CAIB 2 - CHAPTER 1 Questions and Answers A+ GRADE

Only the property specifically listed or scheduled on the policy is insured. - ANSWER-Scheduled coverage. Building, Stock and Equipment are insured under a single limit of insurance. - ANSWER-Property of Every Description (POED) coverage. All property owned by the insured is covered or "blanketed" by a single limit of insurance. (May insure property at more than one location.) - ANSWER-All Property (Blanket) coverage. 1) Building 2) Equipment 3) Stock. - ANSWER-The three classes of property insured by commercial property insurance policies. It sets the stock coverage to items that are USUAL to the insured's business. - ANSWER-Regarding stock coverage, why it's important to provide a proper description of the business to the insurer. - The lost or damaged property is similar to that insured by the policy; - The insured was under an obligation to insure that property; - The insured was legally liable for it. - ANSWER-"Similar property belonging to others" is automatically covered under the amounts of insurance for stock and equipment if... 1) Fixed structures located on the premises; 2) Additions and extensions communicating and in contact with the building; 3) Permanent fitting and fixtures attached to and forming part of the building; 4) Materials, equipment and supplies on the premises for maintenance of, and normal repairs and minor alterations to the building, or for building services; 5) Growing plants, trees, shrubs or flowers inside the building used for decorative purposes, when the insured owns the building. - ANSWER-The five components found in the definition of "building" in commercial property policies. The entire area within the property lines and areas and areas under adjoining sidewalks and driveways at the location described on the Declarations Page, and in or on vehicles within 100 meters (328 feet) of such locations. - ANSWER-"Premises." 1) Merchandise of every description usual to the insured's business; 2) Packing, wrapping and advertising materials; 3) Similar property belonging to others which the insured is under obligation to keep insured or for which he is legally liable. - ANSWER-The three components found in the definition of "stock" in commercial policies. 1) All contents usual to the insured's business (including furniture, fittings, fixtures, machinery, tools, etc.) other than "building" or "stock"; 2) Similar property belonging to others which the insured is under obligation to keep insured or for which he is legally liable; 3) Tenant's improvements, which are defined as building improvements, alterations, and betterments made at the expense of the insured to a "building" occupied but not owned by the insured, and which are not otherwise insured. - ANSWER-The three components of "equipment" found in commercial policies. 1) Actual Cash Value 2) Replacement Value 3) Book Value. - ANSWER-The three ways property may be valued. The cost to repair or replace lost or damaged property, less the application of any depreciation. - ANSWER-The traditional meaning of Actual Cash Value (ACV). 1) Straight Line Depreciation: applies depreciation based on the normal life expectancy of the building; 2) Plateau Accelerated Depreciation: applies a large amount of depreciation during the building's early years when its most useful, then depreciation plateaus (levels out). - ANSWER-The two methods under the Formula/Cost Approach Method to determine the Actual Cash Value of a building. A real estate appraiser provides an expert opinion about the fair market value of: - the property before the loss - the property after the loss - the land. The opinion is influenced by the condition and location of the building compared to similar properties recently sold in the area. - ANSWER-The Market Value / Direct Sales Approach to determine the Actual Cash Value of a building. With the help of a qualified accountant, and especially useful when income is produced from a dilapidated or run-down building, a capitalization factor is applied to the net annual rental income. - ANSWER-The Income Approach to determine the Actual Cash Value of a building. When the insured says the other methods for determining ACV have failed, because the building's value is actually higher to the insured, this method applies less depreciation. - ANSWER-The True Value to the Owner approach to determine the Actual Cash Value of a building. Only used when the courts are asked to rule on ACV; it takes many factors into account, including: - Replacement value less depreciation; - Market value; - Rental value; - Building use; - Location; - Obsolescence; - Assessed value; - Resale success. - ANSWER-The Broad Evidence Rule to determine the Actual Cash Value of a building. The costs to repair, replace or rebuild the lost or damaged property without deduction for depreciation. - ANSWER-"Replacement Value." ACV takes depreciation into consideration, whereas Replacement Cost does not. - ANSWER-The difference between "Replacement Cost" and "Actual Cash Value" (ACV) Book Value, because it's based on accounting functions only. - ANSWER-The method used to value property that's the least appropriate for insurance. Insurance of an insurer; where an insurer cedes part of the risk it has assumed to one or more other insurers. - ANSWER-"Reinsurance." 1) All insurers share in both the premiums collected and the losses incurred; 2) The contract is between the primary insurer and the reinsurer. 3) The policy is controlled by the primary insurer, and all claims are paid by the primary insurer. - ANSWER-The three rules that apply to reinsurance? An insurance policy under which a group of insurers has agreed to participate together to provide coverage. - ANSWER-"Subscription Policy."