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April 2, 2015  

 Q&A of the Week

Coinsurance on Other Structures

An Ohio subscriber recently asked the following question:

I have a loss to other structures on the homeowners policy. Is coverage and coinsurance determined by taking the value of ALL other structures and adding them together? How does coinsurance work when the damage is to only one of multiple other structures?

ANSWER: Coverage for other structures is 10 percent of coverage of the dwelling; this applies to all the other structures. If the insured has a number of other structures, the ISO HO 04 48 can be added to increase available coverage for other structures. As far as coinsurance goes, the damaged property must be insured to 80 percent of its value. For example, the insured has a dwelling worth $200,000 but has four other structures valued at $10,00, $20,000, $40,000, and $55,000, and the $40,000 structure is the one damaged with damage being $15,000. The calculation of the limit will be the $20,000 of coverage divided by the $40,000 of value; this is a 50 percent proportion, so the insured is underinsured for the loss. Therefore payment will be the lesser of the actual cash value of the damaged portion of the building or the proportion of the cost to repair or replace the damaged property to the 80 percent of the replacement cost. The calculation is ($20,000/$40,000) x $15,000= $7,500. So $7,500 is what is paid out.

Now, if multiple buildings were damaged, then the calculation would add up the value of all the damaged buildings, and work from there. Say the buildings worth $10,000 and $55,000 were damaged for a combined total of $30,000. You would have (20,000/10,000+55,000) x 30,000=$9,230.
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 What's New This Week in FC&S
Kidnap, Ransom, and Extortion Policy
Insurance Services Office (ISO) has updated and revised the coverage form for loss suffered by the insured due to kidnap, ransom, or extortion. This policy is part of the commercial crime and fidelity insurance program and allows worldwide coverage for loss from the payment of a ransom from a kidnap or extortion threat and expenses incurred in obtaining the release of a kidnapped victim or in resolving an extortion threat. Read More
 Litigation Watch
Manifest Intent

A bank brought an action against the issuer of a fidelity bond seeking to recover losses caused when one of its employees purportedly permitted liens on twenty condominium units to be released without paydown amounts, diverting more the $5 million to the project developer. This case is Keybank National Association v. National Union Fire Ins. Co. of Pittsburgh, 124 A.D.3d 512 (2015).

The bank loaned a developer more than $20 million for a condominium project. The loan was secured by mortgage liens on the units. As individual units were sold, a percentage of the proceeds was to be used to pay down the loan and release the lien on those units. However, an employee of the bank permitted the liens on twenty units to be released without the paydown amounts, diverting more than $5 million to the developer; the employee concealed this by falsely representing to the bank that the units had not closed.

The actions of the employee were discovered and the bank sought to recover its losses under the fidelity bond issued by National Union Fire Insurance Company. When the insurer declined coverage the bank filed a lawsuit and sought summary judgment. The Supreme Court, New York County denied the motion and this appeal followed.

The Supreme Court, Appellate Division, First Department, New York noted that with regards to loans and/or trading, the bond provided coverage for losses resulting directly from dishonest or fraudulent acts committed by an employee of the bank, with such acts being committed by the employee with the manifest intent to cause the insured to sustain a loss, or to obtain financial benefit for the employee. The court found that the bond defined a loan as all extensions of credit by the insured and all transactions creating a creditor relationship in favor of the insured and all transactions by which the insured assumes an existing creditor relationship. The court said that the losses that were caused by the employee's conduct did not fall within the scope of the definition.
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 FC&S Ask the Experts
Did you realize that the Q&A section of FC&S is made up of questions submitted by subscribers like you?

Paid subscribers to FC&S Online or print FC&S Bulletins are invited to submit insurance coverage questions to the editors. We'll provide a personalized opinion within five business days. (We'll let you know if it will be longer than that. Sometimes we have to gather research or other supporting materials).

Who knows? Your question may be featured (anonymously) in the online Q&A of the Week or as an FC&S update.

Submit your coverage interpretation question right to the editors of FC&S for quick and reliable information. Ask our expert staff a question by clicking here.
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 Contact Us
As always, your comments and questions are welcome.

Contact us at:
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The Zalma Insurance Claims Library
Insurance Claims: A Comprehensive Guide
The only source you'll need to successfully handle insurance claims from start to finish. More Info
Construction Defects Coverage Guide
Your single-source for identifying, insuring, investigating, prosecuting, and defending cases that result from construction defect claims. More Info
Mold Claims Coverage Guide
This guide will allow you to handle mold insurance claims and litigation resulting from mold or fungi related disputes with confidence. More Info
For more information about these titles Click Here
FC&S Team
Kelly Maheu, J.D.
  Diane W. Richardson, CPCU
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Christine G. Barlow, CPCU
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