A brief overview for analyzing insurance coverage on property used as collateral. We go over: What to look for when receiving Certificates of Coverage. Definitions of terms. Potential Problems with Evidences of Property Insurance. Exclusions and Limitations included in many policies. www.dolanandedwards.net

1. Lender’s Insurance Training
www.dolanandedwards.net

2. What To Look For
• What is the Cause of Loss Form?
• How are they Valuing the Property?
• Does it meet the Co-Insurance Requirement?
• Are there Exclusions or Limitations?
www.dolanandedwards.net

3. Cause of Loss Coverage Forms
www.dolanandedwards.net

4. Basic Cause of Loss Form
• fire, lightning, explosion, smoke, windstorm, hail, riot,
civil commotion, aircraft, vehicles, vandalism, sprinkler
leakage, sinkhole collapse, and volcanic action.
www.dolanandedwards.net

5. Broad Cause of Loss Form
• fire, lightning, explosion, smoke, windstorm, hail, riot,
civil commotion, aircraft, vehicles, vandalism, sprinkler
leakage, sinkhole collapse, volcanic action.
• Plus: falling objects; weight of snow, ice, or sleet; water
damage (in the form of leakage from appliances); and
collapse from specified causes.
www.dolanandedwards.net

6. Special Causes of Loss Form
• coverage for loss from any cause except those that are
specifically excluded.
www.dolanandedwards.net

7. Valuations
Two Main type of Valuations
Replacement Cost (RC) and Actual Cash Value (ACV)
www.dolanandedwards.net

8. Replacement
Cost
• The cost to replace the damaged property with
materials of like kind and quality, without any
deduction for depreciation.
• Most common and provides the best valuation.
www.dolanandedwards.net

9. Actual Cash Value (ACV)
ACV is typically calculated one of three ways:
(1) the cost to repair or replace the damaged property, minus
depreciation;
(2) the damaged property's "fair market value"; or
(3) using the "broad evidence rule“.
www.dolanandedwards.net

10. Co-Insurance
www.dolanandedwards.net

11. Every policy has it, Nobody understands it.
𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝐶𝑎𝑟𝑟𝑖𝑒𝑑
𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑
× 𝐿𝑜𝑠𝑠 𝐴𝑚𝑜𝑢𝑛𝑡 = 𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑦
𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑦 − 𝐷𝑒𝑑𝑢𝑐𝑡𝑖𝑏𝑙𝑒 = 𝐿𝑜𝑠𝑠 𝑃𝑎𝑦𝑚𝑒𝑛𝑡
Co-Insurance is an underwriting concept to encourage customers to carry insurance at or near the
full value of the property being insured. Insurance companies will often require that the property
be insured to at least 80% of the full value of the property. If it is not, a penalty will be assessed in
the event of a claim. The formula for that penalty is below.
Most losses to property are not total losses. There may be a temptation to only seek insurance to
the amount of a loan. In such cases the Co-insurance clause can decimate the potential recovery.
$30,000
$100,000
× $15,000 = $4,500
$4,500 − $1,000 = $3,500
www.dolanandedwards.net

12. Declarations Page
www.dolanandedwards.net

13. Acord Proofs
“ THIS EVIDENCE OF PROPERTY INSURANCE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO
RIGHTS UPON THE ASSITIONAL INTEREST NAMED BELOW. THIS EVIDENCE DOES NOT AFFIMATIVELY OR NEGATIVELY
AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW. THIS EVIDENCE DOES NOT
CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATITVE OR PRODUCER, AND
THE ADDITIONAL INTEREST.”
Declaration Page
A Declaration Page is the only document that confers coverage. Any other document is for information
purposes only and is not legally binding. Coverage can be misrepresented on an Evidence of Property
Insurance or any other proof.
www.dolanandedwards.net

14. Exclusions & Limitations
www.dolanandedwards.net

15. • Earth Movement
• Government Action
• Nuclear Hazard
• Utility Services
• War & Military Action
• Water
• Fungus, Wet Rot, Dry Rot
• Bacteria
• Continuous Seepage (14 days or
more)
• Settling
• Insect, bird or animal Infestation
• Freezing
Exclusions
www.dolanandedwards.net

16. Vacancy
• After 60 days no coverage
for:
• Vandalism
• Sprinkler Leakage
• Building Glass Breakage
• Water Damage
• Theft or Attempted Theft
• Payment Reduced by 15%
for any other covered loss.
• Building is considered
vacant if less than 31% of
its total Sqft is occupied or
rented.
www.dolanandedwards.net

17. Conclusion
This is a basic overview of what lending departments should look for
when securing their collateral with Insurance. For it to be effective, the
insurance coverage and its limitations and exclusions must be
understood.
www.dolanandedwards.net