Chapter 3
In business income insurance, the expenses that an organization would not have incurred if the business interruption had not occurred are called
In the business income coverage form, the period of restoration ends
when the property is or should have been restored
Crime loss exposures of financial institutions are covered by financial institution bonds. These policies were developed by
The Surety and Fidelity Association of America (SFAA)
The most widely used financial institution bond is
Standard Form No. 24
The Suspension condition of an equipment breakdown policy allows an insurer to immediately suspend equipment breakdown insurance on an item of equipment that the insurer determines to be
In a dangerous condition.
The coinsurance basis for business income coverage is
net income plus all operating expenses except certain deductible items
For business income coverage, the period of restoration is the period of time that begins 72 hours after the
Time the physical loss occurs
The condition that appoints the first named insured as agent for all other insureds is called
Joint Insured condition
The Recoveries condition of the ISO Commercial Crime Coverage Form specifies how
Any subrogation or salvage recoveries will be divided between the insurer and the insured.
Which one of the following terms has a specific definition in the business income coverage form?
Products
Negligence
Liability
Operations
Operations
Extra expenses are expenses, in addition to ordinary expenses, that an organization incurs to mitigate the effects of a business interruption. Give me an example of extra expense
- cost to rent temporary rental space
- cost to expedite equipment to get business up & running quicker
- cost of overtime to get the building repaired
To what extent are extra expenses covered under the ISO Business Income Coverage (without Extra Expense) Coverage Form?
Only to the extent that they actually reduce the business income loss
How is "occurrence" explained in the Commercial Crime Coverage form?
Occurrence includes an individual act, the combined total of all separate acts (whether or not related), or a series of acts (whether or not related).
Which sections of the Commercial Crime Coverage Form contains the limit of insurance?
Declarations
Which one of these is not covered under the Employee Theft insuring agreement?
Patents
Forgery
Money
Securities
Patents
The Business Income Agreed Value coverage option in the business income form is an option that
Suspends the coinsurance clause as long as the insured carries an amount of business income insurance that is equal to the value agreed on by the policyholder and the insurer.
The amount of a business income loss is determined on the basis of net income of the business before the loss occurred, operating expenses that must continue during the period of restoration to permit the insured to resume operations with the quality of service that existed prior to loss, other relevant sources of information and
Probable net income of the business if no loss had occurred
ABC Brokerage Company (ABC) is covered by an Insurance Services Office (ISO) Commercial Crime Coverage Form written on a loss sustained basis. The policy was written to replace an identical policy with another insurer that had expired, and there was no lapse in coverage. ABC recently discovered a covered loss that occurred during the prior insurer's policy term. Which one of the following would be true for the current insurer?
It will pay the lesser of what would be covered under the present or the prior insurance.
what happens if, during the policy period, the insured adds any premises or employees, other than by consolidation, merger, or acquisition?
Policy coverage will be extended automatically.
ABC, Inc., is a large, national retailer that sells a variety of consumer goods. ABC carries a Commercial Package Policy that includes Insurance Services Office's Commercial Crime Coverage Form (Loss Sustained) with the following insuring agreements: Employee Theft; Forgery or Alteration; Inside the Premises—Theft of Money and Securities; and Inside the Premises—Robbery or Safe Burglary of Other Property. The limit of insurance for each one of these insuring agreements is $100,000 and the deductible per occurrence for each one of these insuring agreements is $1,000. The policy year is 20X1.
On June 5, 20X1, a thief entered ABC through an open window while the store was closed and stole $2,500 worth of electronic merchandise. The thief also broke into a safe causing $1,500 damage to the safe and stole $3,000 in cash from the safe.
Under which insuring agreement would the damage to the safe be covered?
Inside the Premises—Theft of Money and Securities
Jones Retail has a Business Income (and Extra Expense) Coverage Form with a $100,000 limit and a 50 percent coinsurance clause. At the time of a $40,000 covered business income loss, Jones estimates its net income plus all operating expenses (minus certain deductible items) for the one-year policy period to be $400,000. How much will the insurer pay?
$20,000
The insurer will pay $20,000. [$100,000/($400,000 x 50%)] x $40,000 = $20,000
Carol's Dance Studio (CDS) is insured under a Business Income (and Extra Expense) Coverage Form with a $1 million Business Income limit of insurance. None of the optional coverages of the Business Income (and Extra Expense) are in effect and no endorsements apply to CDS's Business Income (and Extra Expense) Coverage Form. The one year policy period shown in the declarations began on July 1, 20X1. On October 1, 20X1, access was denied to CDS for four weeks by civil authorities because of fire damage to a shop next door to CDS. The resulting loss of business income that CDS sustained was $45,000. The business income loss for the first 72 hours following the time of action by civil authority totaled $4,000. After the first 72 hours, CDS sustained $9,000 business income loss in week 1, $10,000 business income loss in week 2, $11,000 business income loss in week 3 and $11,000 business income loss in week 4. How much of CDS's business income loss would be covered under the Business Income (and Extra Expense) Coverage Form?
41,000
$41,000 of CDS's business income loss would be covered under the Business Income (and Extra Expense) Coverage Form. Business income coverage begins 72 hours after physical loss occurs.
ABC, Inc., is a large, national retailer that sells a variety of consumer goods. ABC carries a Commercial Package Policy that includes Insurance Services Office's Commercial Crime Coverage Form (Loss Sustained) with the following insuring agreements: Employee Theft; Forgery or Alteration; Inside the Premises—Theft of Money and Securities; and Inside the Premises—Robbery or Safe Burglary of Other Property. The limit of insurance for each one of these insuring agreements is $100,000 and the deductible per occurrence for each one of these insuring agreements is $1,000. The policy year is 20X1.
During 20x1, ABC performed an inventory calculation and determined that the actual physical inventory on hand was $105,000 less than what the company's records indicated. ABC was able to prove that the loss was a result of employee theft and it was covered under the Employee Theft insuring agreement of ABC's Commercial Crime Coverage Form.
How much will the insurer pay for this loss?
$100,000
The loss amounts to $105,000 which exceeds the $100,000 limit of insurance for employee theft. The insurer will pay the amount of the loss in excess of the deductible up to the limit of insurance ($105,000 -$1,000 = $104,000). The limit of insurance in this case is $100,000 (The deductible comes off the amount of loss, not the limit).
ABC, Inc., is a large, national retailer that sells a variety of consumer goods. ABC carries a Commercial Package Policy that includes Insurance Services Office's Commercial Crime Coverage Form (Loss Sustained) with the following insuring agreements: Employee Theft; Forgery or Alteration; Inside the Premises—Theft of Money and Securities; and Inside the Premises—Robbery or Safe Burglary of Other Property. The limit of insurance for each one of these insuring agreements is $100,000 and the deductible per occurrence for each one of these insuring agreements is $1,000. The policy year is 20X1.
During 20X1, ABC performed an inventory calculation and determined that the actual physical inventory on hand was $102,000 less than what the company's records indicated.
ABC could not establish that it had sustained a loss without the inventory calculation. How much of this loss will be covered by the Employee Theft insuring agreement of the Commercial Crime Coverage part?
0
Martin's Dry Cleaners (MDC) is insured under a Business Income (and Extra Expense) Coverage Form with a $1 million Business Income limit of insurance for the dry cleaners location, subject to option (2) Business Income Other Than "Rental Value". None of the optional coverages of the Business Income (and Extra Expense) are in effect and no endorsements apply to MDC's Business Income (and Extra Expense) Coverage Form. The one year policy period shown in the declarations began on July 1, 20X1. On October 1, 20X1, access was denied to MDC for five weeks by civil authorities because of fire damage to a shop right next door to MDC. The resulting loss of business income that MDC sustained was $70,000, including a $5,000 loss for the first 72 hours following the time of action by civil authority. After the first 72 hours, MDC sustained $11,000 business income loss in week 1, $12,000 business income loss in week 2, $13,000 business income loss in week 3, $14,000 business income loss in week 4 and $15,000 business income loss in week 5. How much of MDC's business income loss would be covered under the Business Income (and Extra Expense) Coverage Form?
$50,000
$50,000 of Martins dry cleaners business income would be covered under the Business Income (and Extra Expense) Coverage Form. Coverage applies up to a maximum of four consecutive weeks after the time of the action.