Question

Would the Difference in conditions (DIC) cover political unrest? During the protest, several businesses are destroyed and damaged by the individuals, and many have insurance to assist. What type of Commercial insurance would cover their property? Please explain in detail ?

Answer 1

What Is Difference in Conditions (DIC) Insurance?

Difference in conditions (DIC) insurance is a type of policy that provides expanded coverage for some perils not covered by standard insurance policies. DIC insurance is designed to fill in gaps in insurance coverage and is most frequently used by larger organizations, looking for protection from catastrophic perils.

Understanding Difference In Conditions (DIC) Insurance

Difference in conditions insurance provides expanded coverage for perils not covered by standard insurance policies. Insurance companies typically offer policies that cover perils that are well-defined and predictable.

They are less willing to underwrite policies that cover infrequent and severe perils, as these are more difficult to account when setting the premium that should be charged. Thus, most policies cover higher frequency, lower severity perils. However, this does not mean that the insured party is fully insulated from risks of catastrophes. It does mean that many insurers shy away from providing coverage for catastrophes.

DIC insurance is designed to increase coverage for perils that can result in severe losses, such as floods, earthquakes, and other catastrophes. As a gap-filler form of insurance, DIC insurance is designed to provide coverage that the broader insurance market won't provide. This type of coverage goes beyond the purchase of additional coverage limits since standard coverage typically excludes certain perils. The insured purchases this coverage in addition to a standard insurance policy, though some standard policies allow the purchase of a policy endorsement that may provide for much of the same needs.

To determine if you need DIC insurance, the best course of action is to review your situation with your agent or broker, who will look at your current policy levels and determine whether they are satisfactory for your insurance needs. DIC insurance isn't like auto insurance, where everyone needs to have it. DIC policies are fluid, with the ability to change them and to tailor-make them. If, for example, you need more coverage for property out in the open, for spoilage, for flood or earthquake, than your primary carrier is able to cover, then DIC might be an answer.

Difference in Conditions Insurance in Action

An example of a company that might buy a DIC insurance policy would be a firm with a property insurance policy that excludes flood coverage. They may purchase DIC insurance that specifically covers floods. Similarly, a construction company may purchase DIC insurance to bridge the coverage gap between a contractor’s policy and its policy. In some cases, multinational firms will purchase DIC insurance to fill in coverage gaps between their master policies and local policies.

commercial property policy

A commercial property policy covers buildings and personal property owned by your business. Some property insurers utilize policy forms developed by ISO. Others utilize forms they have developed themselves. Many policies drafted by insurers are based on the standard ISO property policy. Thus, most property policies follow the same general format. This article explains how a typical policy is structured.

Coverages

The first section of the insurance policy is often entitled “Coverage.” It describes both "covered property" and "excluded property." It also includes some Additional Coverages and Coverage Extensions.

Covered Property

Property policies cover two basic categories of property: Buildings (also called real property) and Business Personal Property (BPP). If you own the building in which your business operates, then your policy should cover both the building and the BPP it contains. If you rent or lease your building, then your policy will likely cover only your BPP.

Building coverage normally includes machines and equipment that are permanently installed, such as a furnace, a boiler, and air conditioning equipment. Also covered are fixtures, meaning property that is permanently attached to the building, such as a built-in bookcase or cabinet. Floor coverings, appliances (like refrigerators and dishwashers), fire extinguishers, and outdoor furniture are also normally considered Building property.

Business Personal Property consists of property you own that does not qualify as Building property and that is not otherwise excluded. It includes office furniture, machines and equipment (if not attached to the building), raw materials, goods-in-process, and finished goods. Improvements and betterments you make to a leased building are covered if you paid for them and they cannot be legally removed. Two types of property you don’t own are also covered:

• The property you lease that you are obligated under a contract to insure
• Property in your care that is located inside the building (or outside within a specified distance)

Excluded Property

The following types of property are excluded under virtually all property policies:

• Money and securities, accounts, bills, and food stamps
• Animals other than stock
• Vehicles, aircraft, or watercraft (with some exceptions)
• Land, piers, wharves, docks
• Crops, grain, or hay located outside
• The cost of excavations, grading or backfilling

Many (but not all) property policies also exclude building foundations, paved surfaces (like walkways and roads), electronic data, and the cost to restore information on valuable records (both electronic and hard copy versions).

Additional Coverages

Most property policies automatically include certain "additional coverages." These cover losses that would otherwise be excluded. Additional coverages are typically covered subject to a sub-limit (a limit less than the policy limit).

For example, virtually all policies add coverage for Debris Removal, meaning the cost of removing debris of covered property that has been destroyed by a covered peril. However, the insurer may pay no more than a specified amount. Other coverages that are commonly included as Additional Coverages are Pollutant Cleanup, Electronic Data, Fire Department Service Charge, and Increased Cost of Construction.

Coverage Extensions

“Coverage extension” means coverage that is already provided by the policy but that is extended in some way. For example, most policies extend Building and Personal Property coverages to include Newly Acquired Property. Your Building coverage is extended to include new buildings constructed at your existing location as well as new buildings acquired at a different location. Your BPP limit is extended to cover new personal property at new locations or at the existing one. A sub-limit usually applies to each of these extensions.

The coverage extensions provided can vary widely from one policy to another. Most policies include, at a minimum, the extensions provided by the ISO form. These include Personal Effects and Property of Others, Valuable Papers and Records, Property Off-premises, Outdoor Property, and Non-owned Detached Trailers.

Causes of Loss or Perils

“Causes of loss” or perils may be addressed in the same form as the coverages or in a separate policy form. Most commercial property policies are written on all-risk forms. An all-risk form covers all perils that are not specifically excluded. It does not cover every risk. The "causes of loss" section of an all-risk policy lists the perils that are excluded. An alternative to an all-risk policy is a named perils policy. The latter covers only the perils listed in the policy.

Most all-risk forms contain two main categories of exclusions:

• Exclusions subject to “anti-concurrent causation” language
• Exclusions not subject to this language

The exclusions that are subject to anti-concurrent causation language are usually listed first. These typically include Water (Flood), Ordinance or Law, and Earth Movement. The “anti-concurrent causation” wording states that these exclusions apply regardless of any other cause or event that contributes to the loss at the same time or in any sequence to it. That is, a loss caused by any of these perils is excluded, even if another (covered) peril contributes to the loss. Also, consider the cleanup aspect of loss.

Limits

The limits that apply to your policy are explained in the Limits section. The limits are listed in the declarations. A single blanket limit may apply to all buildings and BPP combined. Alternatively, separate limits may apply to buildings and to BPP. Smaller limits (sub-limits) may apply to the coverages listed as Additional Coverages or Coverage Extensions.

Deductibles

The Deductibles section explains the deductibles that apply under your policy. Any loss covered under your Building or BPP coverage is typically subject to a deductible that applies to each occurrence. Additional deductibles may apply to specific coverages such as Business Income (Interruption) Coverage.

Conditions

Your property policy is likely to contain two sets of Conditions. The first consists of Loss Conditions. These conditions explain how your losses are calculated and paid. Other conditions may address issues such as coinsurance, the rights of mortgagees, and the non-renewal of your policy.

Optional Coverages

If replacement cost coverage is not included in your policy automatically, it may be available as an Optional Coverage. If replacement cost is covered automatically, then Actual Cash Value coverage may be offered as a coverage option. Other coverage options that may be included in this section are Inflation Guard and Agreed Value coverages.