«MISCELLANEOUS PROPERTY DAMAGE INSURANCE BY S. D. P I N N E Y Property Damage insurance, as such, needs no introduction to the insurance world, ...»
MISCELLANEOUS PROPERTY DAMAGE INSURANCE 33
MISCELLANEOUS PROPERTY DAMAGE INSURANCE
S. D. P I N N E Y
Property Damage insurance, as such, needs no introduction
to the insurance world, inasmuch as certain types of this form of
coverage have been successfully underwritten in this country
for many years. Teams Property Damage insurance and Auto-
mobile Property Damage insurance date back for a quarter of a century, or so, and likewise, Elevator Property Damage insurance has been written for the past decade. Moreover, this type of coverage has been provided in the past as an integral part of the coverage under certain forms of insurance, such as Steam Boiler insurance, Engine and Flywheel insurance, Aircraft insurance, and Sprinkler Leakage insurance.
It is only within the past year or two, however, that attention has been directed toward the extension of Property Damage insurance in other fields, to supplement the various forms of Public Liability insurance already existent. A Public Liability policy provides indemnity on account of the legal liability of the assured for bodily injuries sustained by members of the public.
However, it often happens that the same accident producing the bodily injuries will also cause considerable property damage for which the assured is equally liable, and yet such damage is not covered under the Public Liability policy. Inasmuch as this con- dition has often been the cause of dissatisfaction on the part of the policyholder, it was natural that there should have been a growing demand for this additional coverage. In recognition of this de- mand, therefore, the insurance carriers through the National Bureau of Casualty and Surety Underwriters, set about, in the latter part of 1922, to develop the necessary underwriting rules, policy forms and rates for the so-called miscellaneous lines of Property Damage insurance. These include Manufacturers' and Contractors' Property Damage insurance, Owners', Land- lords' and Tenants' Property Damage insurance, Residence, Farm and Private Estate Property Damage insurance, Theatre Property Damage insurance, Owners' or Contractors' Protective Property Damage insurance and a revised form of Elevator Property Damage insurance.
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P DAMAGE I N S U R A N C EAt this point it might be well to call attention to the fact that in the past, Elevator Property Damage insurance, as generally written, has covered not only damage to the property of persons other than the assured but has also included coverage on the ele- vator itself and the elevator shaftway, in the event of damage due to the collision of the elevator with another object. In other words, the so-called Elevator Property Damage insurance was in reality a combination of Elevator Property Damage and Col- lision coverage. The desirabilityof breaking up the coverage formerly offered, into two distinct forms, Elevator Property Damage insurance and Elevator Collision insurance, was appreciated and consequently it is now possible to write straight Elevator Property Damage insurance without including the collision features. The present coverage afforded under an Elevator Property Damage contract is broader than that offered under the other forms of Property Damage insurance since it includes damage to property (other than that of the assured) in the care or custody of the assured or his employees. It should be noted, however, that Elevator Collision insurance may be written only when concurrent Elevator Public Liability insurance and Elevator Property Damage insurance are carried in the same company.
Moreover, the Collision insurance does not cover loss of use.
In view of the purpose for which the various lines of Property Damage insurance were designed, it was stipulated at the outset that in all cases where this form of Property Damage insurance was desired it would also be necessary to carry concurrent Public Liability insurance. In this connection it was felt that probably the most satisfactory means of providing Property Damage insurance would be by means of a certificate attached to the Public Liability policy contract. It is interesting to note that the carrying of concurrent Teams Public Liability insurance is a necessary prerequisite to the issuance of a Teams Property Damage contract, and also it is considered good underwriting to usually require that concurrent Automobile Public Liability insurance be carried before Automobile Property Damage insurance will be written.
It was also recognized that this new form of Property Damage insurance should be so developed that it would not conflict with lines of insurance already in existence. The standard form of coverage, therefore, specifically excludes coverage for property
MISCELLANEOUS PROPERTY DAMAGE INSURANCE 85damage if due to causes which are properly the subject of an individual form of Property Damage insurance, such as Elevator Property Damage insurance, Aircraft insurance, Auto Property Damage insurance, Steam Boiler insurance, Engine and Flywheel insurance and Electrical Machinery insurance.
In further respect to the coverage to be afforded it was fbrmulated as a general rule that the standard form of policy would not inclttde coverage for damage to the property of the assured, or to property leased, occupied, used by or in the care or custody of the assured or any of his employees. This standard exception clause is modified in the case of Elevator Property Damage insurance, as already pointed out, in that property in the care or custody of the assured is covered. Under both the Teams and Automobile Property Damage contracts the exclusions are similar to those expressed in the standard clause above.
The standard form of coverage also includes liability for loss of use, but excludes contractual liability for property damage or loss of use. Contractual Property Damage insurance, including loss of use, may be written, however, under a special form of contract.
There was considerable discussion as to the desirability of including coverage on property damage if due to fire. It must be realized that it is only insofar as the legal liability of the assured for damage to the property of the public is concerned that the fire hazard need be taken into consideration. It was felt by some that this constituted a very serious hazard and should not be covered under the Property Damage contract, especially since such inclusion might prove an incentive for fire insurance companies to exercise their subrogation rights more frequently than heretofore, and thus react to the very distinct disadvantage of the casualty companies. On the other hand, it was pbinted out that as a matter of fact, in the majority of risks, the hazard due to this source would be negligible and furthermore in the case of those risks which did contain a real fire hazard, the fact would be fully recognized in determining the rate for that class of risks.
Moreover, this constituted an insurable hazard for which coverage would be desired by the policyholder in order to provide himself with complete protection. It was finally decided to make no exclusion on account of property damage due to fire, for which the assured might be held legally liable.
36 MISCELLANEOUS PROPERTY DAM&GE INSURANCEIn the case of certain classes of risks there is considerable hazard from the standpoint of Property Damage insurance due to the likelihood of an explosion. In other risks, particularly contracting risks, there is often found a very real hazard due to the chance o~ causing the collapse or undermining of adjoining property. Consequently, it was felt necessary to provide coverage for such risks on two bases,--either complete coverage, including the hazards due to the explosion or building collapse features, or on a limited coverage basis, excluding liability for property damage due to either or both of these causes.
The standard limit of insurance under the Property Damage contract is $1000 for any one accident, and no contract for Property Damage insurance shall be written at a lower limit than this. It is possible to issue insurance at higher limits, however, subject to the provision that the limit of insurance shall not exceed the gross limit of the concurrent Public Liability insurance policy. It is interesting to note that the Property Damage contract provides continuous and complete coverage, subject, of course, to the policy limit f o r any one accident, throughout the term of in~ surance, as stated in the contract, regardless of the number of accidents which may occur. In this respect it follows the Public Liability insurance contract rather than the Fire insurance contract, for example.
The question of providing deductible average coverage under the Property Damage contract was also the subject of considerable debate. Inasmuch as Property Damage insurance will be in a more or less experimental stage for some time to come---so far as rates are concerned--it was deemed advisable to provide no definite set of rules or rates for this particular feature for the present. However, in the event that such coverage is desired it will be taken care of by special rate consideration based upon the merits of the individual case. If in the future the demand for deductible average Property Damage insurance becomes considerable, it is contemplated that the necessary rules and rates may then be determined and made a part of the rate manual.
In general, the underwriting rules governing the writing of the various lines of Property Damage insurance, other than Teams and Automobiles, parallel the rules governing the writing of the respective forms of Public Liability insurance. The exceptions to the general rules have been based upon the special features
MISCELLANEOUS P R O P E R T Y DAMAGE I N S U R A N C E 37peculiar to Property Damage insurance, as already mentioned in this paper. The same classifications also are made use of for Property Damage insurance as are used in writing Public Liability insurance.
The establishment of a set of rates for the various classifications was of necessity based largely upon judgment, inasmuch as there were no statistics available, with the exception of Elevator Property Damage insurance, and even for that class of business, the experience was very limited and of little value for the purpose of rate-making.
When the question of rates was first considered it was thought that the rates for Property Damage insurance should be detenrlined by simply taking a fixed percentage of the corresponding rate for Public Liability insurance. It was soon found, however, that such a basis would not produce logical results due to the fact that in certain classifications the Property Damage hazard bore a much higher relationship ~ the Public Liability hazard than in other classes. Consequently, the method finally followed in determining the rates was to take up each classification individually and assign a rate based upon consideration of the various hazards which might be encountered in each class, the importance of the specific hazards being judged largely on the basis of engineering as well as underwriting experience. It is evident that the hazards found in the Contracting classes differ materially from those to be found in the Manufacturing classes. Likewise the hazards in the Owners', Landlords' and Tenants' group of classifications present another type for consideration. Some of the more important causes of property damage which had to be
taken into consideration are as follows:
(1) Projecting nails, screws, pieces of material, etc., causing damage to clothing or personal effects.
(2) Carelessness of workmen, such as painters, paper-hangers, etc.
• (3) Palling materials:
(a) Bricks, lumber, cement, etc., where property damage would be relatively small.
(b) Structural steel, stone work, machinery, etc., where damage to property might be considerable.
88 MISCELLANEOUS PROPERTY DAMAGE INSURANCE
In addition to these general sources of property damage there are other causes which are unique and peculiar to certain individual classifications only--such as the hazard in connection with restaurants, elevators, signs on buildings, the wrecking of buildings, or the operation of vessels.
Rates were definitely assigned to all classifications within which there might be expected a fairly uniform degree of hazard between risks. In certain classes, it was recognized that there might be conslderable variation in the property damage hazard as between risks, due to differences in actual operation~, or to the location of the risk with respect to adjoining prope~y. Consequently, definite rates have not been assigned to such classes, inasmuch as it is felt that the individual risks falling in these classes may best be rated after special consideration of the data pertaining to each case, as brought out in the iaspection reports. S~ill another group of classifications are those which were mentioned earlier in this paper, where there is considerable hazard due either to /he exploslon feature or to the building collal~'Se feature, or both.
Rates have been established for these classes, excluding coverage on the two features referred to, and it is possible to provide rates for complete coverage only after COnsideration of the degree of