals found guilt of violating any insurance rules or regulations may be subject to licensing suspension or revocation and/or a fine of up to $500/offense subject to an aggregate limit of $2500 at one hearing. 

a.     Willful violation of a cease and desist order carried a fine of $5000.

b.     Acting as a reinsurance intermediary in violation of the law carries a fine of $5000.

c.      Agents and/or brokers found guilty of fraud carries a minimum fine of $50K and potentially 10 years in jail.

d.     If this fraudulent activity damages the company’s financial ranking, jail term can be 15 years.

Licensing:  the purpose of licensing is to encourage improvement in the professional competence of insurance licensee’s and regulate marketing practices.

Persons required to be licensed:

1.     agents

2.     brokers

3.     sub-licensee’s- a person who has been given the authority to transact insurance under a license issued to a firm or corporation.

Licensing requirements:

1.     must be 18 yrs or older

2.     must be a resident of the state or maintain a business address in the state

3.     must complete a 90 hour course of study at an accredited school

4.     must pass a state license exam

5.     must be trustworthy, competent and willing to do business in good faith

6.     in the case of agents, must be appointed by an authorized insured.

Non-resident licensing- non-residents are eligible for a NY agent or broker license as long as their home state reciprocates w/ NY residents.  Non-residents will receive the license w/out taking a written exam provided they have been licensed in their home state at least 3 of past 5 years.

Exceptions to licensing requirements

1.     regular salaried officer or employee of an insurer or licensee whose salary  is not directly dependent on the sale of insurance.

2.     representatives of a fraternal benefit society who devote less than 50% of their time transacting insurance on behalf of that organization.

3.     an agent or broker whose license had been suspended or revoked but is now being reinstated by the superintendent.

4.     representative of a common carrier who only sell over the counter short term travel accident and baggage insurance.

5.     individuals that have achieved the CPCU- Chartered Property and Casualty Underwriters- designation may only be required to take the law part of the test.

License Refusal- the superintendent has the power to refuse to issue a license to an individual for a number of reasons including, at the superintendents discretion, the individual is not trustworthy, competent, or willing to do business in good faith.

Termination of a License-

1.     Expiration- unless terminated for another reason, an  agent or broker’s license expires biennially (every 2 years) on their birthday odd or even years.

2.     Suspensions or revocations- at anytime the superintendent may revoke or suspend the license of an agent or broker for a specific cause after a hearing has been held.  The super may revoke or suspend a license for any of the following reasons:

a.      willful violation of any provision of the insurance code.

b.     Intentionally withheld material info in the license application

c.      Attempt to obtain a license by fraud

d.     Misappropriation of funds

e.      Committed any fraudulent acts

f.      Any other reason deemed appropriate by the superintendent.

License Renewals (every 2 years)- renewals are subject to the discretion of the insurance superintendent and the payments of the necessary fees.  Fees are $80/2 yr and $40 for up to 1 year.

-        you are also required to maintain 15 continuing education credits for each 2 year period.

Illegal marketing

1.     misrepresentation or false advertising

2.     defamation-this is the harming of one’s reputation by slander or libel

3.     choice of company agent or broker-lenders of money on real or personal property cannot demand the insured uses a specific company, agent or broker. The freedom to choose is that of the insured.

4.     unlawful inducement-aka: twishing- this is the practice of inducing a policy holder to replace it with another to the detriment of the individual.

5.     rebating- this is the return by an agent or broker part of the premium in order to obtain business.  It can also be any favor, inducement or advantage such as money or gifts not outlined in a policy.  However, it’s not considered rebating to provide promotional gifts of $15 or less.

Fiduciary Responsibilities- Agents and brokers are regarded as acting on a fiduciary capacity, one of trust, in the collection of premiums.  These agents and brokers need to have the expressed written consent from the companies with which they do business in order to combine those funds collected w/ personal funds.  This process of combining funds is known as: co-mingling.  In the absence of such permission, a separate premium account must be maintained.

The following checks may be drawn against the premium account:

1.     to forward checks to premium company

2.     return of premiums to the insured

3.     payment of commissions to the agent or broker

note: the agent or broker may deposit personal funds into the premium account to maintain an adequate balance. (subject to penalties)

Redlining- no insurer shall refuse to issue or renew or shall cancel a policy of fire or auto insurance based solely on the geographic location of the risk. It can refuse to write a risk if it would be a violation of sound underwriting practices related to anticipated loss experience.

F.A.I.R. Plan (Fair Access to Insurance Risk) – authorized involuntary- indemnity

N.Y.P.I.U.A. (New York Property  Insurance Underwriters Association)

This is a joint underwriting association started for the purpose of providing basic fire insurance coverage to those individuals unable to obtain coverage in the voluntary market.  It includes: fire, lightening, EC perils, VMM, sprinkler leakage, time element coverage.

Coverage may be denied in the FAIR plan  for the following reasons:

1.     unrepaired damage following a loss

2.     property in danger of collapse or in dilapidated condition

3.     evidence of arson by owner or occupant

Excess Lines Broker- these brokers have the authority to place insurance contracts w/ unauthorized companies b/c of non-availability in the authorized market.  There is no special exam but must be licensed as regular broker, pay an annual fee of $200 and post a $15k bond  (License and Permit bond)

Controlled Business- the superintendent may refuse to issue a license or renewal if:

1.     such applicant will receive commission in any one year in their own property or risks which exceed 5% of their total annual commission

2.     such applicant will receive commission in any one year from the property of a spouse or from the property of a corporation which they or their spouse controls or a partnership in which they or their spouse is a member which exceeds 10% of their annual commission.

Temporary License- this license is available to the spouse or legal representative of a deceased or disabled agent or broker.  It allows for the closeout of existing business not for writing new business.  This license is valid for 90 days but it can be renewed up to 4x for a total of 15 months.

Public Adjusters- one must be licensed as a public adjuster in order to adjust fire losses for compensation on behalf of the insured. The only exception is a regular broker who is not a PA may adjust fire losses for compensation in those situations where they are broker of record.

-independent adjusters are those who adjust loss on behalf of the insurance company.

Crime:  definitions

Burglary- taking of property from the inside of a premises by a person unlawfully entering or leaving the premises as evidence by marks of forcible entry or exit.

Robbery- taking of property from the care and custody of a person by one who has:

1.     caused or threatened to cause that person bodily harm

2.     committed an obvious unlawful act witnessed by the victim (ie: shoplifting)

Safe Burglary- taking of:

1.     property from w/in a locked safe or vault by a person unlawfully entering the safe or vault as evidence by marks  of forcible entry upon it’s exterior

2.     the taking of the safe or vault from the premises.

Theft- (all risk policies)- any act of stealing including burglary, robbery and safe burglary.

What is a premises?  Defined as the interior of that portion of any building occupied by the insured in conducting the insured business.

-premises can be amended by endorsement to include that portion of the grounds entirely enclosed by a fence or wall.

What is a watch person?  This means any person the insured retains to have care and custody of the property inside the premises and who has no other duties.

What is a custodian? This means the insured, any partner or employee having care and custody of the property inside the premises excluding any person while acting as a watch person or janitor.

What is a messenger?  This means the insured, any partner or employee having care and custody of the property outside the premised.

The are 4 parts to the Commercial Crime Section:

1.     Crime Declarations Form: this includes the name and address, policy period, coverages, limits of insurance, deductibles, premiums of endorsements and notice of cancellation of prior insurance (Superceded Suretyship clause)

2.     Common Policy Conditions Form (see handout)

3.     Crime General Provisions Form;

Section A- General Exclusions

1.     loss committed by the insured or any partner

2.     loss resulting from the seizure or destruction of property by order of civil authority

3.     indirect loss such as unrealized income

4.     expenses related to any legal action (liability)

5.     war

6.     nuclear

         Section B- General Conditions

1.     Discovery period- 12 months

2.     in the event of loss the insured must notify the company asap

3.     the insured must keep records of all covered property so the company can verify the amount of any loss

4.     the insured must file a proof of loss within 120 days

5.     any additional premises acquired by the insured are covered automatically for 30 days.  This provision applies only if such additional premises are acquired by consolidation, merger or purchase of assets of some entity.

6.     Salvage- the proceeds from any recoveries less the cost of obtaining them will be distributed in the following steps:

1.     to the insured until reimbursed for the part of the loss that exceeds the limit of insurance plus the deductible.

2.     then to the insurance company until reimbursed for the part of their loss equal to the settlement.

3.     then back to the insured towards reimbursement of their deductible.

Example:

Policy/Deductible                                  Loss

$5K   /   $1K                                            $8K   

Insurance paid $5 k for claim plus insured’s $1k deductible= $6K

Total recovery:        $8000

Insurance co exp

For recovery:        -     500

Net recovery            $7500

Step 1:  due to insured:

recovery                                        $8k

Total outlay-                                 $6K

1. Insured received                       $2K

Step 2:

Net recovery                             $7500

Insured payment:                       2000

Gross balance:                           $5500

- due to insurance       =               5000

                                                        $500

Step 3.

More to the insured:   $500

Coverage Forms:

A-   Employee Dishonesty

B-    Forgery and alteration

C-   

D-  

E-    Premises Burglary

F-    ..

G-   ..

H-  

Form E- Premises Burglary

- covered property other than money and securities inside the premises.  The covered causes of loss are actual or attempted robbery of a watch  person and actual or attempted burglary.

-Premise damage clause- this covers damage to the premises and it’s exterior provided the insured is the owner or liable for damage to it.

-if a loss occurs, coverage is suspended until the premises are restored to the same condition of security that existed prior to the loss.

-this provision does not apply if the insured maintains a watch person while the premises are closed for business.

Limitations Of Form E

Coverage is limited to $1000 per occurrence for loss of damage to the following:

1) precious metals, precious and semi-precious stones pearls, furs or articles containing such material when such material constitutes the principle value of such article

2) manuscripts, drawings or records of any kind or the cost of reconstructing them or reproducing any information contained in them

Additional Exclusions Under Form E

1) Employee dishonesty

2) Loss occurring while there is any change in the condition of the risk within the insured's control that increases the possibility of loss

3)Loss by fire however caused, except for damage to a safe or vault

4)Loss occurring during a fire

5)Damage from VMM but for an additional premium this coverage may be included

Property Not Covered

-motorvehicles, trailers, semi-trailers or their equipment

Form D: Robbery and Safe Burglary

Section 1A - Robbery

- property other than money and securities inside the premises in the care and custody of the custodian

- the covered cause of loss is actual or attempted robbery

Section 1B - Safe Burglary

- covered property is property other than money and securities inside the premises in a safe or vault

- the covered cause of loss is actual or attempted safe burglary

Section 2 - Covered Property

Covered property is property other than money and securities outside the premises in the care and custody of a messenger. The covered cause of loss is actual or attempted robbery. This also covers loss to covered property outside the premises for actual or attempted robbery while in the care and custody of an armored motor vehicle company but only for the amount the insured cannot recover under the contract with that carrier.