Bpp Analysis

Individual Assignment – BPP Case Analysis (15 points)                                

• Each of the following cases is independent to each other.
• All cases must be answered based on the BPP and any applicable forms, if necessary.
  

Short Answer Questions – 0.5 point each

SQ1 – According to the Common Policy Conditions, under what circumstances can the insured transfer rights or duties under a policy?

The condition also provides specifically for the automatic transfer of coverage if an individual named insured dies.  (An individual named insured is a person whose name is listed on the “Named Insured” line in the policy declarations.) In that case, the insured’s rights and duties under the policy are automatically transferred to the insured’s legal representatives or, if the insured’s legal representatives have not yet been appointed, to any person having proper temporary custody of the insured property.

SQ2 – According to the Commercial Property Conditions, how is the amount payable under a CPP determined if another applicable policy covers the same loss on the same terms and conditions as the CPP?

Insurer pays on a pro rata basis = [pic 1]

SQ3 – How does coinsurance support the goal of insurers to encourage “insurance
to value”?

Underinsurance is a serious problem for both insurers and insureds.  To obtain adequate premiums based on the insurance rated used, insurers seek to obtain premiums based on an amount of insurance that is 80 to 100 of the property’s full value.  Without this, choosing very high limits seems unnecessary because you don’t want to think a loss so large could occur.

SQ4 – Explain the effect of the BPP Vacancy condition if the building has been vacant (as defined in the BPP) for sixty consecutive days before a loss occurs.

If the building in which the loss occurs has been vacant for sixty consecutive days before the loss, the insurer is not obligated to pay for loss caused by vandalism, sprinkler leakage, building glass breakage, water damage, theft, or attempted theft.  For all other covered perils, loss recovery is reduced by 15%.  

Buildings under construction or renovation are not considered vacant.  The vacancy condition can be eliminated during a specified time period for an additional premium by adding the Vacancy Permit endorsement.

SQ5 – APT Rent Company owns an apartment building. APT Rent insures its property under a BPP covering only the “building” (as defined in the BPP). Is equipment owned by APT Rent and used to clean and maintain the insured building covered under APT Rent’s BPP?

Yes, because “building” includes personal property that is used to maintain or service the building structure or its premises.

SQ6 – What types of businesses are most likely to buy Personal Property of Others coverage?

Personal Property of Others coverage is ordinarily bought by insureds that have care, custody, or control of their customers’ property in a commercial bailment.

Commercial Bailment – the temporary possession by one party (the bailee) of personal property of another party (the bailer) for a specific purpose beneficial to both parties.

SQ7 – What property is not subject to replacement cost coverage under the BPP, even when the Replacement Cost optional coverage is in effect?

Property of others, contents of a residence, manuscripts, works or art, antiques and rare articles.  “Stock” unless declarations include replacement cost for “stock”

Case 1 – Inventory sold but not yet delivered valuation – 1 point

Most of ABC’s inventory had already been sold but had not been delivered to customers. The remaining inventory had not been sold. Explain how the value of ABC’s inventory would be established under the Valuation provision of BPP.

Stock that has been sold but not delivered is values at selling price less any unincurred discounts or expenses.  Remaining inventory that has not been sold IS ABLE to be covered under “Actual Cash Value” or “Replacement Cost” if this was agreed upon

Case 2 – Direct Physical Loss – 1 point

If the insured has a commercial building policy and the building keys are stolen. So, the insured needs to replace all the locks in the building, costing $25,000. Should the cost of replacing all the locks in the building be covered under BPP?

As long as there is evidence that an employee did not steal the keys, then the replacement of all locks in the building should be covered under “theft”.

Case 3 – Debris Removal Expenses – 1.5 points

An insured owns a grocery store/meat market, which does meat processing as well. A fire at the store causes $90,000 property loss with $35,000 debris removal expenses to clean up the premises. If the insured BPP has a $100,000 limit of insurance and all policy conditions are satisfied, what is the amount of payment the insured would receive from the insurer? Assume zero deductible.

Direct Physical Loss = $90,000                Agreed to be paid by insured

Debris Removal Cost = $35,000                

Under the Debris Removal provision, the most that the insurer will pay for such debris removal is 25% of the sum of the direct loss payment plus the deductible amount.

$90,000 x 25% = $22,500

There is $10,000 remaining from the $100,000 limit after the $90,000 direct physical loss.

Insured will receive $112,500 ($90,000 + $22,500) from the insurer.  Insurer must pay the remaining cost ($12,500) out of pocket to pay for the remaining debris removal.  

Case 4 - Optional Coverages – 1.5 point

Holly purchases building coverage of $200,000 and selects the inflation guard option with an annual percentage rate of 5%. Suppose the insured sustains a building loss after a one-year policy has been in force for 161 days. Determine the amount of insurance available to cover the building loss.

$200,000 x 5% = $10,000 x  = $4,410.96 + $200,000 = $204,410.96 [pic 2]

Case 5 – Preservation of Property – 1.5 points

Preservation of Property (page 4 of 15); Limits of Insurance (page 8 of 15)