Understanding Property and Casualty Insurance

Presented by: George W. Erickson, JD, CPCU, LLM Siver Insurance Consultants Siver Insurance Consultants is not in the practice of law, and the observations made during this presentation are offered solely as laypersons in our capacity as insurance consultants. What we will be covering • General Concepts Limits Deductibles Claims Made vs. Occurrence • Types of Coverage First Party Third Party Combination Specialty Lines PERSPECTIVE • Everything will not apply to everyone. • Focus is primarily on the insurance YOUR organization purchases or may purchase. • What contractors/vendors should purchase and the concerns created by contractors and vendors is another subject for another day. Limits Deductibles Claims Made vs. Occurrence Per Occurrence/Accident Per Aggregate • For all covered losses under a policy or for all policies during an underwriting period • Liability insurance – aggregate limits usually included • Property insurance – not often used, except for certain catastrophic exposures (e.g., flood) Per Claim/Claimant Sublimits vs. Additional Limits • Sublimit – limit available to cover a specific type of loss Part of the limit (not in addition to) Maximum amount available to pay for that type of loss How Deductibles Apply • Differs by Coverage Type Coverage limit can apply excess of deductible Deductible can reduce limit Percentage vs. flat dollar amount How Deductibles Apply • Defense Costs (Liability) • Policy Language Governs E.g., property policies Some apply single deductible to total amount of loss Some apply per location (i.e., campus) Some apply deductible separately to each building, contents of each building, etc. Deductibles SIRs - INSURER is responsible to pay loss - NAMED INSURED (or INSURED) (up to limit). NAMED INSURED is must pay SIR before insurance policy responsible to reimburse. will respond to a loss. Why does this matter? • Changes timing of when claim is reported to insurer (if reported at all) • Treatment of defense costs and obligations • Timing of payment SIR payment is made by insured up front • Some Deductibles may reduce policy limits Who is Required to Pay the Deductible/SIR • Named insured • The insured • Can an additional insured pay? When is coverage “triggered”? Typical Claims Made Occurrence Coverage for claims [first] made [and Coverage for when wrongful act/bodily reported] during the policy period, injury/property damage occurs during regardless of when the wrongful the policy period, regardless of when act/bodily injury/property damage the claim is made leading to the claim occurs Example: • January 1, 2015 – December 31, 2015 – Company is insured with INSURER A • January 1, 2016 – Company changes to INSURER B • November 30, 2015 – Incident occurred • January 2, 2016 – Company becomes aware of claim To which Insurer should the Company report the claim? Claims Made Occurrence Assuming both policies are claims Assuming both policies are occurrence made (assuming no reporting period is purchased) Insurer B Insurer A Additional Issues to Consider: • “Long tail” exposures • Retroactive dates in claims made policies • Potential issues when changing from one insurer to another with claims made policies First Party Third Party (Liability) Combination (First and Third Party Combined) Specialty Lines Commercial Property Insurance • Coverage for physical damage to your organization’s own buildings and contents due to covered causes of loss • Also includes “Time Element” coverages (i.e., business income and extra expense) • Additional coverages may be available (e.g., debris removal, fire department service charges, etc.) Building Property • Buildings & structures • Permanently installed machinery & equipment • Additions Business Personal Property of the Insured • Furniture & fixtures • Machinery & equipment • Stock • Be aware of: Scheduled Coverage vs. Blanket Coverage All Risks vs. Named Perils coverage forms Valuation – replacement cost vs. actual cash value Coinsurance provision vs. Agreed Value Application of deductibles – single vs. deductible for each building, etc. Flood often very limited Earth Movement vs. Earthquake Other Types of Property Policies • Flood • Boiler and Machinery/ Equipment Breakdown Insurance • Fine Arts • Electronic Data Processing • Contractors Equipment • Cargo • Builder’s Risk • Installation Floater Flood • Primary coverage typically provided by National Flood Insurance Program (NFIP) • Be aware of: Per occurrence sublimit Annual aggregate limit Separate deductible FEMA issues Boiler and Machinery/Equipment Breakdown Insurance • Coverage for cost to repair/replace equipment and other property damaged due to mechanical or electrical breakdown of equipment To insured’s own property To property of others in insured’s CCC • Other coverages available, such as: business income, extra expense, utility service interruption Coverage may be offered under your property or package policy, by endorsement, or under separate policy Fine Arts • Major reason for purchase – VALUATION!! • Be aware of: Coverage usually on scheduled basis Property in transit and unscheduled/newly acquired locations Limitations on newly acquired property Excluded property Electronic Data Processing (EDP) • Unendorsed standard commercial property policies usually do not exclude EDP equipment, but usually exclude loss due to: Electrical disturbance Mechanical breakdown Utility service interruption • EDP policies offer all risks coverage for EDP equipment such as computers, software, data Electronic Data Processing (EDP) • Other coverages available, such as: business income, extra expense, expediting expenses • Be aware of: Computers owned by organization but used by employees off-site Difference in limits for scheduled locations vs. property in transit or at temporary locations Coverage forms vary – so do exclusions Sublimits for each category of covered property Equipment Commercial Property Policy vs. Equipment Floater Commercial Property Policy Coverage for buildings and contents at a particular location, or within a short distance of that space Potential coverage gap Equipment Floater Covers equipment that is often moved place to place • Coverage applies to: Mobile equipment (e.g., construction equipment, lawnmowers, cranes, etc.) Equipment owned by insured Equipment in insured’s CCC, including rented or borrowed Builder’s Risk (BR) • Coverage for property in the course of construction: On the job site At off-site storage locations Property in transit • Key Coverages: Physical damage to covered property Delay in completion coverage plus “soft costs” coverage Builder’s Risk Issue? • Ownership of covered property during various stages of construction is fluid E.g., contractor buys materials and equipment that will be incorporated into project; eventually becomes property of project owner • Property located in different locations during length of construction E.g., on the job site, off-site storage, in transit Builder’s Risk Issues? • Value of construction project increases as it moves towards completion • Incomplete structures more susceptible to damage from elements • Be aware of: All of the right parties need to be covered under BR policy Contractors and subcontractors “Insurable interest” in the property Construction contract governs which party must purchase BR insurance Project owners may prefer to purchase BR to give them greater control over coverage terms Blanket deductibles and specified peril deductibles Sublimits • Be aware of: Coverage termination – when coverage ends varies Need to be sure that insurance policy termination provision satisfies construction contract terms Excludes coverage for damage resulting from: Faulty design Faulty planning Faulty workmanship Faulty materials Crime • Why would my organization need a crime policy? CGL policies exclude most types of theft Money and securities do not qualify as covered property Employee theft of money or other property is usually excluded Commercial Crime Policy • Coverage for: Employee dishonesty Forgery or alteration Money and securities Money order and counterfeit money Computer fraud Funds transfer fraud Employee Dishonesty • Coverage for employee theft of money, securities and other property • ERISA & Employee Benefit Plans May be used to satisfy the ERISA requirements by naming the plans as a named insured • Who is an employee? Not directors or trustees (except while performing duties within scope of an employee’s usual duties) Not independent contractors, agents, brokers, etc. May get coverage for these types of people by endorsement Forgery or Alteration • Coverage for loss resulting from forgery or alteration of checks, bank drafts, promissory notes, etc. drawn on insured’s bank account Money and Securities • Coverage for loss to money and securities resulting from theft or from destruction by fire, explosion, etc. • “inside the premises” vs. “outside the premises” Money Order and Counterfeit Money • Coverage for direct loss from acceptance of counterfeit paper currency and money orders Computer Fraud • Coverage for loss of money, securities, and other tangible property caused by use of a computer to fraudulently transfer such from inside the insured’s premises (or a banking premises) to outside Funds Transfer Fraud • Coverage for loss of money and securities resulting from fraudulent use of a bank’s funds transfer system where the thief purports to be insured and instructs that the transfer take place Computer Fraud and Funds

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