Welcome

to
Introduction to Commercial
Lines

Alison Cooper FCII

CLASSES OF INSURANCE
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
WHAT IS PROPERTY?
• Buildings
• structures
• surrounding property
•Fixtures & fittings
• Contents
• machinery, office equipment,

• Stock
•Raw materials, work in
progress, finished goods
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)
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
FIRE GENERAL MARKET
EXCLUSIONS

Riot, Civil Commotion, War

Radioactive Contamination

Pollution and Contamination

FIRE GENERAL
EXCLUSIONS 2
Terrorism

Marine Risks

Consequential Loss
Profit

More Specific Insurance

FIRE CONDITIONS

• Subsequent to the • Precedent to liability

contract – Claim notification
– Under insurance – Fraud
– Contracting – Reinstatement
Purchasers – Insurer’s rights
– Non-disclosure – Contribution
– Alteration – Subrogation
– Warranties – Arbitration
– Reasonable
precautions
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

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%
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
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
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
ADDITIONAL COSTS

• Architect’s, Surveyor’s, Engineer’s fees

• Debris Removal
• Public Authorities Clause

• incurred following an insured event

providing adequate sum insured
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.’
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
PROPERTY INSURED

• Stock
• Contents excluding stock
• Buildings if insured responsible
– replacement of locks
– external glazing
THEFT POLICY EXTENSIONS

• First Loss
• Collusion
• Full Theft
• Temporary Removal
• Index Linking
THEFT UNDERWRITING
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
MONEY INSURANCE

Covering ‘all risks’ of loss of

money, the responsibility of the
insured anywhere in the United
Kingdom
MONEY EXCLUSIONS

• Errors and omissions

• Depreciation
• Use of keys
• Dishonesty of employees/directors
• Market exclusions
MONEY POLICY LIMITS

• 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
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
GOODS IN TRANSIT COVER
TYPES OF POLICY

• Specified Vehicle Limit agreed per vehicle

• Declaration policy Limits anyone

consignment/loss

Adjustable
G.I.T EXCLUSIONS

• Wear, Tear, Gradual deterioration

• Confiscation

• Consequential Loss

• Specified ‘hazardous’ goods

• Excess
G.I.T. EXTENSIONS

• Debris removal

• Tarpaulins, ropes, chains

• Sea Transits
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

‘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
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
BUSINESS INTERRUPTION

To indemnify the insured for for the effect which

damage to property has on the income of the
business
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
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’
TURNOVER

Profit
Other
Raw
costs
Materials
Salaries

Packing/
Wages carriage
Utilities
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
DIFFERENCE BASIS

Gross
Profit
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
INDEMNITY PERIOD

INDEMNITY PERIOD

T
B

A
Fire

T= Turnover

A = level of turnover equal to

level at date of damage

B = level of turnover equal to

‘would have been position’
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
ADEQUATE SUM INSURED

£
1,000’s Limit
Required
300
Growth

200
Growth

Calculated Growth
100
Gross Profit

Time
Year of Current Policy Indemnity
accounts Year Year Period
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
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
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
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
STANDARD B.I. EXCLUSIONS
STANDARD CLAUSES

• Professional Accountants fees

• Alternative trading
• Alterations
• Market conditions
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
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
LIABILITY ARISES

• Tort
– Negligence, Nuisance, Trespass, Defamation

• Strict liability

• Statute

• Contract
NEGLIGENCE

‘The omission to do something which a reasonable man

would do, or doing something which a prudent and
reasonable man would not do.’
NEGLIGENCE

Claimant must prove - Duty of care - direct or

indirect

Duty of care broken

Breach of that duty is

proximate cause of
the damage.
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
DAMAGES

• Damages can arise from:

– bodily injury
– death
– property damage

• Limited
– pure economic loss
– negligent miss-statement
– nervous shock
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
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
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
STRICT LIABILITY
RYLANDS V. FLETCHER

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!
DAMAGES

How much will

How much has
compensate for
been lost so far?
the future?
SPECIAL
GENERAL
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
EMPLOYER’S DUTIES

• Common Law
– Safe place and system of work
– Safe plant and machinery
– Competent and suitable fellow servants
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
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
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.
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
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
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
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
Thank you