Property Insurance Principles and Coverages
Property coverage mechanics
Property policies cover direct physical loss to covered property from covered causes of loss. Know the three ISO causes-of-loss forms: basic (named perils such as fire, lightning, windstorm, hail, explosion, riot, aircraft, vehicles, smoke, vandalism, sprinkler leakage), broad (basic plus falling objects, weight of ice or snow, water damage, glass breakage), and special (open perils, meaning risks of direct physical loss except those excluded). Special is not unlimited: earth movement, flood, neglect, wear and tear, and intentional loss remain excluded.
Indirect losses are separate grants: debris removal, preservation of property, business income and extra expense, and in personal lines, loss of use or additional living expense. Coinsurance, deductibles, and valuation (ACV, replacement cost, agreed value) shape the payment. A mortgagee clause protects the lender's interest and gives the mortgagee rights to notice, proof of loss, and loss payment even if the insured's own claim is impaired; a loss payable clause does the same for lienholders on personal property.
Recurring concepts: blanket versus specific insurance, reporting forms, inflation guard, vacancy and unoccupancy conditions, ordinance or law, and pair-and-set. Business income responds to the period of restoration, not to the property damage itself.
Traps: questions implying flood is covered under a special form; applying a coinsurance penalty to a total loss (the limit caps payment); confusing vacancy with unoccupancy; assuming mortgagee rights are destroyed by the insured's acts.
Rule of thumb: identify the cause-of-loss form, then valuation, then the limit, then the deductible, in that order.
Worked example: A building with a $500,000 limit, an 80% coinsurance clause, and $300,000 carried suffers a $100,000 covered loss. Required is $400,000; ratio 0.75; recovery is $75,000 minus the deductible.