What does the additional coverages part of a property insurance policy provide?

Commercial Property Coverage
Commercial General Liability Coverage
Business Auto Coverage
Systems Breakdown Coverage
Umbrella Liability Coverage
Workers Compensation Coverage
Directors and Officers Liability Policy
Financial Institution Bond
Debit Card Coverage
Mortgage Impairment and E&O
Cyber Liability

Commercial Property Coverage

Property Insurance is any type of insurance that indemnifies an insured party who suffers a financial loss because property has been damaged or destroyed. Property is considered to be any item that has a value and can be classified as real property or personal property. Real property is land and the attachments to the land, such as buildings. Personal Property is all property that is not real property. The Building and Personal Property coverage form is the form used to insure almost all types of commercial property. The insuring agreement in the Building and Property coverage form promises to pay for direct physical loss or damage to covered property at the premises described in the policy when caused by or resulting from a covered cause of loss. The following is a brief outline of coverages and how they are used within the Commercial Building and Personal Property coverage form.

Buildings and Business Personal Property
Coverage for the building includes the building and structures, completed additions to covered buildings, outdoor fixtures, permanently installed fixtures, machinery and equipment. The building material used to maintain and service the insured’s premises is also insured. Business Personal Property owned by the insured and used in the insured’s business is covered for direct loss or damage. The coverage includes furniture and fixtures, stock, and several other similar business property items when not specifically excluded from coverage. The policy is also designed to protect the insured against loss or damage to the personal property of others while in the insured’s care, custody or control.

Coverage Extensions and Additional Coverages
In addition to the limits stated in the Building and Personal Property coverage form, the policy has a coverage extensions section and an additional coverages section. The coverage extensions section provides limited coverage for newly acquired or constructed property of others, certain outdoor property, and the cost to research and reconstruct information on destroyed records. When coverage is placed on the all risk form, two additional extensions are added for property in transit and coverage for certain repair costs related to damage caused by water. The two additional extensions are covered by certain perils only. The additional coverage section provides coverage for indirect losses that result from a direct loss. The coverage applies to removal of debris, preservation of property, fire department service charges and pollutant cleanup and removal. The coverage extensions and the additional coverages have limitations and are subject to certain conditions.

Limit of Insurance
The most the insurer will pay for loss or damage in any one occurrence is the limit of insurance stated in the policy declarations.

Deductible
The standard deductible is $1000. However, other deductible amounts are available and the deductible applies only once per loss.

Causes of Loss
The term peril is used when discussing losses. A peril is a cause of loss. Basic property insurance policies are written to cover the perils of fire, lightning, explosion, windstorm, hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Other property insurance policies, often referred to as the broad form policy, add coverages for water damage, weight of snow, ice, or sleet, breakage of glass and coverage for falling objects. The broadcast coverage is the special form, which is best known as the all risk form. BancInsure’s Advantage and Advantage PLUS policies are written on a Special Form. All risk covers all causes of loss, except those specifically excluded from coverage. It is possible for a commercial property policy to have more than one cause of loss form.

Replacement Cost and Actual Cash Value
Property can be valued in several different ways. Insurance companies commonly use two approaches to determine value, which also determines how a loss will be paid: the replacement cost method and the actual cash value method. Insurers consider replacement cost of a property item to be the cost to replace it with new property of like kind. Actual cash value is replacement cost, minus the accumulated depreciation for age and condition. BancInsure’s Advantage and Advantage PLUS is written on a Replacement Cost basis.

Agreed Value
When the agreed value option is used, the coinsurance requirement is removed and the insurer agrees to cover losses for its agreed value. As an example, the insured has property insured for $100,000 and the agreed value is also $100,000. If a loss occurs, any loss up to $100,000 is covered at 100%. When this option is used, the insured and the insurance company agree on the value of the property before the policy is issued. This option is usually assigned to one-of-a-kind property.

Coinsurance
Most building and business personal property policies have a coinsurance clause, which requires the insured to carry insurance equal to at least a specified percentage (usually 80%) of the replacement cost of the property. If a loss occurs, and it is determined that the amount of insurance carried is less than the amount required, a penalty could be placed on the insured. In simplest terms the formula is: what DID you insure your property for - divided by - what SHOULD you have insured your property for (true replacement cost) - TIMES the loss. Example:

In this case the ratio is 50% ($400/$800). This is less than the required 80% so the insurance company will pay 50% of the loss or $150,000. This is one of the most often overlooked and potentially dangerous exposures a bank may face.

Inflation Guard
An insured can insure a building for its full value at the beginning of the policy year, but at the end of the year, it might not be covered for its full value. This problem can be corrected by adding inflation guard coverage. With inflation guard, the policy limit increases gradually during the policy term so that the total increase amounts to the desired percentage increase at the end of the policy term.

Earthquake Coverage
This endorsement extends the cause of loss to include damage that results directly from an earthquake. Coverage is provided for replacement of buildings only. All earthquake shocks that occur within a 168-hour period (one week) are considered to be a single occurrence. A separate deductible applies and is determined by the value of the insured property.

Commercial General Liability Coverage

The Commercial General Liability Policy provides the insurance protection needed to pay damages for bodily injury or property damages for which the insured is legally responsible. The policy provides coverage for liability arising from personal injury and advertising injury. Coverage for medical expense is also provided. The policy also covers accidents occurring on the premises or away from the premises. Coverage is provided for injury or damages arising out of goods or products made or sold by the names insured. The insured is the named insured and the employees of the named insured. However, several individuals and organizations, other than the named insured, may be covered, depending upon certain circumstances specified in the policy. In addition to the limits, the policy provides supplemental payments for attorney fees, court costs and other expenses associated with a claim or the defense of a liability suit.

General Aggregate
The General Aggregate Limit is the most money the insurer will pay under a specified coverage for all claims occurring during the policy term.

Premises/Operations
Coverage is provided for damages arising out of ownership or occupancy of the insured premises when not maintained in a reasonable manner. This also covers damages arising out of operations performed by the insured business.

Products/Completed Operations
Products Coverage is provided for damages arising out of products manufactured, sold, handled or distributed by the insured. Completed Operations covers damages occurring after operations have been completed or abandoned, or after an item is installed or built and released for its intended purpose.

Medical Expense Limit
Medical payments coverage pays medical expenses resulting from bodily injury caused by and accident on promises owned or rented by the insured, or locations next to such property, or when caused by the insured’s operations. These payments are made without regard to the liability of the insured.

Fire Damage Limit
The fire damage limit provides coverage for fire damage caused by negligence on the part of the insured to premises rented to the named insured. If a fire occurs because of negligence of the insured and causes damage to property not rented to the insured, coverage would be provided under the occurrence limit.

Personal Injury
Personal Injury means other than bodily injury. Coverage is provided for injury resulting from offenses such as false arrest, malicious prosecution, detention or imprisonment, the wrongful entry into, wrongful eviction from and other acts of invasion, or rights of private occupancy of a room. Coverage for libel and slander is also provided in the policy.

Advertising Injury
This coverage pays for damages done in the course of oral or written advertisement that disparages, libels or slanders a person’s or organization’s goods, products or services. Coverage for these offenses is provided under advertising injury coverage only if they occur during the course of advertising the named insured’s own goods, products or services.

Each Occurrence
Each occurrence is considered to be an accident, which could include continuous or repeated exposure to the same harmful conditions. An occurrence can also be a sudden event, or a result of a long-term series of events.

Business Auto Coverage

LIABILITY COVERAGE

The liability coverage of the commercial auto policy provides protection against legal liability arising out of the ownership, maintenance, or use of any insured automobile. The insuring agreement agrees to pay damages for bodily injury or property damage for which the insured is legally responsible because of an automobile accident resulting from the ownership, maintenance, or use of a covered auto. The insuring agreement also states that in addition to the payment of damages for which the insured is legally liable for, the insurer also agrees to defend the insured for all legal defense cost. The defense cost is in addition to the policy limits.

Medical Payments Coverage
The insuring agreement states that the insurer will pay all reasonable and necessary medical and funeral expenses incurred by an insured because of bodily injury caused by an accident. The insured is the named insured, the insured’s employees and guest, and any other person occupying a covered auto. These payments are made without regard to fault.

Uninsured/Underinsured Motorist Coverage
Uninsured Motorist
This insuring agreement pays for bodily injury to an insured who is injured by an uninsured motorist, a hit-and-run driver, or a driver whose insurer becomes insolvent. These benefits are paid under the named insured’s policy.

Underinsured Motorist
This coverage is added to supplement the Uninsured Motorist Coverage, the coverage applies only when the other driver has liability limits at the time of an accident, but the liability limits carried may be insufficient to pay for damages for which the driver is responsible. This is when the insured’s underinsured motorist coverage would apply and payment for the difference could be made. The two coverages are mutually exclusive and do not overlap or duplicate each other.

Any Automobile
Coverage is provided for any auto, including autos owned by the insured, autos the named insured hires or borrows from others, and non-owned autos used in the insured’s business.

Owned Auto
Coverage is provided for all autos owned by the named insured. The owned auto symbol is used for liability insurance only.

Non-Owned Autos
Coverage is provided only for autos not owned, leased, hired, or borrowed by the named insured. Coverage includes autos owned by the insured’s employees or members of their households, but only while used in the named insured’s business or personal affairs.

Hired Auto
Coverage is provided only for autos leased, hired, rented or borrowed for use in the named insured’s business.

Repossessed Auto
Coverage is provided for liability caused while the bank is in the process of repossessing an automobile. Coverage is not provided to the auto itself unless Repo Physical Damage is purchased. NOTE: Repossessed autos are NOT covered to run bank errands! Coverages is only provided while performing the repossession or test-driving the auto for purchase by a third party.

PHYSICAL DAMAGE COVERAGES

Collision Coverage
This coverage provides protection against loss or damage to a covered auto or a non-owned auto resulting from the impact with another vehicle or object. Collision losses are paid regardless of fault.

Comprehensive Coverage
Comprehensive coverage provides protection against loss or damage to a covered auto resulting from loss other than a collision or upset. This coverage also provides for supplemental payments for transportation expenses in the event of a total theft of a covered auto or a non-owned auto. Coverage begins 48 hours after the theft.

ENDORSEMENTS

Rental Reimbursements
The business auto policy provides a coverage extension if an auto is insured for comprehensive or specified cause of loss coverage, which insures against loss of use of a covered auto only if the auto is a private passenger type auto and is stolen. The coverage extension pays up to a daily limit of $10 and a maximum limit of $300. Payments begin 48 hours after the theft and ends when the insured auto is returned or when the insurer has paid the insured for the auto.

However, for broader coverage the insured can pay an additional premium for rental reimbursement coverage. Rental reimbursement pays the cost of renting a substitute auto for replacement of any covered auto that has suffered a covered loss. The daily and maximum limit for this coverage varies among insurers.

Towing and Labor
When this coverage is added, the insurer pays for towing and labor costs each time a covered auto or non-owned auto is disabled, up to a stated amount.

Personal Injury Protection
Personal Injury Protection (PIP) is an endorsement that adds no-fault benefits. No-fault means that in the event of an automobile accident, each party collects from his or her own insurer regardless of fault. The PIP endorsement is only available in certain states with no-fault laws. The endorsement applies only to bodily injury and not to property damage. (The state of Michigan is the exception to property damage.) No-fault laws vary widely from state to state.

Systems Breakdown Coverage

Systems Breakdown or Boiler & Machinery insurance covers direct damage to covered property when caused by a covered cause of loss. Since boilers require special inspections and may explode, this peril is not covered under the standard property policy. Today, very few banks have boilers - especially in the south and southwest. In addition, the standard property policy excludes losses due to “artificially generated electrical currents.” In simple terms this means that the power company, due to a huge surge, has zapped your bank. These can result in losses to your cameras, copiers, fax machines, telephones, air conditioning systems or anything electrical in your bank. BancInsure’s Systems Breakdown coverage will pay for losses that are caused by these “artificially generated electrical currents.” The form we use is the Broad Form.

EQUIPMENT COVERED

Broad Coverage Form
This coverage is also written under the small business policy. Many insureds refer to this form as the comprehensive form for small business since it covers a broader range of equipment. Coverage is provided for any boiler, any fired or unfired pressure vessel, any refrigeration or air conditioning equipment, and any mechanical or electrical equipment. Only certain types of business can qualify for the small business policy and property values can be no more than $5 million.

Limit of Insurance
Under the small business form, the limit of insurance is based on the estimated value of the insured’s property.

ADDITIONAL COVERAGE / ENDORSEMENTS

Business Income
This endorsement can be written to provide coverage on either a “valued” or an “actual loss sustained” basis. When the actual loss sustained option is used, the coverage pays only for the insured’s actual loss of income. If coverage is written using the valued option, the insured is able to collect a predetermined amount of coverage for each day the business is interrupted because of an accident to an insured object. The coverage is subject to a per accident limit and a deductible that can be expressed as either a specified time period or a dollar amount. When the valued form is used, the daily amount of insurance is paid regardless to the actual amount of loss.

Extra Expense
This endorsement pays for the extra expense of maintaining operations after an accident to an insured item until normal operations can be restored. This endorsement excludes coverage for loss of income. To have coverage for loss of income and extra expense, the endorsement called “combined business interruption and extra expense” must be added to the policy.

Consequential Damage
This endorsement covers loss due to spoilage of specified property from lack of power, light, heat, steam or refrigeration, which results from an accident to an insured item.

Umbrella Liability Coverage

Umbrella liability insurance provides excess liability coverage over several of the insured’s primary liability policies. Most umbrella liability policies provide coverage that is broader than the insured’s primary policies. An excess liability policy may be a following form or self-contained policy, or a combination of these two types of excess policies. Following form policies are subject to the same terms as the underlying policies; self-contained policies are subject to their own terms only. In addition, umbrella policies have three functions:

1. To provide additional limits above the “per occurrence” limit of the insured’s primary policies;
2. To take the place of primary insurance when primary aggregate limits are reduced or exhausted; and
3. To provide broader coverage on some claims that would not be covered by the insured’s primary insurance policies, which would be subject to the policy retention.

Most umbrella liability policies contain one comprehensive insuring agreement. The agreement usually states that it will pay the ultimate net loss, which is the total amount in excess of the primary limit for which the insured becomes legally obligated to pay for damages of bodily injury, property damage, personal injury, and advertising injury.

Limit of Insurance
All umbrella liability policies contain an “per occurrence” limit of insurance. Some umbrella liability policies may have a separate limit that applies to all personal and advertising injury for one person or for the organization. Also, some policies are written with aggregate limits for only one type of loss. Other policies may have one or more aggregates for all losses. Umbrella policies can be written with several different variations of the aggregate limits. There are no standard umbrella policies.

Pay on Behalf
This is an insuring agreement used in some umbrella policies. The agreement promises to make direct payment on behalf of the insured for those sums of money the insured becomes legally obligated to pay because of liability imposed upon the insured by law, or assumed under contract.

Indemnity
This is the insuring agreement clause found in most umbrella policies as opposed to the “pay on behalf” agreement. When the indemnity insuring clause is used, the insurer will indemnify or reimburse the insured for those sums of money the insured becomes obligated to pay by reason of liability imposed upon the insured by law, or assumed under contract.

Self-Insured Retention
The self-insured retention is the amount of the loss an insured must pay before the umbrella policy would be required to respond. The self-insured retention would only apply when a loss is excluded from coverage under the primary policy, but not excluded under the umbrella policy.

Required Underlying Limits
Required Underlying Limits is a requirement of the insurer. It requires the insured to have certain types and amounts of primary insurance before the umbrella policy can be written.

Workers Compensation Coverage

This coverage agreement obligates the insurer to pay all compensation and other benefits required of the insured by the workers compensation law or occupational disease law of any state listed in the policy. The coverage applies to bodily injury by accident and by disease. Coverage (A) shows no dollar limit for the benefits provided since any applicable limits would be those established within the law. Benefits under coverage (A) are paid to the employee without regard to fault.

Employers Liability
This coverage protects employers for their legal liability for bodily injury by accident or disease to an employee arising out of and in the course of the employee’s employment when not covered under the workers compensation law. Before benefits are paid under this coverage, the employee must prove the employer is liable for the injury.

Bodily Injury by Accident
This amount is the most an insurer will pay under coverage (B) for all claims arising from any one accident, regardless of how many employees are involved in the accident. The standard limit is $100,000 for any one accident, which can be increased.

Bodily Injury By Disease (Policy Limit)
This is the aggregate limit the insurer will pay under coverage (B) for all claims sustaining bodily injury by disease during the policy period. The standard policy limit is $500,000, which can be increased.

Bodily Injury By Disease (Each Employee)
This amount is the most an insurer will pay under coverage (B) for damages due to bodily injury by disease to any one employee. The standard limit of liability for each employee is $100,000, which can be increased.

Other States Insurance
This provides workers compensation coverage if the insured expands operations into other states not declared at the time the policy is issued or renewed. If the insured elects this coverage and operations begin in a state listed under other states, the insurer provides the same coverage as if the state was declared in the policy at the time of policy issuance.

Voluntary Compensation Endorsement
Workers compensation laws of most states exempt some types of employment from workers compensation benefits. This endorsement amends the standard policy to provide coverage for employees with exempted occupations from the workers compensation act. When the endorsement is added it does not make employees subject to the workers compensation law. Rather, it obligates the insurance company to pay, on behalf of the insured, an amount equal to the compensation benefits that would be payable to those employees if they were subject to the workers compensation law of that state.

United States Longshore & Harbor Workers Act Endorsement (USL&HWA)
This is a federal act similar to the state workers compensation act. The federal act was designed to provide workers compensation benefits to employees who work in maritime employment upon the navigable waters of the United States and who are usually considered outside the scope of state workers compensation laws. When the USL&HWA endorsement is added to the standard policy it applies to work done in the states scheduled on the policy and extends the definition of the workers compensation law to include the USL&HWCA.

Executive Officers, Partners Exclusion Endorsement
In some states, workers compensation law allows an insured to include or exclude executive officers and partners, or both, from coverage. Adding this endorsement can designate the individuals not covered under the policy.

Experience Modification
This is a factor that deals with the rating of the policy. The Experience Modification figure is based on the insured’s loss experience. The factor is used to increase or decrease the manual rates of insurance.

Directors and Officers Liability Policy

A Directors and Officers Liability Policy was designed to protect the personal assets of the individual officers and directors of the bank holding company, bank or subsidiaries. It typically consists of two to three insuring agreements. Insuring agreement A will pay on behalf of the insured persons (officers and directors) for a wrongful act; insuring agreement B will pay on behalf of the bank holding company, bank or subsidiary when they are permitted or required by law to indemnify the insured persons. And oftentimes there is a third insuring agreement to protect the Bank when it is named in a suit for a wrongful act.

D&O TERMS AND COVERAGES

Wrongful Act
The primary purpose of a D&O policy is to pay for a Wrongful Act. Most insurance companies use a very similar definition. Usually it will say a “Wrongful Act” is an actual or alleged act, error, omission, misstatement, misleading statement, neglect or break of duty, while an insured is acting within their insured capacities.

Claims Made Policy
Most every D&O policy today is considered a “Claims Made” policy. In simplest terms, whichever insurance carrier is covering your bank when the claim is discovered or made, will respond to the claim. So if you were to switch insurance companies and three months later be sued for something that began four months before you switched, the new insurance carrier would respond to the claim.

Fiduciary (ERISA) and Employee Benefits Liability Endorsement
This endorsement provides coverage for losses arising out of the management of the bank’s own employee benefit plan as defined by the Employee Retirement Income Security Act of 1974. It provides coverage for wrongful acts of directors, officers or employees acting as fiduciaries of the plan. Limits can be purchased up to or less than the policy limits. There is an additional premium charged for this endorsement.

IRA/KEOGH

This provides protection against legal liability resulting from a wrongful act (actual or alleged error; misstatement, etc.) by directors, officers or employees serving as fiduciaries for IRAs and Keogh plans. The limit and deductible are usually the same limit as the policy. There is typically no additional premium for this endorsement.

Nonprofit Organization
This provides coverage for officers or directors who, at the request of the bank, serve as officers or directors of a nonprofit organization. Hospitals may or may not be covered by the company. This coverage is also excess over any other coverage provided by the not-for-profit entity.

All Employees
Today, most D&O policies will provide coverage for all persons who were, now are, or shall be employees of the bank.

Lender Liability Endorsement
The D&O policy is intended to protect the personal assets of directors and officers from losses arising out of claims for wrongful acts allegedly committed in their capacity as directors and officers of the bank. Wrongful acts include losses involving the bank’s lending relationship with its customers or potential customers. However, in many cases the bank is named in the suit. This provides coverage for the bank in a customer lending situation, and if additional premium is paid coverage may extend to all third party Lender Liability suits as well.

Employment Practices Liability
The policy covers directors and officers for suits brought by employees relating to sexual harassment, wrongful termination, etc. Employment Practices provides coverage for the bank should it be named in a suit brought by an employee. An additional premium is charged if the bank wishes to include third party Sexual Harassment suits.

Trust Department E&O
For banks which have Trust Departments this provides coverage for loss resulting from actual or alleged wrongful acts (error, misstatement, misleading statement, act or omission, neglect or breach of duty) committed while performing trust functions. It covers the bank and the trust department employees.

Bankers Professional Liability
This endorsement will cover a suit brought against the bank for a professional act, unless they are excluded. All the exposures covered under the Bankers E&O endorsement are included in this coverage. Here are a few examples of exposures covered: acting as a real estate appraiser; land surveyor; real estate agent; insurance agent; notary public; administration of lock boxes; securities broker/dealer; investment advisor; wire transfer agent; and issuer/servicer of credit cards.

Internet or Cyber Liability
This is typically a stand-alone policy which provides coverage to the bank in the event of a Wrongful Internet/Cyber Banking Act. Those losses may include: Invasion of privacy; Libel, slander or written disparagements; Loss or denial of service to a customer; Infringement of copyright or plagiarism; Loss or damage to electronic data of a customer. In all cases, a suit must be brought against the bank to trigger coverage.

Financial Institution Bond (Blanket Bond or FIB)

When deciding on which insurance company is best for your bank – just remember, all Financial Institution Bonds are NOT the same.

No Annual Aggregate Limit
Most FIBs today do not have an annual aggregate limit. Simply stated, the limits you purchased are available for each single loss discovered during the bond period and a sustained loss does not reduce the amount of coverage available for additional losses that may be discovered. However, some do place a limit. Request from your underwriter a double or triple limit and usually it would be given for free.

Definition of Dishonesty
Employee dishonesty requires either the intent to cause the Insured a loss or to obtain improper financial benefit for the employee or another person or entity. There are provisions for losses involving loans. Reviewing your carriers coverages for these types of losses is important as they can vary from company to company.

Robbery on and off Premises
FIBs are designed to reimburse the bank in the event of a robbery on the premises or when a “messenger” of the bank is robbed while away from the premises.

Forgery and Forgery of Securities
Forgeries account for a large amount of bank losses. The part of the FIB pays for losses relating to forgeries, counterfeiting or alteration of a Negotiable Instrument. Today this coverage also includes Counterfeit Checks. Forgery of Securities coverage provides a list of written documents that are covered should they be forged. Also, you’ll find Unauthorized Signatures included with this.

Unattended Automated Teller Machines
This part of the FIB covers loss of money, damage to or destruction of any owned unattended automated teller machine caused by robbery or burglary. Coverage is provided on a blanket basis to all of the bank’s automated teller machines.

Claims Expense Coverage
The purpose of this coverage part is to pay for reasonable expenses necessarily incurred by the bank in preparing any valid claim for a loss caused by dishonest employees.

Transit Cash Coverage
Transit cash letter coverage indemnifies the bank for direct financial loss resulting from physical loss of, damage to, or destruction of items contained in a cash letter while in transit between the bank’s office and any state in the U. S or District of Columbia. With the advent of electronic cash letters, the use of this coverage is waning. However, since the cost of the coverage is minimal it’s good to keep in the event of the internet being down.

Stop Payment Legal Liability
This indemnifies the bank for legally imposed damages as the result of noncompliance or failure to comply with any notice to stop pay or failure to give proper notice of dishonor.

Computer Systems Coverage
After dishonest employees, the computer remains the largest exposure faced by a bank. If you listen to any expert in this area they will tell you, it’s not “IF” you will be hacked…it’s “WHEN”. For this reason it’s imperative that a bank has their Financial Institution Bond endorsed to protect the financial assets of the bank from hackers. We typically recommend the same limit as the bond for this coverage. Additional endorsements may be added for Voice Initiated Wire Transfer coverage as well as Telefacsimiles which may have been forged or altered. Corporate account take overs are very common place today. When the bank follows through with their call back requirements on wire transfer requests, the policy will respond.

Kidnap, Ransom and Extortion
No one likes to think about this often-overlooked coverage. But Kidnap and Ransom (K&R) coverage is a vital part of a bank’s overall risk management plan. The K&R policy was designed to reimburse the bank should bank officers, directors or employees or their family member become the victim of a kidnapping where a ransom has been demanded or paid. In addition, most companies offer extortion coverage of bank property and now includes extortion of computer data.

Safe Deposit Box Coverage
This policy pays for losses in the Safe Deposit Box area where the bank is held legally liable for loss, damage or destruction of property. The policy may also be endorsed so that the bank does not have to be proven legally liable. In either case, most often money is not covered.

Debit Card Coverage

Fraud at Electronic Terminals
This policy shall pay for the Insured’s Loss arising from the Fraudulent Use of a Bank Card(s) at an Electronic Terminal.

Fraud Involving Telephone, Mail Order and Internet Sales
This policy shall pay for the Insured’s Loss from the Fraudulent Use of a Bank Card(s) where property, labor or services are sold and delivered by a merchant to an individual purporting to be the cardholder using a telephone, FAX machine, postal service or a computer, computer system, or computer network. As a condition of coverage under Insuring Agreement B, the merchant must have received advance approval for the use of the Bank Card(s) through a system that requires the cardholder or individual purporting to be the cardholder to provide a security code including, but not limited to a system such as Verified by Visa or MasterCard SecureCode.

Compromised Cards Extra Expense
This policy shall pay for the Insured’s Extra Expense to replace Compromised Cards that have been obtained by Unauthorized Access to or theft from an electronic data base, computer, computer system or computer network which is not owned, operated or contracted by the Insured or the Insured’s Bank Card processor. As a condition of this Insuring Agreement, the Insured must cancel the Compromised Cards as soon as practicable, but in any even not more than thirty days after receipt of the notification of the unauthorized access or theft.

Not All Plastic Card Policies/Endorsements Are the Same
AIG – Bank Card Issuer’s Policy Broadest

Debit card losses continue to plague our banking industry. Every bank which issues cards has a potential severe exposure. Our new policy is designed to protect the bank from the catastrophic losses.

1. Other Policies offer coverage for a counterfeit card but the definition requires that the card must be encoded, embossed or printed with the cardholders account information. This would cover an actual card that is duplicated but may not cover a 'white card' or an Internet transaction that does not include a physical card.
2. Other Policies include a requirement that the Insured must have a signed application for coverage. This requirement eliminates a bin hit/card generator scheme. In these type losses a fraud gang actually generates cards and card numbers from software that uses a bank's Bin number to generate random numbers assigned to the bank from the card association. Sometimes they use Bin numbers from banks that are no longer in existence but have been merged into the Insured. They then use the cards internationally, in places like Madrid, Hong Kong or London.
3. Another condition to some other policies is the funds must be verified. This will eliminate any off-line transaction. Every on-line system goes down each day for updates when they go down transactions are processed off-line. Fraudsters use this time to process transactions from International systems hoping to avoid declined transactions.
4. Another condition is the transaction must not exceed the cardholders balance for coverage. This will or may exclude coverage if the bank has either an overdraft privilege or the account is tied into a line of credit such as a second mortgage line of credit.
5. Most policies have an Exclusion that voids coverage if the Insured can legally chargeback the transaction to others including the cardholder. This may create a grey area with respect to Regulation E. If the cardholders' card is skimmed and the cardholder is not aware of the card being compromised the customer cannot comply with Regulation E notification requirements. In this case the bank would cover the loss but would not be covered by most other carrier’s insurance.
6. Most coverage would not cover a loss caused by a transaction through the Internet when approved by either Verified by Visa or MasterSecure. Banks are now liable for Internet transactions when the cardholder has signed up for either system.
7. Most coverage would not cover a loss if the fraudulent transaction occurred outside of the United States or Canada. This creates a large gap in coverage since the bank has no control over where a fraudster uses the card.

All the above situations would be covered by the AIG Policy. In addition our deductible is a per card deductible of $1,500 vs. most competitors $5,000 or higher deductibles. In addition AIG offers a separate policy; losses in the Bond will not affect the experience of this policy and vice-a-versa.

The policy has a per card loss limit of $10,000 with an annual loss aggregate of $250,000 (up to $1,000,000 available). The premium is very competitive based upon the bank’s annual debit/ATM card transactions.

Mortgage Impairment and E&O

Any combination of sections outlined below may be purchased, provided Sections A and/or B are included:

Section A (1) Physical loss or damage from “required peril”. Cover loss to the Assured’s interest through the uncollectability or non-existence of Insurance against perils that are required to be purchased by the borrower – including mandatory flood insurance – in the Assured’s loan closing procedures.

Section A (2) Failure to Pay Real Estate Tax Mortgage Interest. Covers loss to the Insured due to the seizure and sale of the property by a governmental agency as a result of failure to pay real estate taxes by the Assured or the Borrower.

Section B Physical loss or damage from balance of perils. Provides insurance should the security for the loan suffer a physical loss from any other cause other than outlined in A(1) and the Assured be unable to recover the loan from the borrower.

Section C (1) Procuring or Maintaining Mortgagor’s Insurance Policies. Covers the Assured against errors and omissions on claims made basis relating to the Assured’s handling of physical damage insurance and homeowners insurance covering the real property of borrowers.

Section C (2) Life and disability insurance. Covers the Assured against errors and omissions arising out of the Assured’s procurement and maintenance of life or disability, including accidental death and dismemberment. Insurance on behalf of a borrower.

Section C (3) Flood Disaster Act 1973 liability. Covers the Assured against errors and omissions claims arising out of Assured’s duty to determine whether or not a particular property is in a flood zone.

Section C (4) Real Estate Tax Liability. Covers the Assured against errors and omissions relating to non-payment of real estate tax by the Assured or the Borrower.

Section C (5) Recordation Coverage. Covers the Assured against errors and omissions relating to recordation of loans sold the GNMA, FNMA or FHLMC.

Section C (6) GNMA, FNMA and FHLMC procedures. Covers the Assured, as mortgage services, against errors and omissions should the Assured fail to comply with procedures, which result in a guarantee being lost.

Section C (7) Custodial Coverage. Covers the Assured against errors and omissions in the certification, maintenance and custody of documentations affecting the interest of the GNMA, FNMA or FHLMC.

Section C (8) Title Insurance. Covers the Assured against errors and omissions relating to the requirement by the Assured of a borrower that title insurance be obtained.

(Section C coverages are on a “claims made” basis and, in addition, provide for the Assured’s defense costs, within the limits)

Section D: Loss of Veterans Administration, Federal Housing Administration, Small Business Administration and private mortgage guarantee coverage. Covers loss to the Assured’s interest should he fail to provide to a ‘mortgage guarantee’ agency or Insurance Company its proper notice of loans in arrears

Section E: Loss of Security Interest due to defective titles (A complementary section with C8). Covers the Assured’s owner mortgage interest arising from defective title.

Cyber Liability

Third party liability

• Third party information security and privacy coverage.
• Regulatory defense and penalties.
• Website and offline media liability.
• PCI fines, penalties and assessments.

Privacy breach response services

• Computer expert services and legal services to help determine the extent of the breach and the steps needed to comply with applicable breach notice laws.
• Crisis management and public relations.
• Access to educational and loss control information at no charge.
• Notification services provided on a number of affected individuals basis, not capped by a dollar amount.
• Call center services for notified individuals.
• Breach resolution and mitigation services including one and three bureau monitoring and identity monitoring solutions.

What are additional coverages?

What are the three basic principles of property insurance?

What are the four basic categories of coverage in a homeowners policy?

What are coverage extensions?