CRIS - Property - Ch. 10 - Contractors Equipment: Covered Causes of Loss and Other Important Provisions

Contractors equipment policies can be written on either a named perils or an all risks basis. (T/F)?
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Contractors equipment policies can be written on either a named perils or an all risks basis. (T/F)?
true
Section 10. 2 - Named Perils Coverage
....
Why is it important to read the perils included on a named perils policy for contractors equipment?
Covered perils vary significantly from one named perils contractors equipment form to the next.
Key Contractors Equipment Named Perils
Fire
Lightning
Windstorm
Hail
Explosion
Strikes, riot, and civil commotion
Earthquake, landslide, or mudflow
Flood
Upset or overturn of equipment
Collision, derailment, upset, or overturn of a transporting vehicle
Theft
Vandalism
Section 10. 3 - All Risks Coverage
...
Some causes of loss that might be covered by an all risks policy but not by a named perils policy are:
theft
vandalism and malicious mischief
strike, riot, and civil commotion
damage caused by equipment overload
collision (other than with a vehicle), overturn, or upset of the insured equipment
collapse of crane or derrick booms.
The scope of coverage provided by any all risks policy is determined by the _____________.
exclusions
Common Contractors Equipment Excluded Perils
- War, nuclear hazard, and government seizure
- Dishonesty of the insured, the insured's employees, or others to whom the equipment is entrusted (other than carriers for hire)
- Mysterious disappearance and shortage on taking inventory
- Electrical injury to electrical devices
- Mechanical breakdown
- Wear and tear, corrosion or rust, gradual deterioration, inherent vice or latent defect, temperature and humidity changes or extremes
- Delay, loss of market, loss of use, consequential loss
- Maintenance or repair of covered property
- Weight of load exceeding designed capacity
- Loss to crane or derrick booms while in operation, except from specified perils
- Puncture, blowout, or road damage to tires and tubes mounted on equipment, except from specified perils, unless loss is coincident with other covered loss
- Pollutant release except from specified causes
- Voluntary parting with property due to fraudulent scheme
- Unauthorized transfer of property
When interpreting exclusions, keep in mind that they eliminate coverage only for loss caused by the excluded peril in and of itself, unless the policy states otherwise. In other words, ensuing loss from an unexcluded cause is usually covered.

Give in example of an exclusion on an all risk policy for contractors equipment that contributes to an ensuing loss from an unexcluded cause.
If wear and tear causes an explosion or fire or any other unexcluded loss, that loss would be covered.
In most contractors equipment policies, only a few of the exclusions use concurrent causation language.

Normally - these exclusions are?
normally, only the war, nuclear hazard, and governmental action exclusions
What is concurrent causation language?Concurrent causation language states that there is no coverage for loss from the excluded cause, regardless of "any other cause that contributes concurrently or in any sequence to the loss." Exclusions that use concurrent causation language eliminate coverage for any loss that involves that excluded cause of loss, even if other unexcluded causes of loss were also involved.Crane or Derrick Booms: Some all risks contractors equipment policies provide named-perils-only coverage for loss to crane or derrick booms. How is this done/accomplished?This result is accomplished by different means in different forms. Sometimes the insuring clause or coverage grant itself contains a limitation on coverage for crane or derrick booms. In other forms, the limitation appears under the heading of "excluded property."Crane or Derrick Booms: Contractors equipment policies written on forms that do not restrict coverage on booms may include ___________________________.boom coverage restriction endorsements.Crane or Derrick Booms: Most often, a boom coverage restriction appears in the "excluded perils" section of the policy, as an exclusion with an exception that provides coverage for loss to booms from _____________________.specified named perilsCrane or Derrick Booms: The named-perils-only coverage restriction may apply to all crane or derrick booms or, more commonly, only to those over a specified length (commonly _____ feet).25 ft.Crane or Derrick Booms: In some policies, the restriction applies only to loss occurring while the boom is in operation, since its primary purpose is to preclude coverage for losses arising from _____________ operation of the equipment. Also, the covered named perils do vary somewhat from one boom coverage restriction to another.negligentWeight of Load: Many contractors equipment policies exclude loss caused by the weight of a load exceeding the capacity that the equipment is designed to lift or support. (T/F)?true However, it is sometimes possible to have this exclusion deleted, with respect to all equipment or with respect to specific items of equipment.Terrorism Coverage: Contractors equipment policies generally do not contain built-in exclusions of loss due to terrorism. (T/F)?true. - However, they can be endorsed to exclude losses due to terrorism or to limit coverage for loss due to terrorism in some way, using essentially the same standard terrorism endorsements that are used with commercial property policiesSection 10. 4 - Limits of Insurance....Is contractors equipment coverage arranged on a scheduled basis or a blanket basis?Contractors equipment coverage can be arranged on a scheduled basis, a blanket basis, or a combination of the two.Contractors equipment coverage arranged on a scheduled basis- Coverage applies to the equipment listed on the schedule of equipment furnished by the insured - Limits of coverage for each item is listed on the schedule - Newly acquired equipment is usually covered automatically for a specified number of days (typically between 30 and 90 days) - Coverage for newly acquired equipment is subject to a per-item or per-occurrence newly acquired equipment limit - Often the coverage on newly acquired equipment is further limited to the lower of a percentage of the policy limit (25 percent, for example) or the applicable per-item or per-occurrence limit.Why might scheduled coverage for contractors equipment not be a practical approach?For insureds with a lot of equipment if frequent additions and deletions make maintaining an up-to-date schedule difficult for everyone involved.For insureds/contractors with frequent additions and deletions of scheduled items - which approach is better?A blanket basis approachBlanket contractors equipment policies cover....?- all equipment that meets the policy definition of covered property, subject to a single per occurrence limit of insurance and sometimes a per-item sublimit. - Sometimes an annual aggregate limit or a per location sublimit is imposed as well - Usually the insured is required to submit an equipment schedule at the beginning and at the end of the policy period, and sometimes also at specified intervals (typically monthly or quarterly) during the policy term. - The insured's premium is then adjusted to reflect the actual values at risk. - Any new equipment purchased during the policy period is automatically covered (subject to a newly acquired equipment per-item or per-occurrence sublimit and sometimes a percentage-of-policy-limit maximum as well) until the next equipment report is due.__________________ coverage eliminates the administrative burden of reporting each purchase or sale of equipment individually.BlanketHow a combination of scheduled and blanket coverage works.- items valued at less than a specified amount are covered on a blanket basis, subject to a per item unscheduled equipment limit. - equipment that is valued in excess of the per item unscheduled equipment limit is covered on a scheduled basis -- it must be listed on the policy schedule in order to be covered.Policies covering very large equipment schedules may include a _________________ sublimit that places a maximum on the amount the policy will pay for all damages arising out of a single event.catastropheSince the purpose of a catastrophe limit is to restrict the amount the insurer would otherwise have to pay, the catastrophe limit is normally set lower than the ......?blanket limit (or, in a scheduled policy, lower than the sum of the limits on each item).Catastrophe Sublimit on Contractors Equipment PolicyA policy with a $10 million blanket limit might, for example, have a $2 million catastrophe limit. Sublimits may also be imposed on loss from flood and earthquake, instead of or in addition to a catastrophe limit. - For example, it would be possible to have a $10 million blanket limit, a $3 million catastrophe limit applying to all perils except flood and earthquake, and a $1 million limit applicable to flood and earthquake.Section 10. 5 - Deductibles.....Policies covering relatively small schedules of equipment usually impose a _________ per-occurrence deductible. Policies covering large schedules are often written subject to a percentage of value deductible1) flat dollar 2) percentage of value (usually subject to a flat dollar minimum and maximum.)Percentage of loss deductibles are also sometimes encountered. If available, percentage of loss deductibles are actually more favorable to the insured than percentage of value deductibles. Why?a percentage of loss deductible translates into a lower dollar deductible in the event of a partial loss; there is no difference between the two in the event of a total loss.Annual aggregate deductibles are sometimes used instead of percentage deductibles in policies covering large schedules. How does this work?All losses during the year are subject to a large, flat dollar deductible until the aggregate amount paid by the insured equals the specified deductible. Once the annual aggregate deductible has been paid out by the insured, the policy covers all future claims on a first dollar basis (or subject to a very small deductible).Section 10. 6 - Valuation...Contractors equipment policies are typically written on _____________________ basis rather than on __________________ basis.- an actual cash value -a replacement cost basis.Why ACV over RC valuation?Because of the nature of construction work, the wear and tear on contractors equipment is substantial, and the physical depreciation may be rapid. As a result, the difference between actual cash value and replacement cost is often much greater for contractors equipment than for other types of property.When is replacement cost granted on a contractors equipment policy?It's possible to secure RC on newer equipment on a specified basis - other older equipment will be on ACV basis. Alternatively, the policy may stipulate that equipment with a model year falling on or after a specified date is covered on a replacement cost basis. Some forms provide replacement cost coverage for partial losses that are less than a stated percentage (such as 20 percent) of the value of the property.Section 10. 7 - Coinsurance....A coinsurance clause penalizes the insured for failing to....?purchase a limit of insurance equal to some specified percentage of its full value. Usually: 80%, 90% or 100% co-insuranceWhen the coverage is written on a __________________ form basis, the coinsurance clause is usually replaced with a full reporting requirement that is, in effect, a 100 percent coinsurance clause.blanket reportingWhat are 2 ways to avoid a co-insurance penalty?1) insure the property for at least the required percentage of its full value. 2) have an agreed value provision added to the policyWhy is it important to keep in mind that the value of the equipment shown in the insured's accounting records may not be a good estimate of the actual cash value of the equipment?Depreciation is often accelerated in determining the "book value" of assets. Also, remember that coinsurance compliance will be determined using the valuation basis that applies to the damaged items. Accordingly, equipment covered on a replacement cost basis must be insured to the specified percentage of its replacement value. Sales and manufacturer's representatives and certified appraisal firms can provide help in determining the value of a piece of equipment.How does an agreed value provision work?An agreed value provision suspends the coinsurance clause until the date specified, which is usually the next policy anniversary. Agreed value coverage may be available if the insurer is convinced of the accuracy of the insurable values submitted.