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Are you as smart as you think you are?

Commercial Property and BOP

11/12/2012

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Are you as smart as …

you think you are???Commercial Property

and BOPThis program is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

With special thanks to the Insurance Services Office, Inc. for advance information, continued support, and permission to use their forms and information.

Which of the following types of property are automatically covered under the Building and Personal Property Coverage Form CP 00 10?

a. Personal Property in a vehicle parked on theroad in front of the building

b. Personal property on a ship in route to Brazil

c. Property of others on your premises

d. Walks, patios, parking lots

e. Rented $10,000 storage pod located on the premises for use during renovations and updating

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“a’’ is covered because personal property is covered as long as it is within 100 feet of the premises … whether in an auto/truck or not

“c” CAN be covered …

if you show a limit of insurance for property of others on the described location ….

OR

Under Coverage Extensions…if you have purchased business personal property coverage for yourself ….

then the policy provides $2500 for personal property of others on your described location.

If $2500 is enough then you are … ”golden”

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“b”The CP does not cover contents beyond 100 feet of premises

As well asairborne or waterborne property is excluded

andis also NOT covered because the policy territory is only USA and Canada

“d” is NOT coveredbecausewhether you purchasedBOTH building and Personal Property … walks, and other paved surfaces are NOT covered

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“e” CAN be covered completely …

if you show a limit of insurance for property of others on the described location ….

OR

Under Coverage Extensions…if you have purchased business personal property coverage for yourself ….can be covered PARTIALLY

then the policy provides $2500 for personal property of others on your described location.

Which of the following types of property are automatically covered under the Businessowners Coverage Form BP 00 03

a. Personal Property in a vehicle parked on theroad in front of the building

b. Personal property on a ship in route to Brazil

c. Property of others on your premises

d. Walks, patios, parking lots

e. Rented $10,000 storage pod located on the premises for use during renovations and updating

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“a” is covered but …personal property is still limited to

in buildingon premiseswithin 100 ft of premises

(whether in a vehicle or not)

The BPP limit is the MOST that would be paid for client’s stuff and personal property of others

“c” is DEFINITELY coveredsince under the BOP there are one two types of coverage

BuildingBusiness Personal Property

BPP in the BOP isclient’s “stuff”“stuff” of other people

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“d” is covered under the BOP

There is a much shorter list of property not covered

Walks, pavement, etc is NOT excluded under BOP

“e” is DEFINITELY coveredsince under the BOP there are one two types of coverage

BuildingBusiness Personal Property

BPP in the BOP isclient’s “stuff”“stuff” of other people

The rented storage pod is covered

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“b” is not covered under the BOP either.

First … BPP only covered ON the described location or within 100 feet

There IS $10,000 coverage for BPP off premises

“b” is not covered under the BOP either.

But …like the BOP … coverage is NOT worldwide … only transport WITHIN coverage territory …transportation to Brazil is NOT covered

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The declarations page of the Commercial Package Policy shows the named insured as:

ABC Corp., Bob Smith, and ABC Engineering, Inc.

The Mortgage Holder is US Bank and Trust.

Who will be notified if the insurance carrier cancels the policy?

a. ABC Corp, Bob Smith, ABC Engineering, Inc

b. ABC Corp, Bob Smith, ABC Engineering, Inc andUS Bank and Trust

c. ABC Corp and US Bank and Trust

d. ABC Corp and Bob Smith

e. ABC Engineering, Inc and US Bank and Trust

IL 00 17 Common Policy Conditions

CP 00 10 Building and BPP coverage form

Only the FIRST named insured

And

Mortgagee

Get cancellation notice

“c” is correct

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The declarations page of the Businessowners Coverage Form BP 00 03 shows the named insured as:

ABC Corp., Bob Smith, and ABC Engineering, Inc.

The Mortgage Holder is US Bank and Trust.

Who will be notified if the insurance carrier cancels the policy?

a. ABC Corp, Bob Smith, ABC Engineering, Inc

b. ABC Corp, Bob Smith, ABC Engineering, Inc andUS Bank and Trust

c. ABC Corp and US Bank and Trust

d. ABC Corp and Bob Smith

e. ABC Engineering, Inc and US Bank and Trust

BOP policy is same answer as CP

Only the FIRST named insured

And

Mortgagee

Get cancellation notice

“c” is correct

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The Gift Shop has a building with a replacement value of $1,000,000.

There is a CP policy limit of $600,000 with an 80% coinsurance requirement.

There is a covered loss with damage totaling $200,000. How much will the policy pay for the loss?

Disregard the deductible

a. $150,000b. $200,000c. $100,000d. $120,000e. 0

The answer IS …. $150,000

The insured is REQUIRED to carry a % of the value .. based on the co-insurance clause.

The co-insurance clause does NOT discuss whether payment is on an ACV or replacement cost basis.

The co-insurance clause applies to BOTH ACV and replacement cost basis policies.

If the Replacement cost provision is NOT activated on the CP dec page …then the policy pays on an ACV basis

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If the replacement value is $1,000,000

and the co-insurance percent is 80%

then the MINIMUM amount of insurance on the policy declarations page should be $800,000.

The insured only carried $600,000 so that means EVERY loss is PENALIZED per the co-insurance clause.

The penalty is ..

What you DID carry x Loss = loss paymentWhat you SHOULD carry(building value x coinsurance %)

What you SHOULD carry is 1,000,000 x 80% = $800,000

600,000 x $200,000 = $150,000800,000

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The Gift Shop has a building with a replacement value of $1,000,000.

There is a BOP policy limit of $600,000 with an 80% coinsurance requirement.

There is a covered loss with damage totaling $200,000. How much will the policy pay for the loss?

Disregard the deductible

a. $150,000b. $200,000c. $100,000d. $120,000e. 0

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BOP “insurance to value” provision is like HO provision.If not carry 80% R/C then not get R/C at time of loss …get “penalized” …by that portion we are “underinsured”

The penalty is ..

What you DID carry x Loss = loss paymentWhat you SHOULD carry(building value x 80% R/C)

What you SHOULD carry is 1,000,000 x 80% = $800,000

600,000 x $200,000 = $150,000800,000

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ABC Corp. owns a commercial building used in its business, with a section rented out to tenants. Who has an insurable interest in the building?

a. The owner of the building, ABC Corp.

b. The tenant who is required by the lease for damage occurring in portion of building they rent

c. The mortgage company who lent the money to ABC for the building

d. The tenant who put $100,000 of building value into the rented area to create the proper ambiance for its business

e. The bank that loaned the tenant the $100,000 for modifications to the rented portion of the building

“a” has insurable interest

ABC Corp who owns the building has an insurable interest and the definition of building allows it to insure its interest

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“b” – tenant has insurable interest

Contractual commitment can create an “insurable interest”

Does the tenant has to cover DIRECT physical loss …

Or

Is the tenant only responsible for loss due to negligence

If tenant is responsible for direct physical loss than it needs a CP 00 10 Building and Business Personal Property Policy or BOP

If responsible for negligent damage then need

CP 00 40 Legal Liability Coverage Form if CP product

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Add cause of loss form for perils desire

Per previous discussion for BOP …

Building owner has insurable interest in its building

Mortgagee for building owner has insurable interest and is addressed in BOP policy

Tenant who has a contractual responsibility for damages could either buy a separate CP 00 40 Legal Liability Coverage form …

or there is a BOP endorsement that could respond to negligent damage done to property in c/c/c

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If BOP policy add this endorsement– and value that you want applicable

“c” has insurable interest

ABC Corp’s mortgagee also has an insurable interest

BOP has similar discussion for mortgagee interest

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“d” if tenant has added value to landlord building then tenant has insurable interest in that value added during length of leaseInsured under BPP for tenant

Tenant I&B is ACV … unless opt for replacement cost on declarations page

And …

If I&B are NOT repaired …Don’t get ACV OR R/C …Get “unused” use value

If fixed …by someone else …then tenant CP NOT pay out

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Don’t forget R/C option for tenant who wants to repair its I&B

BOP policy is automatically R/C

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BOP – same discussion as CP regarding when and what will be paid for tenant I&B

“e” mortgagee for tenant also has insurable interest

Ditto for BOP

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Loss payable provisionsendorsementidentifies who is doing what to whom for insurable interest options…

Be careful to identify WHAT type of insurable interest …They are NOT all created equal … what does that interested party want???BOP counterpart

BP 12 03

There are variousoptions

Be careful

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There are variousoptions

Be careful

A tenant has rented half of your insured’s building. The Building value under CP 00 10 is $1,000,000. This tenant is adding $1,000,000 of build in items to create décor and ambiance for the upscale restaurant.

Who insures these $1,000,000 improvements and betterments?

a. Tenantb. Building ownerc. Both tenant and building owner

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“c”On an unendorsedCP 00 10 –BOTH parties must insure or suffer co-insuranceproblemDefinition of

building tells building owner that these items ARE part of building

“c”On an unendorsedCP 00 10 –BOTH parties must insure or suffer co-insuranceproblem

Definition of business personal property tells tenant who is adding I&B that these values are part of its BPP

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The co-insuranceprovision tells BOTH the building owner and the tenant that they MUST include the values or suffer co-insurancepenalty on ALL losses

Can either or BOTH parties remove the obligation to insure values that it doesn’t care about?????

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Building owner and tenant could insure on an “agreed value” basis

Show on dec page

Agreed value suspends co-insurance clause

Building owner and tenant could use the Additional Property NOT covered endorsement CP 14 20

Policy STILL subject to co-insurance clause

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A tenant has rented half of your insured’s building. The Building value under BOP BP 00 03 is $1,000,000. This tenant is adding $1,000,000 of build in items to create décor and ambiance for the upscale restaurant.

Who insures these $1,000,000 improvements and betterments?

a. Tenantb. Building ownerc. Both tenant and building owner

As discussed above …BOP has same issues

Tenants I&B are both building and BPP depending on WHOSE policy you look at!

“c” is answer

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Does the BOP policy have the same problem with values????

Yes …definitions of building and BPP essentially same as CP

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BOP doesn’t have co-insurance but DOES have insurance to value provision or penalty if not carry 80% replacement value

If tenant I&B would affect building owner then need to address with underwriter

Removal of Insurance to Value Provisioncould solve the problem for building owner or tenant

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The definition of building in the Building and Personal Property Coverage Form CP 0010 includes all of the following EXCEPT:

a. Two story addition added to commercial store building

b. Elevators in commercial office building

c. Labor or services furnished or arranged by you

d. Portable fire extinguishing equipment

e. Stoves, refrigerators, dishwashers in apartment units in apartment building

CP 00 10 BP 00 03

All of those items are covered under the building definition in both BOP and CP 00 10 except labor or services – which would be contents in both policies

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CP 00 10 BP 00 03

Doesn’t read like CP but value not excluded and not building

Happy Acres Condo Assn. has a master condo policy covering the building and personal property owned by unit-owners in common and individually to meet the requirements of the bylaws. How will the master condo policy respond when unit-owners have individual coverage for unit building items under a personal policy?

a. The policies will pay their proportional share of the loss based on limits

b. The master condo policy will pay excess the individual policies

c. The master condo policy will pay primary and not contribute with the individual unit-owner policies

d. The master condo policy will pay nothing if the unit owner policies pay

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CP 00 17 Condominium Association Coverage Form has same definition of building as CP 00 10 Building and Business Personal Property Coverage Form but adds language

Commercial Form WILL respond to unitowner items if Condo documents (bylaws) tell it to

Commercial policy is PRIMARY over unitowner’scoverage

Which of the following statements is true regarding the BOP or CP form and vacancy

a. A four story apartment building with four apartments has two empty apartments. This building is not considered “vacant”

b. A strip mall with 10 rental units has 2 units rented. This strip mall building is not considered vacant

c. When a building is considered vacant there is no water damage coverage after 60 days

d. When a building is considered vacant there is no fire damage coverage after 30 days

e. When a building is considered vacant an explosion loss is excluded after 60 days

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This language is from the CP 00 10 Coverage form but the BOP BP 00 03 is the same

A building is vacant UNLESSAt least31% is being

usedoractually rented out

“a” is NOT vacant –statement is false

“b” would be vacant – but statement is false

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Hardware

Computers

This building might have tenants But it IS considered vacant since less than 31% of it is being utilized

Once a building IS considered vacant …

After 60 days …there is NO COVERAGE for

VMMSprinkler leakageBuilding glass breakageWater DamageTheft

ALL OTHER losses are reduced by 15%

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“c” is true …

There is NO water damage coverage after 60 days of vacancy

But …wait …

In Massachusetts per state law …and endorsement to BOTH the CP form and the BOP ..CP 01 09 - BP 01 08

The following language is added …

An exclusion for loss by fire or lightning after 30 days vacancy for anything except a 1-3 unit apartment building

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“d”is true … in Massachusetts

there is NO damage coverage after 30 days of vacancy in a commercial building

In other states … after 60 days of vacancy a fire loss would just be reduced by 15%

“e” is false…

After 60 days of vacancy an explosion loss WOULD be covered …but it would be reduced by 15%

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“If a building is vacant …can we modify the language to get coverage????

CP 04 60 would be great for the strip mall … especially in tough economictimes … there are SOME units filled …just not 31% … so change the % required

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BP 04 86 for BOPwould be great for the strip mall … especially in tougheconomictimes … there are SOME units filled …just not 31% … so change the % required

If that is not an option …or there really is NOTHING in the building …no “use”

Then …perhaps buying back some of the “lost” perils would be helpful

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CP 04 50 for CP

Doesn’tchange the provisionother than allowingVMM or Sprinklerleakage to be bought back

BP 04 87 for BOP

Doesn’tchange the provisionother than allowingVMM or Sprinklerleakage to be bought back

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Irene Morrill imorrill@massagent.com