Commercial-Lines

1. Welcome
to
Introduction to Commercial
Lines
Alison Cooper FCII

2. CLASSES OF INSURANCE

3. Module 9 Objectives
At the end of this module you should be able to:-
• State what is understood by commercial property
• Identify risks for commercial property
• Explain the cover provided by a Fire & Special Perils
policy
• Explain the difference between indemnity &
reinstatement
• Explain the reinstatement clauses
• Explain the operations of the Day One clause and
calculate premiums
• Explain the operations of the stock declaration clause

4. WHAT IS PROPERTY?
• Buildings
• structures
• surrounding property
•Fixtures & fittings
• Contents
• machinery, office equipment,
• Stock
•Raw materials, work in
progress, finished goods

5. A.B.I STANDARD FIRE &
SPECIAL PERILS POLICY
• FIRE
– Actual ignition, fortuitous
– Excluding
• earthquake, subterranean fire
• ‘Its’ application of heat/spontaneous combustion
• LIGHTNING
• EXPLOSION
– Limited to?
– Full (Special peril)

6. SPECIAL PERILS
• Aircraft
• Riot, Civil Commotion, Malicious damage
• Earthquake, Subterranean fire
• Spontaneous combustion
• Storm, Flood, Escape of Water, Sprinklers
• Impact – own or third party
• Subsidence, landslip, heave

7. Riot, Civil Commotion, War
Radioactive Contamination
Pollution and Contamination
FIRE GENERAL MARKET
EXCLUSIONS

8. FIRE GENERAL
EXCLUSIONS 2
Profit
Terrorism
Marine Risks
Consequential Loss
More Specific Insurance

9. FIRE CONDITIONS
• Subsequent to the
contract
– Under insurance
– Contracting
Purchasers
– Non-disclosure
– Alteration
– Warranties
– Reasonable
precautions
• Precedent to liability
– Claim notification
– Fraud
– Reinstatement
– Insurer’s rights
– Contribution
– Subrogation
– Arbitration

10. BASIS OF SETTLEMENT
Indemnity Reinstatement
Pay value at time and place Pay value at time and
of loss less depreciation place of loss without
wear and tear deduction for
depreciation, wear and tear
Sum Insured adequate Sum Insured adequate at
at of loss time of reinstatement
100% Average clause 85% Average clause

11. DAY ONE REINSTATEMENT
• Declared Value = Costs of reinstating on first
day of policy
• Insurers Liability = Declared value + 50%
• Premium:
– Adjustable basis: add 7.5% and 50% of difference
at year end
– Non-adjustable: add 15%

12. DAY ONE PREMIUM
• Adjustable:
– Day One Declared Value x Rate + 7.5% = Deposit
– £2,000,000 x 0.1% + 7.5% = £2,150
• Non-adjustable:
– Day One Declared Value x Rate + 15% = Premium
– £2,000,000 x 0.1% + 15% = £2,300

13. STOCK DECLARATION
• Sum Insured = Maximum value risk
• 75% deposit premium
• Regular declarations
• Premium adjustment on average declaration
• Beware of declaration value
– Maximum SI if no declaration/high declaration
– Nil can be valid

14. Module 10 Objectives
At the end of this module you should be able to :-
• Explain the legal definition of Theft and the cover
provided
• State the exclusions and optional extensions of the
standard Theft policy
• Briefly describe the application of the PA assault
extension
• Explain the need for Goods in transit insurance and
the cover provided
• State the exclusions under an ‘All Risks’ policy

15. ADDITIONAL COSTS
• Architect’s, Surveyor’s, Engineer’s fees
• Debris Removal
• Public Authorities Clause
• incurred following an insured event
providing adequate sum insured

16. THEFT ACT 1968
A person is guilty of theft if he
dishonestly appropriates
property belonging to another
with the intention of permanently
depriving the other of it.’

17. THEFT COVER
To indemnify the insured for loss or
damage to the property insured
as a result of entry or exit to the premises as a result of
forcible and violent means
Excluding:
Methods of entry
Types of property
Cause of damage

18. PROPERTY INSURED
• Stock
• Contents excluding stock
• Buildings if insured responsible
– replacement of locks
– external glazing

19. THEFT POLICY EXTENSIONS
• First Loss
• Collusion
• Full Theft
• Temporary Removal
• Index Linking

20. THEFT UNDERWRITING

21. TYPES OF ‘ALL RISKS’
POLICIES
• Money
• Goods in Transit
• Industrial ‘All Risks’
– Addition of Accidental Damage peril
• Contractors ‘All Risks’
– Building works, machinery, tools, Liabilities

22. MONEY INSURANCE
Covering ‘all risks’ of loss of
money, the responsibility of the
insured anywhere in the United
Kingdom

23. MONEY EXCLUSIONS
• Errors and omissions
• Depreciation
• Use of keys
• Dishonesty of employees/directors
• Market exclusions

24. • On premises - out of business hours £250
in safe safe limit
Loss/damage to safe/strong-room Unlimited
PDH directors/ employees £500
• In transit £5,000
• employees security company
£20,000
• Non-negotiable money £250,000
• Any other loss Specified
• Clothing/P.E. Insured, Director, Employee
£500
MONEY POLICY LIMITS

25. PERSONAL ACCIDENT
ASSAULT
• Accidental bodily injury as a result of an attempt to
steal money
• Benefits
– Death
– Loss of limb/ eye
– Permanent Total Disablement
– Temporary Total Disablement
– Temporary Partial Disablement
• Medical Expenses

26. GOODS IN TRANSIT COVER

27. TYPES OF POLICY
• Specified Vehicle Limit agreed per vehicle
• Declaration policy Limits anyone
consignment/loss
Adjustable

28. G.I.T EXCLUSIONS
• Wear, Tear, Gradual deterioration
• Confiscation
• Consequential Loss
• Specified ‘hazardous’ goods
• Excess

29. G.I.T. EXTENSIONS
• Debris removal
• Tarpaulins, ropes, chains
• Sea Transits

30. INDUSTRIAL ‘ALL RISKS’
• Accidental loss, destruction or damage to the property
of the insured
• Special Machinery
• All property
• Exclusions of causes of damage very important

31. ‘ALL RISKS’ EXCLUSIONS
ABSOLUTE OTHER DELETE BUY BACKS
CLASSES WITH CARE
War Marine Property in the Theft
Terrorism Aviation open Money
Radioactive Motor Unoccupied Goods in
premises Transit
Sonic Bang Livestock Computers
Pollution Jewellery
Subsidence
Glass

32. Module 11 Objectives
At the end of this module you should be able to :-
• Explain the intention of a Business interruption policy
• Define Gross Profit on a difference basis and calculate the
figure from simple accounts
• Identify the sum insured and insurer’s liability under a
Declaration Linked policy
• Explain indemnity period
• Illustrate the impact of time on the required sum insured
• Explain & outline cover

33. BUSINESS INTERRUPTION
To indemnify the insured for for the effect which
damage to property has on the income of the
business

34. ACCOUNTS
• Record of business’s transactions in a snapshot of time
• Trading Account
– Items relating directly to costs of production
– Difference between two sides = Accountant’s Gross
Profit
• Profit and Loss Account
– Reflects the indirect costs of production
– Difference between two sides = Accountant’s Net
Profit

35. TURNOVER
‘The money paid or payable to the insured for goods sold
and delivered and for services rendered in the course of
the business at the premises’

36. TURNOVER
Profit
Raw
Materials
Packing/
carriage
Utilities
Wages
Salaries
Other
costs

37. GROSS PROFIT
DIFFERENCE BASIS
Sum of:
Turnover plus closing stock and work in
progress
Less the sum of:
Opening stock and work in progress plus
Uninsured Working Expenses

38. DIFFERENCE BASIS
Gross
Profit

39. INDEMNITY PERIOD
The period beginning with the
occurrence of the damage
and ending
not later than the Maximum Indemnity period during
which the results of the Business have been affected in
consequence of the damage

40. INDEMNITY PERIOD
T = Turnover
A = level of turnover equal to
level at date of damage
B = level of turnover equal to
‘would have been position’
T
B
A
INDEMNITY PERIOD
Fire

41. I.P. FACTORS
• Availability of alternative premises
• Ease of repair existing premises
• Availability of raw materials
• Lead time on machinery
• Inter-group assistance
• Seasonal business
• Recover market position

42. ADEQUATE SUM INSURED
£
1,000’s
300
200
100 Calculated
Gross Profit
Year of
accounts
Current
Year
Policy
Year
Indemnity
Period
Time
Growth
Growth
Growth
Limit
Required

43. DECLARATION LINKED
• Declared Value = Insured’s Estimated Gross
Profit for the period of
insurance
• Insurer’s liability 133.3% of declared figure
• Average does not apply
• 75% Deposit premium, adjust within 6 months
• Maximum return – 50% of deposit

44. B. I. OPERATIVE CLAUSE
• IF - after payment of the premium any building or other
property used by the INSURED at the PREMISES for
the BUSINESS be DAMAGED DESTROYED by an
INSURED PERIL and the business be INTERRUPTED
• then Insurers will
PAY the amount of the LOSS in accordance with the
policy TERMS AND CONDITIONS

45. B. I. PERILS
• Standard policy:
– Fire
– Lightning
– Explosion – Domestic & production boilers
& domestic gas
• Additional perils:
– As per Material Damage policy
– All Risks
– Engineering risks
– Notifiable disease, Vermin, Defective sanitation, Murder,
Suicide

46. MATERIAL DAMAGE
PROVISO
• Material damage policy in force that
– has paid for material damage
– has admitted liability
– would have paid but for large excess
• Because
– Funds to rebuild and minimise effect of interruption
– Warranties of property policy apply
– Claim investigated

47. STANDARD B.I. EXCLUSIONS

48. STANDARD CLAUSES
• Professional Accountants fees
• Alternative trading
• Alterations
• Market conditions

49. Module 12 Objectives
At the end of this module you should be able to :-
• Explain how liability arises in the UK
• State the statute that created the need for EL
insurance
• Outline the meaning of employee, business, territorial
limits and limits of indemnity for EL, TP and PL
policies
• Distinguish between the cover provided by
Employers, Public and Product Liability policies

50. CHARACTERS IN LAW
Claimant Defendant Judge
The wronged party The party alleged Power to grant
bringing the action to be liable damages;
injunction or
performance
?

51. LIABILITY ARISES
• Tort
– Negligence, Nuisance, Trespass, Defamation
• Strict liability
• Statute
• Contract

52. NEGLIGENCE
‘The omission to do something which a reasonable man
would do, or doing something which a prudent and
reasonable man would not do.’

53. NEGLIGENCE
Claimant must prove - Duty of care - direct or
indirect
Duty of care broken
Breach of that duty is
proximate cause of
the damage.

54. DUTY OF CARE
You must take reasonable care to avoid acts or omissions which
are likely to injure your neighbour
‘Neighbours’ are persons so closely and directly affected by my act
that I ought reasonably to have had them in contemplation as being
so affected.
Donoghue v. Stevenson1932

55. DAMAGES
• Damages can arise from:
– bodily injury
– death
– property damage
• Limited
– pure economic loss
– negligent miss-statement
– nervous shock

56. TRESPASS
‘Direct interference with the person,
goods or land of another’
Trespass of person Trespass of land
Assault Entering or remaining on
Battery land owned by another
False Imprisonment depositing material on it

57. NUISANCE
‘Interference with a persons use or enjoyment of land or of
some right connected with it’
Public Private
Materially effects Wrongful interference
a class of people with another’s enjoyment
e.g. selling unhygienic of his land e.g. noise,
food, obstruction of vibrations, emissions
the highway

58. DEFAMATION
A defamatory statement lowers
the estimation of the plaintiff in the
minds of right thinking members
of society generally
• Libel – permanent
• Slander – non-permanent

59. A person who for his own
purposes brings on his
land anything likely to do
mischief if it
escapes must keep it at
his peril!
STRICT LIABILITY
RYLANDS V. FLETCHER

60. How much has
been lost so far?
SPECIAL
How much will
compensate for
the future?
GENERAL
DAMAGES

61. LIMITATION ACT1980
3 years – personal injuries, libel, slander
6 years – property damage
from date – cause of action accrues
– or of the knowledge that action
caused injury/damage

62. EMPLOYER’S DUTIES
• Common Law
– Safe place and system of work
– Safe plant and machinery
– Competent and suitable fellow servants

63. EMPLOYER’S LIABILITY
(COMPULSORY INSURANCE)
ACT 1969
•Why?
– Compensation for injured/killed employees
•What?
– Policy covering min £2 million Limit of Liability
– Injury/disease death during course of
employment in employers’ business
– Certificate issued and displayed

64. EMPLOYER’S LIABILITY
(COMPULSORY INSURANCE)
REGULATIONS 1998
• Limit of indemnity
– Increased to £5 million
– Costs inclusive
• Certificates
– Record indemnity limit
– Kept 40 years
– Produce copies on demand

65. EMPLOYERS’ LIABILITY
INSURANCE
Indemnify the insured for sums LEGALLY LIABLE to
pay as DAMAGES in respect of BODILY INJURY
(including death or disease) sustained by an
EMPLOYEE arising out of and in the COURSE OF
HIS EMPLOYMENT in the BUSINESS during the
PERIOD OF INSURANCE within the TERRITORIAL
LIMITS.

66. COURSE OF EMPLOYMENT
• When did accident happen?
– On way to work
– At work
– Travelling on business
Third EC Directive motor policies cover
passenger travel in car

67. PUBLIC LIABILITY
To indemnify the insured for their LEGAL LIABILITIES for
ACCIDENTAL bodily INJURY, DEATH OR PROPERTY
DAMAGE to third parties arising from the INSURED’S
BUSINESS

68. PRODUCTS LIABILITY
OPERATIVE CLAUSE
To indemnify the insured for their LEGAL LIABILITIES
for ACCIDENTAL BODILY INJURY, DEATH OR
PROPERTY DAMAGE arising out of GOODS sold,
supplied, renovated, repaired, altered, treated, tested,
installed in connection with the BUSINESS during the
PERIOD OF INSURANCE within the territorial limits

69. DEFENCES
• Development risk
• Fault did not exist when originally supplied
• Compliance with EC and statutory requirements
• Supply not in course of business
• 10 years since supply
• Due to design of product in which item was included

70. Thank you