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Tag Archives: Personal property

Green Changes in the NEW Commercial Property


Green Changes in the NEW Commercial Property 10/12 Edition Date
:

Your Insured Needs to Know about this BEFORE they have a loss!!

For many years insurance companies, such as Fireman’s Fund, has provided specialty coverages for constructing buildings in compliance with standards that make them more environmentally friendly; cost efficient; and self-sustaining. As the new construction standards have evolved and laws and regulations for building have emerged, the insurance forms have attempted to provide solutions of individuals who want to replace their structures according to green standards.  In the new series of forms, the first modification that has occurred is that existing forms have been modified.

  1. 1.      The Building and Personal Property Coverage Form CP 00 10 on page 2 modified the Property Not Covered.

(h) Land (including land on which the property is located) water, growing crops or lawns (other than laws which are part of a vegetated roof)

The following while outside the building

(q)fences, radio or television antennas (including satellite dishes) and their lead in wiring masts or towers, trees, shrubs or plants (other than trees, shrubs or plants which are “stock” or are part of a vegetated roof)

Outdoor Property

You may extend the insurance provided by this Coverage Form to apply to your outdoor fences, radio and television antennas (including satellite dishes) trees , shrubs and plants (other than trees shrubs or plants, which are stock or are part of a vegetated roof…… for specified causes of loss…..subject to limitation.

  1. 2.     Cause of Loss Special Form CP 1030 on Page 6

Limitations

g. Lawns, trees shrubs or plants which are part of a vegetated roof, caused by or resulting from

(1) Dampness or dryness of atmosphere or of soil supporting the vegetation

(2)Changes in or extremes of Temperature

(3) Disease,

(4) Frost or Hail….

Those are the forms that took on some changes specifically related to Vegetated Roofs.  In addition, the ISO has introduced a new endorsement for Green Upgrades.  The endorsement, while available, is fairly complex and sets difficult guidelines as to how limits are to be set and payment for a loss would be determined.  What follows is an overview of the endorsement.

CP 04 02 Increased Cost of Loss and Related Expenses for Green Upgrades

The Green Upgrades Endorsement modifies the Replace Cost Valuation clause on the forms to which this endorsement can be attached which include: the Building and Personal Property Form; Business Income with and without Extra Expense; Condominium Association and Unit Owner Form and the Extra Expense Form.

Prior to the ISO introducing Green Coverage, several insurance companies have written this coverage for many years. Fireman’s Fund was one of the first companies to come out with comprehensive green coverage and the Equipment Breakdown coverage forms have included limited amounts of the coverage for years responding to environmental upgrades.

There are several reasons that the endorsement is in place and that the prior forms changed language responding to buildings that currently exist with green upgrades such as roofing surfaces for those individuals/companies who would choose to repair/replace their buildings following a loss with more resource efficient construction.  This is still a fairly new concept to some and the endorsement will appear to be complex and confusing from both understanding the contract language; setting limit; and proving a loss.

When determining Replacement Cost for Green Upgrades the form will pay the additional costs to repair or replace damage property based on the materials and procedures set by the Green standard setter.  The form states the following as relates the standard:

2) Green standards-setter means an organization or governmental agency which produces and maintains guideline related to Green products and practices.  Green standards-setters include but are not limited to:

  1. The Leadership in Energy and Environment Design (LEED®) program of the U. S. Green Building Council
  2. ENERG STAR, a joint program of the U. S. Environmental Protection Agency and the U. S. Departement of Energy, and
  3. Green Globes ™, a program of the Green Building Initiative

3)  Green means enhanced energy efficiency or use of environmentally preferable sustainable materials, products or methods in design, construction, manufacture or operation, as recognized by a Green standard-setter.

The endorsement deals with green upgrades solely required for the purpose of satisfying the minimum requirements or recommended actions or standards of an ordinance or law by stating it will not disallow the cost of the Green Upgrade on the sole basis that such upgrade also falls under the provisions of the ordinance or law.  The endorsement will not pay, as respects green upgrades, if that cost is paid under another form.  I would caution anyone reading this language that it does appear more ambiguous then other sections of the new endorsement.

The first page of the form has a Schedule with seven columns:

  Green Upgrades Maximum Amount      
Premises Bldg # Building Your Business Personal Property Increased Cost of Loss % Related Expenses Number of Days for Extended Period of Restoration
  1. Schedule indicates maximum amount available for Building and Personal Property
  2. In the event of a loss the company will determine the amount payable by
    1. Determine amount of direct physical loss prior to deductible
    2. Multiply the amount determined by the appropriate increased cost of loss percentage shown in the schedule
    3. Unless the loss is less than the deductible, the company will pay the least of the amounts for the total of all costs attributable to Green Upgrades
      1.                                                   i.      The actual cost of covered Green Upgrades
      2.                                                 ii.      The amount determined by applying the percentage
      3.                                               iii.      The applicable amount show in the green upgrades in the schedule

Based on the aforementioned there are several steps the insured must take in first setting a limit which are difficult to quantify, at best.

  1. Determine a “maximum” limit remembering that settlement will go back to the Green standards-setter.  This limit must be determined for each building and building amount/personal property amount
  2. Select percentage under the increased cost of loss column for each item.  The percentages do not appear in the form; however, other reference material refers to the percentages available as 10; 20; 30; 40; or 50%.
  3. The next column is “Related Expenses” which the form lists as:
    1. Waste Reduction and Recycling
    2. Design and Engineering Professionals Fees
    3. Certification Fees and Related Equipment Testing
    4. Building Air-out and Related Air Testing
    5. The last column, for which a limit could be selected, is titled “Number of Days for Extended Period of Indemnity”.  This column relates back to Business Income with or without Extra Expense and Extra Expense.  This extends the “period of restoration” to include the increased period of time to bring the building up to the green standard.

In conclusion, the issue of “green” is a major driver in the new form series.  It is important to talk with your clients about the desire to modify construction following a loss in compliance with green standards BEFORE the loss occurs.

A complete review of the Commercial Property Forms was presented on 1/29/13 and the archived webinar is available to all university members.

Written By:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center,
Insight Insurance Consulting

 

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Trusts

The Wood family, December 1970

Image by Dave Traynor via Flickr

Family, Living, Revocable or Irrevocable.

More and more individuals are establishing Trusts, Limited Liability Companies (LLC) and even creating shell Corporations and purchasing property in the name of the entities formed. When writing insurance for these entities it is important to have a general understanding of their purpose and how to name the entities on the various insurance policies.

General Purpose
Trusts are a vehicle created to direct how an estate will pass on to heirs or non-heirs such as charities. Placing property in the name of a Trust can reduce or avoid taxes and in some cases avoid probate. There are three legal parties to the trust: the trustor, the trustee and the beneficiary. The trustor creates the trust; the trustee manages the trust by administering the property in trust and the beneficiary is the person/party that receives benefits from the trust. One of the most common reasons for forming a Trust is that the trustor can put conditions and/or restrictions on the rights of the trust. Individuals that form a Trust purchase real and personal property in the name of the trust in order to maximize the benefits.

Insurance for Trusts

The Trust MUST be added to the Homeowners Policy and any other personal lines policy that insures property or provides liability insurance.

1. Adding the Trust as the Named Insured:
Some insurance companies will add the Trust as the Named Insured. Many insured’s request that the Trust be the named insured. Adding the Trust as the Named Insured is not the best method for providing appropriate protection. Most carriers will not and should not write Homeowners in the name of the Trust. One of the most important points to remember is that the personal lines policies must be written in an individual’s name, not an entity name, such as a Trust. The insurance companies are unwilling to provide worldwide liability coverage for the Trust.

2. Adding the Trust as an Additional Insured
A proper method of protecting the Trust is to add that entity as an Additional Insured. Many insurance companies will either add the Residence Held in Trust endorsement or add the Trust and amend the policy. The Trust should have coverage for both property and liability exposures.

Limited Liability Company (LLC)

General Purpose
A Limited Liability Company (LLC) is sometimes referred to as a hybrid of a corporation and partnership. A LLC, like a corporation, is formed for a number of reasons. The common goal for forming the LLC is to protect an individual’s personal assets and providing tax benefits that are allowed by law. LLC’s are more common when individuals purchasing high valued property want to protect their personal identity. Specifically high-profile individuals, such as those involved in the entertainment industry, may form a LLC and purchase all of their properties through the LLC.

Insurance for a LLC

The LLC should be added to the Homeowners Policy and any other personal lines policy wherein property was purchased in the name of the LLC.
1. Adding the LLC as the Named Insured has the same problem as the Family Trust which is that the coverage would be too broad. The Named Insured should still be individuals.
2. If the LLC is owned 100% of the owner of the property, some insurance companies will name the LLC as an additional insured.
3. Some insurance companies refuse to add a LLC to personal lines policies even when the insured is the 100% owner.
4. LLC’s may be used to purchase vehicles. Typically, the named insured on the Personal Auto Policy will be the individual (s) and the LLC would be added as an additional insured if acceptable to the insuring company.
5. Verify with the insurance company underwriter that an insured using a LLC to pay residence employees will not be construed as a business risk, thereby removing coverage for domestic employees. This becomes more problematic if the LLC is being used to pay residence employees and to acquire or hold property.

Shell Corporations

General Purpose
Shell Corporations are sometimes referred to as Loan Out Corporations. This is a term common in the entertainment industry whereby the production company forms the loan out through which they are paid. Additionally they may use these entities to buy property. This is, in large part, to shield the identity of the individual and for tax purposes.
Insurance for an Shell Corporation
1. Some insurance carriers who specialize with high-profile or high net worth clientele will name the Shell Corporation as the named insured on a Homeowners Policy. Again, the same concerns exist here as outlined above under Trusts and LLCs.
2. Some insurance carriers will add them as an additional insured and, there are carriers who will not name them at all.

~Laurie

 

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