Common CPP Conditions

Common CPP Conditions

Certain conditions are common to Commercial Package Policies. They
apply to all commercial lines of insurance. The common conditions are
summarized as follows:

Cancellation - The policy can be canceled by the named insured or the
insurer, subject to certain conditions.

Cancellation by the Insured - The first named insured on the policy
Declarations may cancel the policy at any time by advance written
notice. In such cases, the return premium may be less than the pro rata
premium. Generally, under these circumstances, the company returns
less than 90% of the pro rata unearned premium. This often is referred
to as a “short rate” cancellation. Such cancellations are also subject to
minimum earned premiums charged by the insurers.

Cancellation by Insurer - The insurance company may cancel the policy
at any time, subject to individual state imposed restrictions, after giving
written notice of cancellation to the insured at the last address known to
the insurer at least 30 days in advance. In the case of nonpayment of
premiums, 10 days advance notice is allowed.

Many states have enacted laws to restrict insurers’ rights to cancel a
policy in the middle of its term, and to allow cancellations only under
certain specified situations such as the discovery of a negligent act or
omission by the insured which increases the hazard insured against or
physical changes in the property which result in the property becoming
uninsurable.

Restrictions on Cancellation in New York - New York State has enacted
laws which restrict the insurers’ right to cancel or not renew policies,
except under specific conditions. New York statutes also mandates
that insurance companies must furnish loss data to an insured whose
policy is being canceled, provided the insured makes a request in
writing. The “loss run” must be furnished to the insured within 20 days.
The law also interdicts midterm rate increases. The law applies to
insurance on commercial risks insuring damage to real or personal
property, or losses sustained by such risks out of motor vehicle liability,
liability for bodily injury or property damage, professional liability and
insurance issued to governmental bodies.

The NY law does not apply to policies written through the Assigned Risk
Plan of the state, Workers’ Compensation, insurance written through
property pools such as the FAIR Plan, marine and inland marine risks,
reinsurance, and excess insurance.

A new policy may be canceled by the company within its first 60 days,
but the company must state in writing its reason for cancellation. Loss
experience is a valid reason for canceling under these circumstances.
Notice must be given not only given to the insured but also to the broker
or agent.

Any cancellation of a renewal, or of a new policy which has been in
effect for over 60 days, may be made only for specific reasons outlined
in the state statute, which must be stated in the cancellation notice. If
the company does not intend to renew a policy that comes under the
statute, it must furnish a notice at least 60 days, but not more than 120
days, before the renewal date, to the insured and his broker or agent.

Insurance companies may not increase the premiums on renewals or
new policies which have been in effect for 60 days or more unless
there has been an increase in the value at risk subsequent to the
renewal dates or the inception dates of new policies.

Conditional Renewals - The New York statute requires insurance
companies to abide by the same rules that govern cancellation of
renewal policies to situations which are defined as “conditional
renewals”. A “conditional renewal” is a premium increase of more than
10% which is not due to increase in coverage amount, experience
rating, retrospective rating, result of an audit, change in limits, change in
deductibles, or change in coverage.

Flat Cancellation - When a policy is canceled by the company or the
insured prior to its inception, the policy is said to be “cancelled flat”.

Policy Changes - The first named insured has the authority to request
changes to the policy. Any endorsements to the policy can only be
made by the insurance company.

Premiums - The first named insured in the declarations is responsible for
the payment of all premiums and will also be the payee for any refunds
due under the policy.

Transfer of Insured's Rights and Duties (Assignment) - The insured's
rights and duties under the policy may not be transferred without the
insurer’s written consent. An exception can be made for the death of a
named insured. The legal representative is then automatically covered,
as well as is the temporary custodian of the insured property. With the
exception of the situations mentioned above, all transfers of coverage
under a policy must be made with the consent of the insurer.

EXAMPLE: An insured who sells his property and wishes to transfer the
insurance policy to the new owner must obtain the company's consent.
If the insured assigns his policy to the new owner without the
company's consent, there will be no coverage under the policy for either
party. The new owner has no coverage because the insurance
company did not accept him as the insured. The former owner is not
covered because he no longer has an insurable interest in the property.
Inspections and Surveys-The insurer has the right at any time to make
inspections, surveys, reports and recommendations, but without the
obligation and responsibility to do so, with regards to the safety and
health conditions at the insured property for the purpose relating to
insurability and premium determination.

Examination of Books and Records - The insurer has the right to
examine and audit the books and records of the insured any time during
the policy period and up to three years after the policy ends.

No Benefit to Bailee - A bailee is a person who has temporary custody
of the property of others. The property has been entrusted to the bailee
by its owner (the bailor) for purposes such as for repair, storage,
safekeeping, renovating, remodeling, processing, delivery, etc. The
owner of the property has no intention of transferring the property and
expects to have the property returned to him. The policy specifically
states that no person or organization having custody of the property
other than the insured will benefit from the insurance.

EXAMPLE: A moving company damages a client’s television set during
transit. The television set is not covered under the client’s insurance
because it is in the custody of the moving company (the bailee) at the
time of the damage.

Transfer of Rights of Recovery Against Others to Insurance Company
(Subrogation) - When the insurer pays out a loss under its policy, it may
require from the insured an assignment of all rights of recovery against
third parties who are at fault. This process is called “subrogation”.
Subrogation is an attempt to put the cost for loss on the party who
caused the loss.

EXAMPLE: A storekeeper suffers a loss through a fire which was
caused by a next door neighbor. The storekeeper’s insurer, after
paying the storekeeper’s loss, requests the storekeeper to subrogate
his right to recover the money paid out from the at fault neighbor.
In most states, the ISO forms provide that the insured will not invalidate
the insurance by waiving the right of recovery against a third party,
provided such waiver is in writing and is executed prior to the loss. The
forms also permit the insured to waive subrogation against certain
parties after a loss: a tenant of the insured, a third party insured under
the policy, or a business firm which is owned or controlled by the
insured or which owns or controls the insured. In some states, waiver
of subrogation is not permitted after a loss.

MY Insurance Agency

The materials on this page is meant to be
informative in nature. Due to the ever
changing and varying state laws, and the fact
some insurers offer coverage in slightly
different forms from the Insurance Services
Office (ISO) standard forms, we cannot
guarantee the accuracy of the materials on
this page.