Parties Covered by Property Insurance

Depending on the policy terms and conditions, property insurance can protect the insured and sometimes other parties that have an insurable interest in the property and that suffer a financial loss because covered property is lost, damaged or destroyed.

Generally, policies are written to cover these interests as follows: -

· The owner of a building is the named insured on a property insurance policy covering the building.

· A party that owns and occupies a building is the named insured on a property insurance policy covering the tenant’s personal property in that building.

· The tenant of a building is the named insured on a property insurance policy covering the tenant’s personal property in that building.

· A secured lender, although usually not a named insured, is listed by name in the declarations (or in an endorsement) as a mortgagee or a loss payee.

· A Bailee, such as Warehouse, is the named insured on a Bailee policy.

Named Insured (s)

The named insured is the policyholder whose name(s) appears on the declarations page of an insurance policy.

In personal insurance, it also generally includes spouse even if not named in the policy. However, coverage for the spouse of a named insured depends on the policy definition of “named insured” and generally requires that the spouse live in the same household as the named insured.

The first named insured is the person or organization whose name appears first as the named insured on a commercial insurance policy and who, depending on the policy conditions, might be the one responsible for paying premiums and the one who has the right to receive any return premiums, to cancel the policy, and to receive the notice of cancellation or renewal.

Secured Lenders

The insurable interest of such lenders is protected when they are listed in the policy.

Mortgagee or Mortgage Holder

Until the loan is paid in full, the lender has an insurable interest in the property because destruction of the property could cause a financial loss to the lender.

The mortgage clause (or mortgage holders clause) of a property insurance policy protects the insurable interest of the mortgagee by giving it certain rights, such as the right to be named on claim drafts for losses to insured property and the right to be notified in the event of policy cancellation.

The mortgagee has the following rights under the mortgage clause of the building owner’s insurance policy: -

· The insurer promises to pay covered claims to both the named insured and the mortgagee as their interests appear (that is to the extent of each party’s insurable interest).

· The insurer promises to notify the mortgagee before any policy cancellation or non-renewal. The notice enables the mortgagee to replace the policy with other insurance.

· If the insurer cancels the policy and neglects to inform the mortgagee, the mortgagee’s interest is still protected, even if the named insured no longer has coverage.

· So that the policy will remain in effect, the mortgagee has the right to pay the premium to the insurer if the insured fails to pay the premium.

· In case of loss, the mortgagee may file a claim if the insured does not.

· If a claim is denied because the insured did not comply with the terms of the policy, the mortgagee may still collect under the policy.

Loss Payee

A loss payee is a lender, named on an insurance policy, who has loaned money on personal property, such as a car.

A loss payable clause provides that a loss will be paid to both the insured and the loss payee as their interests appear and gives the loss payee certain rights. However, a loss payable clause does not extend as many rights to the lender as does a mortgage clause.

Other Parties Whose Property Is Covered

Many property insurance policies provide coverage to parties who are neither named insureds nor secured lenders and following are few examples: -

· A homeowners policy can provide coverage for property owned by relatives and other persons under the age of twenty-one who reside in the named insured’s household.

· A homeowners policy can provide coverage for property belonging to guests, residence employees, and others while it is in the named insured’s home.

· A commercial property policy providing coverage on the named insured’s personal property can also provide limited coverage for (1) the personal effects of officers, partners, or employees and (2) personal property of others in the care, custody, or control of the insured.

· A personal auto policy can provide coverage for collision damage if the named insured borrows a car belonging to somebody else, the car sustains collision damage and the owner of the borrowed car has no insurance.

In the above examples, the other parties do not enter into the insurance contract with the insurer, and they have no specific rights to collect under someone else’s policy. However, the named insured can request that the insurer pay claims of this type.

Property Loss Exposures

Covered Financial Consequences

Property losses can lead to any or all of the following financial consequences: -

· Reduction in the value of property

· Lost income

· Extra expenses

Reduction in the value of property (Direct Loss)

Direct loss is a reduction in the value of property that results directly and often immediately from damage to that property.

Time Element (Indirect) Loss

These include loss of income or extra expenses resulting from direct loss to property. This type of loss is called “time element” because it takes place over a period of time such as days, weeks, months or even years following a direct loss.

Lost Income

Business income insurance protects a business from income lost because of a covered direct loss to its building or personal property.

Covered business income includes the organization’s net profit (income minus expenses) that would have been earned if the insured property had not been damaged.

It also includes the operating expenses that continue while the business is interrupted.

Extra Expenses

These are expenses that reduce the length of a business interruption or enable a business to continue some operations when the property has been damaged by a covered cause of loss.

Additional Living Expense

This is a coverage in homeowners policies that indemnifies the insured for the additional expenses incurred following a covered property loss so that the household can maintain its normal standard of living while the dwelling is uninhabitable.

Property Loss Exposures

Auto Physical Damage

Insurance policies that provide auto physical damage coverage (property coverage for autos) offer the following types of coverage:

· Collision

· Other than collision (also called comprehensive)

· Specified causes of loss (used primarily in commercial auto policies)

Collision covers damage to an insured motor vehicle caused by its impact with another vehicle or object or by its upset or overturn.

Other than collision (or Comprehensive) is a type of open perils (all-risks) because it covers any “direct and accidental loss” that is not caused by collision and is not specifically excluded such as fire, theft, vandalism, falling objects, flood and various other perils.

Specified causes of loss is a less expensive alternative to comprehensive coverage in commercial auto policies. This coverage is otherwise called named peril coverage.

Causes of Loss Often Excluded

Reasons for Exclusions

· To avoid covering uninsurable losses.

· To avoid insuring losses that could be prevented.

· To eliminate duplicate coverage.

· To eliminate coverage that most insured do not need.

· To eliminate coverage for exposures that requires special handling by the insurer.

· To keep premium reasonable.

Catastrophe Perils

Some perils that affect a great many people at the same time are generally considered to be uninsurable by insurance companies, since the resulting losses would be so widespread that the funds of the entire insurance business might be inadequate to pay all of the claims.

For this reason, almost all property insurance policies exclude coverage for losses from catastrophes such war and allied perils, nuclear reaction and allied perils, Act of God perils like earthquake, flood losses, etc.,

Maintenance Perils

Maintenance Perils that are excluded from most policies include: -

· Wear and tear

· Marring and scratching

· Rust

· Gradual seepage of water

· Damage by insects, birds, rodents, or other animals.

Such losses are generally uninsurable because they either are certain to occur, over time, or are avoidable through regular maintenance and care.

Property Loss Exposures