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When Terrorism Becomes A Reality

This week's tragedy at the Boston Marathon has touched each of us on a very personal level and puts fear in our hearts that this could happen again. As the dust settles at the site, there will be many unanswered questions, and some of those issues will concern terrorism and insurance for terrorism.

What do we know at this point?

  1. It is being speculated that this is an act of terrorism.
  2. It is uncertain if it is an act of domestic or foreign terrorism.
  3. It is, also, unlikely at this point that this will be a Certified Act of Terrorism.

What are the immediate insurance issues that we see from this event?

  1. Severe injuries and death
  2. Direct damage to buildings and structures
  3. Direct damage to property (including vehicles)
  4. Closure of areas due to direct loss and civil authority
  5. Debris removal and damage
  6. Workers Compensation

For all of us in the insurance industry, we have to be asking ourselves:

  1. Are we offering terrorism coverage to our insureds?
  2. Are we going beyond just the offer of the Terrorism Risk Insurance Act (TRIA) and offer stand-alone terrorism insurance, which is available in the insurance market place?
  3. Are we carefully documenting our conversations with our insureds about the terrorism offer?

The Insurance Community University has two important classes for you to attend:

Update on Terrorism Exposures and Insurance — May 7, 2013

  • Overview of terrorism risk and exposure
  • Review of TRIA (Terrorism Risk Insurance Act)
  • Terrorism Insurance

Insight on Errors & Omissions — April 25th and 26th

We have heard it a thousand times — “documentation;” but in light of the bombing, we have to take a harder look at what we are doing: your files must speak for themselves and contain the notes on discussions, offers, acceptances, rejections, and follow ups. The Errors & Omissions class is approved with various insurance companies, including Fireman's Fund for credit on your agent's Errors & Omissions renewal insurance.

The California Homemade Food Act And Insuring Home-Based Businesses

When I think about businesses/people working out of their homes, the first picture that comes to mind are people working on their computers — in virtual offices, remote offices, and oftentimes offices outside of the United States.

That is why it came to me as a surprise when Yahoo recently proclaimed all their employees had to “come back to work.” One news line read “work at home and you will be fired.” Clearly this is a change, especially for a high tech company. Marissa Mayer, the president and CEO of Yahoo as of 2013, defends her stance and says it will “separate out the truly productive workers from stay at home slackers who abuse the system.” Needless to say, the news is buzzing about this, so time will tell if she sticks to her guns.

While Yahoo is “going back to the workplace,” more and more people are choosing to work from their home. The current economy has redefined how people cope with the unemployment dilemma, and many businesses encourage staff to work from home to better maximize their production and as a means to better deal with the demands of work and family.

Now home-based bakeries and cooks are getting a new incentive to work from home with the passage of a new law in California. Other states may have or may adopt similar laws. The California Homemade Food Act has created a new category of food producers called “cottage food producers” which will allow people to cook their food items in their kitchens at home. Up until this law was enacted, food producers had to use commercial kitchens. These food producers could include: caterers, suppliers to organic markets or farmers markets, and bakeries that supply local restaurants with breads or desserts.

Not all foods are approved to be cooked out of a home — only foods that are considered to be “safe” fall under this law. Approved items include: baked goods, cookies, coffee, nuts, vinegar, candy, and dried pasta.

“We talked with the different health departments and various scientists, and these products are 99.9% safe,” accords to Mike Gatto, California Assemblyman. The state will require cottage food producers to take a food handling class and pass an exam that is created by the California Department of Public Health.

While the categories of the types of food that can be produced under this law are limited, at this time, it does open opportunities for some homeowners to work from their homes. From the broker/agent standpoint, we have to look more closely at the exposures and determine if the Homeowners Policy will pay for losses these home-based businesses might sustain. Here are some questions we need to ask our insured:

  1. Are they cooking in a kitchen in their dwelling?
  2. Are they cooking in a kitchen they have put in a detached structure?
  3. Have they installed commercial cooking equipment in either their home or other structure?
  4. Are they required and, if so, have they installed approved fire detection and suppression devices for their cooking equipment?
  5. Are they operating the business in their personal names (as they appear on the homeowners policy) or have they formed a business and filed for a business name?
  6. Do they have any employees?
  7. How do they deliver the goods that they cook? In their personal vehicle?
  8. Have they purchased a vehicle in the name of their business to deliver their goods?
  9. Do they have customers come to their home for any reason?
  10. How are they storing their food supplies and finished product?
  11. Do they have a website for their business?
  12. Do they sell product via the website?

These are just a couple of questions in a long list of considerations. The answer to these questions will direct the broker/agent as to how the Homeowners policy should be endorsed, not to mention the concerns relating to the personal auto used for delivery purposes or perhaps a truck purchased in the company name.

While the new law creates new opportunities for the home-based business, it also adds a responsibility to all of us in the insurance field to identify risk and suggest creative solutions. The insurance community center conducted a two hour class on insuring businesses operating out of a home in January of 2013. That archived webinar is available to all Insurance Community University members and the new Business in the Home audio presentation is now available in the Insurance Community University Library.

Sign up for classes today. Either join the University for one low price for the entire agency for all classes and products … or enroll in individual classes. Click here and be ready to learn!

Business Income And Dependent Property From A Secondary Location

There was a lot that changed with the Commercial Property Forms in the 2013 series. In fact, most forms underwent some sort of modification. One of the most interesting of the changes was the introduction of an optional coverage available on the Dependent Property Forms for Dependent Properties in the Supply Chain (Business Interruption).

By way of background, the Business Income and Extra Expense forms require that there is direct damage at the premises described by a covered cause of loss that gives rise to a loss of income or need to pay extra costs to operate during the period of restoration. In providing this form of coverage, we have been aware of the exposure to a loss of income due to a physical loss at a location that our insured depends on for various reasons. Recognizing that a loss to a dependent location could cause financial harm to our insured, ISO created Dependent Property Endorsements (CP 1508, CP 15 09, CP 1534) provided on a scheduled basis. What this means is that, for our insured, we identify what company(ies) they are dependent on and schedule those locations on the Dependent Property Form attached to their business income policy.

For example, we could be insuring a winery that is dependent on a single manufacturer to manufacture their distinct wine bottle and provide them with their customized cork. If that bottle manufacturer had a loss to their manufacturing facility by a peril insured against on the winery's policy and the winery now has no bottles and the winery can demonstrate they are losing money or incurring an Extra Expense by going to a more expensive alternate supplier then the Dependent Property Endorsement could respond.

What we learned, when losses such as this arise, is that oftentimes the physical loss did not occur at the dependent location we scheduled on the policy but rather to a “location” that the dependent property was dependent upon to supply them a product or service. So to expand on the winery example — the bottle manufacturer is dependent on a single cork manufacturer to supply them with the blank corks they customize and the cork manufacturer has a loss (covered peril) and cannot supply the wine bottle company with the product. We never identified the cork manufacturer on our insured's policy as there was no known or direct relationship.

The new language on the Dependent Property forms have an option for “secondary contributing locations” and “secondary recipient locations.” Secondary locations are limited to direct suppliers and recipients of the dependent property's materials or supplies.

On the form, secondary contributing location and recipient location are now defined terms. There are some important clarifications of the coverage:

  1. The secondary location is not identified in the schedule. However, there is a box on the schedule that has to be marked identifying that a secondary location has been included.
  2. The secondary location cannot be owned or operated by the “contributing” or “recipient” location that is identified in the schedule.
  3. There is clarity that a secondary location is not a road, bridge, tunnel, waterway, airfield, pipeline or any other similar area or structure.
  4. There is clarity that any source of “services” in the area of water, power, wastewater removal or communication supply cannot be a secondary dependent property. These would be covered under Utility Interruption endorsements.
  5. Lastly, there is clarity that the secondary dependent property coverage is subject to the territory of the policy and is not worldwide.

This additional coverage under the Dependent Property Endorsements is very important to consider, especially for manufacturing accounts. This all gets back to our identifying exposure and providing solution.

Sign up for classes today. Either join the University for one low price for the entire agency for all classes and products … or enroll in individual classes. Click here and be ready to learn!