Question

University of Ghana has a large Archaeology Department and therefore it has a significant number of valuable pieces of scientific equipment, which are covered under a commercial all risks insurance policy.

a. Explain the cover provided by a commercial all risks insurance policy.

[5 marks]

b. List five exclusions which apply to a standard fire and Specified (Allied) perils policy. [5 marks]

c. The Archaeology Department of University of Ghana has a number of rare artifacts which are insured on an ‘agreed value’ basis. State what you understand by this term and what the insurance implications are. [5 marks]

d. In respect of contents at the premises, the insured has asked if it is possible to remove the term “forcible and violent entry to or exit from the premises’ from the theft peril. Discuss the feasibility of such a request. [5 marks]

e. The owners of Accra Mall have approached Rexton Insurance Company Limited for a Fire and Allied Perils insurance policy for the mall. As a fire insurance underwriter with Rexton Insurance Company, outline five perils which are insurable under this policy. [5 marks]

Answer 1

Hi Sir,

As per Chegg answering policy, I will be answering only 4 questions out the total 5.

a) Commercial All risks Policy:
The insurance applies, with limitations and exclusions, to sudden and unforeseen physical damage to or loss of insured property. The insurance only covers damage which results in a reduction in the value or loss of the property. The insurance applies to an insured party, as owner of or representative for the insured property. The insurance also applies to property for which the insured is responsible in another way, on condition that the owner is not entitled to indemnity through his/her/its own insurance. The insurance applies to loss or damage occurring during the period the insurance is in force.
The insurance applies subject to the sums insured stated in the insurance policy. The insurance applies as a floating insurance within each insured location stated in the insurance policy. The insurance for buildings*, machinery* and goods* is full value insurance*; Otherwise, first loss insurance* applies. The sum insured for full-value insured buildings and machinery at the beginning of the insurance year is deemed to be raised at each point in time by the amount the value of the property has changed through investment or a change in price. Such an increase in value is, however, limited for each insurance location during the insurance year to 30% of the most recently stated sum insured.
This policy normally exclude the following:
• volcanic eruption, dam burst, flood, moisture, rot, mould, dry rot or liquid which is not the result of liquid from a pipe system and related facilities
• Vermin, insects, bacteria, virus or infectious substances
• blasting work
• theft, fraud, embezzlement or similar breach of fidelity
• melting • change of temperature or humidity as a result of faults in an automatic climate control system.
Nor does the insurance cover damage due to lightening or as a result of sudden or unforeseen electric phenomena in electrical equipment, of which the incoming or outgoing voltage exceeds 400 V.
The insurance does not cover damage to • machinery • masonry, walling or lining as long as the property is not damaged through fire, explosion, lightening, electric phenomena or sudden and unforeseen external effects, presupposing that the loss event is not excluded above. Nor does the insurance cover damage to the following: • goods, work in progress, including customers' property, if the loss is attributable to an error in design, advice or instructions, incorrect calculations or descriptions, faulty materials or incorrectly performed processing, manufacturing, assembly, repair, storage or other handling • mechanically-propelled vehicles (motor vehicles, tractors, self-propelled machinery and off-road motor vehicles) and trailers therefor • aircraft, hovercraft, hydrocopters, sail-powered or motor-powered ships and boats, timber trailers, caissons, pontoons, pontoon cranes, dredgers and structures being towed at sea 6 • mobile cranes, tower cranes, digging, excavation, roadmaking and piledriving machines • such parts of machine bedplates, building foundations or foundation walls which are lower than both the lowest cellar floor and adjacent land or water surfaces • consumable materials, moulds and replaceable tools • property which the policyholder rents or leases to another party, unless otherwise stated in the insurance policy. The insurance does not cover a loss to the extent it comprises contamination.

b) Exclusions to standard fire and Specified (Allied) perils policy:
The following are the exclusions that are usually present in a standard fire and Specified (Allied) perils policy:

• Excess as specified in the policy
• Loss, destruction or damage caused by war, invasion, act of foreign enemy hostilities or war like operations (whether war be declared or not), civil war, mutiny, civil commotion assuming the proportions of or amounting to a popular rising, military rising, rebellion, revolution, insurrection or military or usurped power
• Nuclear risks
• Pollution or contamination
• Loss, destruction or damage to bullion or unset precious stones, works of art, plans drawing, securities, money etc and other such items
• Loss, destruction or damage to the stocks in Cold Storage premises caused by change of temperature
• Loss, destruction or damage to any electrical machine, apparatus, fixture, or fitting arising from or occasioned by over-running, excessive pressure, short circuiting, arcing, self heating or leakage of electricity from whatever cause (lightning included) provided that this exclusion shall apply only to the particular electrical machine, apparatus, fixture or fitting so affected and not to other machines, apparatus, fixtures or fittings which may be destroyed or damaged by fire so set up.
• Expenses necessarily incurred on (i) Architects, Surveyors and Consulting Engineer's Fees and (ii) Debris Removal by the Insured following a loss, destruction or damage to the Property insured by an insured peril in excess of 3% and 1% of the claim amount respectively.
• Loss of earnings, loss by delay, loss of market or other consequential or indirect loss or damage of any kind or description whatsoever
• Loss, or damage by spoilage resulting from the retardation or interruption or cessation of any process or operation caused by operation of any of the perils covered
• Any Loss or damage occasioned by or through or in consequence directly or indirectly due to earthquake, Volcanic eruption or other convulsions of nature.
• Loss or damage to property insured if removed to any building or place other than in which it is herein stated to be insured, except machinery and equipment temporarily removed for repairs, cleaning, renovation or other similar purposes for a period not exceeding 60 days

C) Agreed Value Basis:

Agreed value basis is a clause related to home insurance. The purpose of insurance policies is to provide the insured an indemnity against monetary losses. By availing an insurance plan, a policyholder can manage to be in the same financial position which he/she was, prior to a misfortune.

In all probability, your home is your most significant and treasured asset. A catastrophic natural calamity can render your den in an unlivable state. In another instance, your property might incur major damage due to a burglary or a housebreak. In these scenarios, an agreed value policy will have a fixed, predetermined value and the insured will receive the entire money.  The key benefit of an agreed value car insurance policy is that it provides more certainty on how much the asset is worth and what you’ll get back (minus any excess payments) should you need to make a claim.
The biggest difference with market value vs agreed value is how much money the insurer will give you to buy a replacement.
With a market value policy, the value typically goes down as it depreciates, so you’ll tend to get less back in a claim the older your asset is. In the case of a total write-off, this might mean you’re left with some out-of-pocket expense if your payout doesn’t quite match the cost of replacement. You could still face the same issue if the agreed value is less than what the average cost of your asset. .

The agreed amount clause requires a signed statement of values or actual cash value, which details the value of the insured property. Actual cash value is the amount equal to the replacement cost minus depreciation at the time of the loss. It is the tangible value for which the property could sell, which is always less than what it would cost to replace it. Calculation of actual cash value is by subtracting depreciation costs from replacement costs, with depreciation determined by establishing an expected lifetime and determining the remaining percentage of life.

The value listed on the statement will become the basis from which policy coverage is determined. The policyholder agrees on this amount beforehand and cannot contest the amount of coverage at a later date. Once the statement is approved, the insurer will suspend the requirement of the coinsurance clause in the policy for the one-year term of the policy.

e) Perils for a Fire and Allied Perils insurance policy:

The standard cover of peril policy will include the following perils:

• Fire
• Lightning
• Explosion / Implosion
• Aircraft Damage
• Riot, Strike, Malicious Damages (RSMD)
• Storm, Tempest, Cyclone, Typhoon, Hurricane, Tornodo, flood, inundation (STFI)
• Impact damage by any rail/ road/ vehicle/ animal (other than own)
• Subsidence, Landslide and Rock slide
• Missile Testing operations
• Bush Fire
• Bursting and/or overflowing of Water Tanks, Apparatus and Pipes
• Leakage from Automatic Sprinkler Installations