15.5 Review and Practice

1. How does the insured choose a limit of insurance for the BIC?
2. What are the primary differences among the three causes of loss forms available in the commercial property policy? Why not always choose the special form?
3. When would the monthly limit of indemnity, maximum period of indemnity, or payroll endorsement be appropriate?
4. Hurricane Iniki in 1992 caused extensive damage to one of the Hawaiian Islands. A significant loss in tourist activity resulted. Assume the Kooey Hotel experienced $500,000 in damage to its property. Furthermore, assume Kooey typically brought in $100,000 of revenue per month, on which it incurred $80,000 of fixed and variable expenses. For two months following Iniki, the Kooey Hotel was shut down, but still incurred expenses of $50,000. The hotel spent $15,000 more than usual on advertising before reopening. Based on this information, what would be the insurable consequential losses of the Kooey Hotel from Hurricane Iniki? What can be done to reduce those losses?
5. Compare occurrence and claims-made policies.

6. Assume the Koehn Kitchen Corporation, a manufacturer of kitchen gadgets, experiences the following losses:

   1. A consumer chops off his finger while using Koehn’s Cutlery Gizmo. The consumer sues Koehn for medical expenses, lost income, pain and suffering, and punitive damages.
   2. An employee of Koehn is injured while delivering goods to a wholesaler. The employee sues for medical expenses and punitive damages.
   3. Koehn uses toxic substances in its manufacturing process. Neighbors of its plant bring suit against Koehn, claiming that a higher rate of stillbirths is occurring in the area because of Koehn’s use of toxins. (Consider the variation that an explosion emitted the toxins rather than normal business operations.)
   4. Koehn’s Mighty Mate Slicing Machine must be recalled because of a product defect. The recall causes massive losses.
   5. Based on information in this chapter, which parts of any of these losses are covered by Koehn’s CGL? Explain your answer.
7. Provide a detailed rationale for excluding pollution, auto accidents, and liquor liability in the CGL.
8. What is a BOP? What does it cover?

9. The Goldman Cat House is a pet store catering to the needs of felines. The store is a sole proprietorship, taking in revenues of approximately $1,700,000 annually. Products available include kittens, cat food, cat toys, cages, collars, cat litter and litter boxes, and manuals on cat care. One manual was written by the store owner, who also makes up his own concoction for cat litter. All other goods are purchased from national wholesalers. Two part-time and two full-time employees work for Goldman. Sometimes the employees deliver goods to Goldman customers.

   1. Identify some of Goldman Cat House’s liability exposures.
   2. Would Goldman be best advised to purchase an occurrence-based or claims-made liability policy?
   3. What liability loss-control techniques would you recommend for Goldman?