DC Property Insurance 1 — Questions and Answers
Question 1: Under DC law, which entity has the authority to license surplus lines insurers operating in the District?
- DC City Council
- DC Department of Insurance, Securities and Banking (DISB) (Correct answer)
- National Association of Insurance Commissioners (NAIC)
- Federal Insurance Office (FIO)
Correct answer: DC Department of Insurance, Securities and Banking (DISB)
DISB licenses and regulates surplus lines insurers operating in Washington DC.
DISB maintains authority over all insurance activity in DC, including surplus lines. Surplus lines insurers must be on DISB's approved or 'eligible' list before a DC licensed surplus lines broker can place business with them.
Question 2: Under a DC commercial property policy, the 'coinsurance clause' requires the insured to maintain coverage equal to what percentage of property value to avoid a penalty?
- 50%
- 70%
- 80% (Correct answer)
- 100%
Correct answer: 80%
Most commercial property policies use an 80% coinsurance requirement, meaning the insured must carry coverage equal to at least 80% of the property's value.
The coinsurance clause incentivizes adequate coverage. If the insured carries less than the required percentage (typically 80%), partial losses are paid proportionally. Example: if a $1M building is insured for $600K (75% of 80%=$800K required), a partial loss is paid at 600K/800K = 75% of the loss.
Question 3: What type of DC property insurance policy covers the building, business personal property, and business income in a single contract?
- Dwelling policy (DP-3)
- Business Owner's Policy (BOP) (Correct answer)
- Commercial package policy (CPP)
- Inland marine policy
Correct answer: Business Owner's Policy (BOP)
A Business Owner's Policy (BOP) bundles building, business personal property, and business income coverage in a single policy designed for small to mid-sized businesses.
A BOP combines property, business income, and liability coverages into one convenient policy for eligible small businesses. DC businesses that qualify (based on revenue, building size, and class) benefit from simplified coverage and often lower premiums.
Question 4: Which endorsement adds earthquake coverage to a DC commercial property policy?
- Extended coverage endorsement (EC)
- Earthquake endorsement (Correct answer)
- Difference in conditions (DIC) policy endorsement
- Flood endorsement
Correct answer: Earthquake endorsement
An earthquake endorsement can be added to a commercial property policy to cover losses from seismic events, which are excluded in the standard form.
Earthquake damage is excluded from standard commercial property forms. A separate earthquake endorsement or a Difference in Conditions (DIC) policy can add this coverage. While less common, DC does experience minor seismic activity (e.g., 2011 Virginia earthquake).
Question 5: Under a DC commercial property policy, 'actual cash value' (ACV) is best described as:
- Original purchase price of the property
- Replacement cost minus physical depreciation (Correct answer)
- Market value of the land and building combined
- Appraised value at the time of policy inception
Correct answer: Replacement cost minus physical depreciation
ACV equals the replacement cost of the property minus depreciation due to age, wear, and obsolescence.
ACV is the standard valuation method in property insurance. It determines the insured's pre-loss financial position. Insurers calculate ACV as replacement cost new minus accrued depreciation. Replacement cost coverage removes the depreciation penalty.
Question 6: Business income coverage (also called business interruption insurance) is triggered by which of the following?
- Any decrease in business revenue, regardless of cause
- A covered direct physical loss to the insured property that suspends operations (Correct answer)
- A decline in the local DC economy affecting sales
- An owner's voluntary decision to cease operations
Correct answer: A covered direct physical loss to the insured property that suspends operations
Business income coverage activates only when a covered physical loss to the insured's property causes a suspension or interruption of business operations.
Business income (BI) insurance covers lost net income and continuing expenses during the period of restoration following a covered direct physical loss. It requires a covered cause of loss to the insured premises. It does not cover income loss from market downturns or voluntary shutdowns.
DC Property Insurance 1
Under DC law, which entity has the authority to license surplus lines insurers operating in the District?