Aspects of Typical Commercial Property Insurance Coverage Forms and Causes of Loss Forms: Practice Questions and Solutions

This section of the study guide is intended to provide practice problems and solutions to accompany the pages of Commercial Insurance, cited below. Students are encouraged to read these pages before attempting the problems. This study guide is entirely an independent effort by Mr. Stolyarov and is not affiliated with any organization(s) to whose textbooks it refers, nor does it represent such organization(s).

Some of the questions here ask for short written answers based on the reading. This is meant to give the student practice in answering questions of the format that will appear on Exam 5. Students are encouraged to type their own answers first and then to compare these answers with the solutions given here. Please note that the solutions provided here are not necessarily the only possible ones.

Source:
Arthur L. Flitner, Jerome Trupin, and Martin J. Frappoli. Commercial Insurance. (Second Edition). 2007. Chapters 2 and 3, pp. 2.9-2.16, 3.3, 3.14.

Original Problems and Solutions from The Actuary's Free Study Guide

Problem S5-124-1. Name four categories that are encompassed under the definition of the insured's "business personal property" in a typical building and personal property (BPP) coverage form. Define, where necessary, any terms whose meaning is different or more specific than their common meaning.

Solution S5-124-1. This question is based on the discussion in Commercial Insurance, p. 2.9. The following categories are encompassed under the definition of the insured's "business personal property" in a typical building and personal property (BPP) coverage form:

1. Furniture and fixtures owned by the insured and used in the insured's business;

2. Machinery and equipment owned by the insured and used in the insured's business;

3. Stock owned by the insured and used in the insured's business. "Stock" can encompass merchandise that is stored or held for sale, as well as raw, in-process, or finished goods and supplies that are used to pack and ship such goods;

4. "Labor, materials, or services furnished by the insured on personal property of others" (Commercial Insurance, p. 2.9);

5. Improvements and betterments: "Alterations or additions made to the building at the expense of an insured who does not own the building and who cannot legally remove them" (Commercial Insurance, p. 2.9);

6. Leased personal property, if the insured has a contractual responsibility to provide insurance coverage for that property.

Any four of the above suffice as an answer. Other valid answers may also be possible.

Problem S5-124-2.

(a) Under what two circumstances would a typical building and personal property (BPP) coverage form provide coverage for personal property of others, who are not insureds?

(b) In order for coverage to apply, must the insured be legally responsible for the damage to otherwise covered personal property of others?

Solution S5-124-2. This question is based on the discussion in Commercial Insurance, p. 2.9.

(a) A typical building and personal property (BPP) coverage form provides coverage for personal property of others, who are not insureds, under the following circumstances:

1. The property is in the care, custody, or control of the insured;
2. The property is in or in close proximity to a building described on the policy declarations as the "insured premises".

(b) In order for coverage to apply, the insured need not be legally responsible for the damage to otherwise covered personal property of others.

Problem S5-124-3.

(a) The property excluded under a typical building and personal property (BPP) coverage form can typically be insured via an endorsement. What kind of property is an exception to this rule and is totally uninsurable?

(b) How does a typical building and personal property (BPP) coverage form treat property that is insured under a different policy?

Solution S5-124-3. This question is based on the discussion in Commercial Insurance, p. 2.10.

(a) Contraband, or property that is being illegally transported and traded, is the only property that is totally uninsurable with regard to the BPP coverage form, and no endorsements are available to provide insurance for it.

(b) A typical BPP coverage form would provide coverage only in excess of other insurance that applies to property that would otherwise be covered. If the other insurance's limits are exhausted and some amount of the loss still remains, the BPP form would pay the difference between the loss amount that would be payable under the BPP form if no other insurance existed and the applicable limit of the other insurance policy.

Problem S5-124-4.

(a) Name the six additional coverages typically made available under a building and personal property (BPP) coverage form.

(b) Name the six coverage extensions typically made available under a building and personal property (BPP) coverage form.

Solution S5-124-4. This problem is based on the discussion in Commercial Insurance, pp. 2.11-2.16.

(a) The following additional coverages are typically made available under a building and personal property (BPP) coverage form:

1. Debris Removal;
2. Preservation of Property;
3. Fire Department Service Charge;
4. Pollutant Cleanup and Removal;
5. Increased Cost of Construction;
6. Electronic Data.

(b) The following coverage extensions are typically made available under a building and personal property (BPP) coverage form:

1. Newly Acquired or Constructed Property;
2. Personal Effects and Property of Others;
3. Valuable Papers and Records (Other Than Electronic Data);
4. Property Off-Premises;
5. Outdoor Property;
6. Non-Owned Detached Trailers.

Problem S5-124-5.

(a) Three common causes of loss forms are the broad, basic, and special forms. Arrange these three forms in the order of the scope of the perils which they cover. Your answer should be in the format ______ > _______ > _______, where the first form listed covers the most perils.

(b) Of the forms mentioned in part (a), one form is not like the others with regard to the manner in which the determination of whether a peril is covered is made. Which form is different, and how?

Solution S5-124-5. This problem is based on the discussion in Commercial Insurance, pp. 3.3, 3.14.

(a) Special form > Broad form > Basic form.

(b) The special form is different, in that it shifts the burden of proving that a peril is excluded to the insurer. Under the basic and broad forms, unless a peril is explicitly named in the forms, it is excluded. Under the special form, unless the peril is specifically excluded in the form, it is covered.

See other sections of The Actuary's Free Study Guide for Exam 5.