Commercial practice

All 13 free commercial questions

1. Two property policies placed by different brokers cover the same bakery stock. Fire destroys $60,000 of it. What does each insurer pay?

   • A The whole loss, where the insured picks that insurer. The insured is not put to an election, because the statute makes each insurer 'liable to the insured for its rateable proportion of the loss'.
   • B $60,000 Rateable contribution prevents double recovery, since the insured is indemnified for the loss and not once per contract.
   • C Its rateable proportion of the loss. Correct
   • D Nothing from the later insurer; its policy is void. Neither contract is void for the existence of the other, and the statute deems a contract in force even where it says it will not attach until another policy pays.

   Subsection 150 (1) of the Insurance Act splits a loss between contracts covering the same interest by rateable proportion unless the insurers have expressly agreed otherwise in writing, so both insurers contribute and the bakery is indemnified once.

   Insurance Act, s. 150(1)

2. Your insured, a contractor, runs six automobiles under one company: five cargo vans for job sites and one car the owner drives personally. Which statement is TRUE about the six automobiles?

   • A They fall short of a fleet, which needs at least ten automobiles. Ten is too high a bar, because the definition reads 'a group of not fewer than five automobiles'.
   • B They qualify as a fleet. Correct
   • C They fall short of a fleet while one of them is a personal car. The regulation asks only that at least five of the automobiles in the group be commercial vehicles, public vehicles or vehicles used for business purposes, so a personal car in the group does not spoil it.
   • D Any one commercial vehicle among them makes the group a fleet. One commercial vehicle is not enough, since the group must hold at least five automobiles and at least five of them must meet the vehicle-use test.

   Regulation 664 sets the floor at five automobiles with at least five of them commercial vehicles, public vehicles or vehicles used for business purposes, so the five cargo vans carry the group over the line even though the sixth automobile is personal.

   R.R.O. 1990, Reg. 664, s. 1

3. What amount of insurance does a co-insurance clause on a commercial property form require the insured to carry?

   • A The full actual cash value. The requirement is a percentage of actual cash value rather than the whole of it, and falling short reduces the recovery rather than defeating the claim.
   • B The full replacement cost. Replacement cost only becomes the measure where a replacement cost endorsement is added, and the clause as written measures against actual cash value.
   • C The stated percentage of each loss. The percentage is applied to the value of the property, not to the size of the loss.
   • D The stated percentage of actual cash value. Correct

   The clause obliges the insured to carry insurance of at least the actual cash value multiplied by the co-insurance percentage on the declaration page, and where less is carried the recovery is the loss multiplied by insurance carried over insurance required.

   Commercial Property Named Perils Form C100, clause 4 (Co-Insurance) Reference document, not law.

4. Who are the three parties to a surety bond?

   • A The insured, the insurer and the broker who arranged the bond. A broker arranges the bond and is not a party to it, and a surety bond is not written as a two party insurance contract.
   • B The contractor, the project owner and the owner's lender. Those are commercial roles rather than the names the bond gives its parties, and the lender is not bound by the bond.
   • C The principal, the surety and the obligee. Correct
   • D The applicant, the underwriting company and its reinsurer. A reinsurer stands behind the surety and takes no place in the bond itself.

   A bond binds the principal, who owes the obligation, and the surety, who guarantees it, to the obligee for whose benefit the guarantee is given, so suretyship is a three party arrangement where insurance is a contract between two.

   Bid bond, form PWGSC-TPSGC 504, Bond recital Reference document, not law.

5. A damaged compressor is settled at actual cash value under an equipment breakdown endorsement. Replacing it with equipment of like kind and function would cost $85,000, and the adjuster assesses depreciation at 35%. What is the actual cash value?

   • A $29,750 $29,750 is the depreciation itself, being 35% of $85,000, which is the amount held back rather than the amount paid.
   • B $55,250 Correct
   • C $63,750 $63,750 applies 25% depreciation instead of the 35% the adjuster assessed.
   • D $85,000 $85,000 is the replacement cost, and the definition sets actual cash value at that cost 'less depreciation however caused'.

   The endorsement defines actual cash value as what it costs to replace the damaged equipment with equipment of like kind and function, reduced by depreciation, so the settlement is $85,000 less the 35% depreciation the adjuster assessed, which leaves $55,250.

   Equipment Breakdown Endorsement C301, Definitions, clause 14 (Actual Cash Value) Reference document, not law.

6. What is the difference between a commercial property broad form and a named perils form?

   • A A broad form covers only listed perils; a named perils form covers every risk not excluded. This reverses the two forms: the broad form is the one written on an all risks basis, and the named perils form is the one limited to a list.
   • B Both forms cover every risk not excluded; a named perils form simply carries more exclusions. A named perils form does not start from every risk; it covers only the perils it names, so the difference is not a count of exclusions.
   • C A broad form covers every risk with no exclusions; a named perils form covers only listed perils. The broad form still carries exclusions; it covers every risk except what those exclusions take away, which is why all risks does not mean everything.
   • D A broad form covers every risk not excluded; a named perils form covers only listed perils. Correct

   A broad form starts from every risk of physical loss to the property and takes cover away only through its exclusions, so a loss is paid unless an exclusion reaches it. A named perils form pays only when the loss comes from one of the perils on its list.

   Commercial Property Broad Form C518, clause 5 (Insured Perils) Reference document, not law.

7. Which of these businesses does NOT need a garage automobile policy (OAP 4)?

   • A A parking lot operator. Parking automobiles is one of the garage trades the policy names, so a parking operator needs the garage policy.
   • B A used car dealer. Selling automobiles is one of the garage trades the policy names, and a dealer holds customers' vehicles on its lot.
   • C A taxi dispatch service. Correct
   • D An auto repair shop. Repairing and servicing automobiles are garage trades the policy names, so a repair shop needs the garage policy.

   The garage policy (OAP 4) insures a business that has customers' automobiles in its care, custody or control, and the policy itself names the automobile trades as selling, repairing, maintaining, storing, servicing or parking automobiles, for example in subsection 7.16. A taxi dispatch service only sends out cabs and never takes charge of a customer's automobile, so it needs an owner's policy on its own fleet, not a garage policy.

   OAP 4, subsection 7.16

8. What does the insurer pay when a workshop insured with a replacement cost endorsement burns down and the owner decides not to rebuild?

   • A The full replacement cost of the workshop. The extra over actual cash value is paid only once the work is done, and never more than was spent.
   • B The actual cash value of the workshop. Correct
   • C Nothing at all. The insured still recovers on the basis that applies without the endorsement, so declining to rebuild costs the uplift, not the whole claim.
   • D The replacement cost, held in reserve for a later rebuild. No reserve is held; until the work is done, liability is simply what it would be without the endorsement.

   Until the insured has repaired, replaced or rebuilt, the endorsement leaves the insurer's liability where it would stand with no replacement cost cover, which on the commercial property form is actual cash value. Even after the work is done, the payment cannot pass what the insured actually spent.

   Replacement Cost Endorsement X560, item 9 Reference document, not law.

9. Your client's courier van rear-ends a car during a delivery, and the other driver sues. Which of your client's policies responds?

   • A The commercial general liability policy. The liability policy excludes injury and damage from the use of an automobile the insured owns.
   • B Both policies, sharing the loss by their limits. The liability policy has excluded the loss, so there is nothing to share.
   • C The automobile policy. Correct
   • D The commercial general liability policy, as excess over the automobile policy. The automobile exclusion takes the claim out of the liability policy altogether, so there is nothing left for it to pay as excess.

   Coverage A of the commercial general liability policy excludes bodily injury and property damage that comes from owning, maintaining, using or entrusting an automobile the insured owns, operates, rents or borrows, whatever other cause contributes. The courier's claim therefore goes to its automobile policy.

   Commercial General Liability C574, Section I, Coverage A, exclusion 2.f Reference document, not law.

10. What triggers a claim under a gross earnings business interruption form?

    • A A drop in turnover against the same period last year. A trading downturn on its own is not insured damage, and the form is written around physical destruction or damage.
    • B Any stoppage of trade longer than a stated waiting period. The trigger is physical damage by an insured peril at the described premises, not the passage of time.
    • C An interruption caused by insured damage at the described premises. Correct
    • D A key supplier's failure to deliver materials. A supplier's failure to deliver is not damage by an insured peril to property on the described premises, so it sets nothing off.

    The gross earnings form pays loss that flows directly from an interruption of the business made necessary by physical damage from an insured peril to buildings, machinery, equipment or stock at the premises described. With no insured physical damage there is nothing for it to answer, so a fall in trade alone is not a claim.

    Business Interruption Insurance Gross Earnings Endorsement Form C715, clause 1 (Indemnity Agreement) Reference document, not law.

11. Which cover protects your client against theft by one of its own employees?

    • A Employee dishonesty coverage. Correct
    • B Burglary insurance. Burglary cover answers a taking by someone who forces a way into or out of the premises, leaving visible marks, not a quiet theft by staff already inside.
    • C Robbery insurance. Robbery is a taking by violence or threat from a messenger or custodian, not a quiet theft by staff.
    • D Commercial general liability insurance. A liability policy answers claims by others against the insured, not the insured's own lost property.

    Employee dishonesty coverage, Insuring Agreement I of the comprehensive dishonesty, disappearance and destruction rider, pays for money, securities or other property lost directly through a fraudulent or dishonest act of an employee, alone or with others, so theft by staff falls to it and not to burglary or robbery cover.

    Comprehensive Dishonesty Disappearance & Destruction Rider C800, Insuring Agreement I Reference document, not law.

12. What makes a taking of property a robbery under a crime cover?

    • A It is taken from a locked container on the premises. A taking from a locked safe or container falls under the rider's separate safe burglary and forced entry wording, not the robbery definition.
    • B It is taken by violence or threat of violence against a custodian. Correct
    • C It is taken while the premises are open to the public. Trading hours are not the test; the definition asks how the property was taken.
    • D It is taken by someone with no right to be on the premises. Having no right to be there does not by itself make a taking robbery; the definition turns on violence or its threat against the messenger or custodian.

    The rider defines robbery by how the property was taken: by violence against a messenger or custodian, by putting that person in fear of violence, or by another open criminal act done in their presence and to their knowledge. Where the property was kept does not decide it.

    Comprehensive Dishonesty Disappearance & Destruction Rider C800, Section 3 (Definitions, Robbery) Reference document, not law.

13. What does a claims made liability policy respond to?

    • A Injury that happens in the policy period, whenever the claim arrives. That describes the occurrence trigger, which the claims made form replaces.
    • B Claims first brought against the insured within the policy period. Correct
    • C Any claim arising from conduct during the policy period. The policy looks to when the claim is first made, not when the conduct took place, so a claim brought after the period for conduct during it falls outside unless a discovery period is bought.
    • D Claims after the period for injury that happened during it. Claims made after the period are picked up only where a discovery period has been bought.

    A claims made policy answers only claims first brought against the insured within the policy period, and reported as the policy requires. An occurrence policy instead answers injury or damage that happens in the period, however late the claim comes.

    Non-Profit Management and Corporate Liability Insurance Policy TDONPE.001, Policy face wording Reference document, not law.