WHo might have insurable interest in a policy insuring cargo?
i) Sellers
ii) Buyers
iii)Carriers
iv) Financial Institutions
ii) Buyers
iii)Carriers
iv) Financial Institutions
What documents are examined to help determine insurable interest?
i) Terms of Sale/Contract
ii) Bills of Lading
ii) Bills of Lading
What types of facts contained in the "terms of sale" will assist in determining insurable interest?
i) INCOTERM used
ii) Method of payment used
ii) Method of payment used
What information can be obtained by reviewing the INCOTERMS?
i) Point in jonrey that seller has fulfilled their obligations
ii) Who is responsible for carriage from one point in the journey to another point in the journey
iii) Who is responsible for insurance from one point in the journey to another
ii) Who is responsible for carriage from one point in the journey to another point in the journey
iii) Who is responsible for insurance from one point in the journey to another
Purchaser is responsible for insurance & Freight once the shipment leaves the factory:
What INCOTERM is used?
EXWORKS
Seller is responsible for freight & Insurance from the factory to alongside the vessel. At that point the buyer is responsible for insurance and freight What INCOTERM is used?
FAS
Seller is responsible for insurance and freight from the factory until shipment is loaded on board the ship. From that point, the buyer is responsible for insurance & freight
What INCOTERM is used?
FOB
Identify the type of payment arrangement made in the following situation:
Payment is required to be made before the seller will ship the goods
Cash in Advance
Identify the type of payment arrangement made in the following situation:
payment is made using financial documents sent between the seller's bank & the buyer's bank
Letters of Credit
Identify the type of payment arrangement made in the following situation:
Payment is required to be made at reglar intervals
Open Account
Identify the type of payment arrangement made in the following situation:
Payment is required upon presentation of bill
Sight Draft
When payment is guaranteed upon delivery of goods, should seller still maintain insurance coverage on shipment and why or why not?
Sellers SHOULD maintain coverage on goods until payment has been received from buyer. Buyers would likely not pay for goods damaged or lost en route
What is a Bill of Lading
documents issued by carrier responsible for transportation on forwarding of goods
Identify purposes of Bills of Lading
i) Acts as a receipt for the goods
ii) Acts as a document of title of the goods
iii) Acts as a contract of carriage between shipowner & shipper
ii) Acts as a document of title of the goods
iii) Acts as a contract of carriage between shipowner & shipper
Who may receive shipment when a Straight Bill of Lading is used?
Only the Named consignee can receive goods
Who may receive shipment when an Order Bill of Lading is used?
Others may take delivery on behalf of named cosignee
How are goods valued when a Released Bill of Lading is used?
No specific value is indicated, how carriers will be responsible for amounts required by law
How are goods valued when a Valued Bill of Lading is used?
By amount indicated on Value Bill of Lading
What is the purpose of a Clean Bill of Lading?
Indicates that property was received by carrier with no signs of damage
What are four causes that loss carriers are free from responsibility?
i) Perils, dangers and accidents of the sea
ii) Acts of God
iii) Acts of War
iv) Acts of Public Enemies
ii) Acts of God
iii) Acts of War
iv) Acts of Public Enemies
What are two types of Cargo Policies available and when would each be used?
i) Individual Policy or Certificate: Insureds do not regularily ship goods
ii) Open Policy: insureds who regularly ship goods
ii) Open Policy: insureds who regularly ship goods
Identify five characteristics of Open Policies (PAGES)
i) Sums insured are not stated
ii) May insure any type of goods, shipped anywhere in the world
iii) Coverage is automatic
iv) May be issued w/out expiry date
v) Premium rate is shown on policy
ii) May insure any type of goods, shipped anywhere in the world
iii) Coverage is automatic
iv) May be issued w/out expiry date
v) Premium rate is shown on policy
What are five areas addressed by the Valuation Clause?
i) Value of Cargo
ii) Shipping costs or freights
iii) Other Expenses
iv) Duties and Taxes
v) Plus 10 Percent
ii) Shipping costs or freights
iii) Other Expenses
iv) Duties and Taxes
v) Plus 10 Percent
What are two reasons to use the 'plus 10%' allowance?
i) to allow for natural increase in value of goods being shipped
ii) to allow for profit margin of goods shipped
ii) to allow for profit margin of goods shipped
What method of valuation of losses has been a part of cargo insurance for many years?
Percentage of Insured Value lost
When will the full amount of insurance on a shipment be paid to insureds using the Percentage of Insured Value Lost?
Full amount of insurance will be paid when there has been a total loss
The transit Clause provudes coverage for goods being shipped regardless of the type of transportation method. This broad coverage causes many people to say that the Transit Clause provides ____ to ____ coverage
warehouse to warehouse
Explain three important components of the Transit Clause
i) coverage ceases when goods have been unloaded and no delivered within 60 days after being unloaded
ii) coverage ceases when goods are diverted to destination not indicated on the policy
iii) Goods are insured when diverted or delayed beyond control of client
ii) coverage ceases when goods are diverted to destination not indicated on the policy
iii) Goods are insured when diverted or delayed beyond control of client
Discharging shipments at ports not covered may cause insureds to incur additional expenses. What end't is available to cover these add't expenses and indentify 3 types of expenses insured by this clause?
Name of Clause: Forwarding Charges Clause
Types of expenses insured:
i) unloading expenses
ii) storing expenses
iii) forwarding to destination to which insurance applied
Types of expenses insured:
i) unloading expenses
ii) storing expenses
iii) forwarding to destination to which insurance applied
Why may insureds purchase the Change of Voyage Clause?
provides coverage when goods are diverted to destination not mentioned in policy, provided that insurer receives prompt notice
What are three exclusions common to cargo policies?
i) Unseaworthiness and Unfitness Exclusion
ii) Strikes Exclusion
iii) War Exclusion
ii) Strikes Exclusion
iii) War Exclusion
Describe an express warranty and give an example
Express warranties are written into policy documenits
ex: alarm warranty
ex: alarm warranty
Describe three implied warranties
i) Legality: venture is legal
ii) No Delay: Journey will begin w/in a reasonable time
iii) No deviation: Journey will take more reasonable & customary route
ii) No Delay: Journey will begin w/in a reasonable time
iii) No deviation: Journey will take more reasonable & customary route
Explain two types of total losses found in cargo policies
i) Actual total losses where shipment is badly damaged that it has no value left
ii) constructive total losses are losses where cost to salvage shipment is greater than value of shipment
ii) constructive total losses are losses where cost to salvage shipment is greater than value of shipment
Explain two types of partial losses found in cargo policies
i) particular average are losses where there has been partial loss of shipments other than general average
ii) General average are losses incurred due to voluntary losses for safety of entire voyage
ii) General average are losses incurred due to voluntary losses for safety of entire voyage
What are four considerations reviewed by underwriters when reviewing applications for cargo insurance
i) Carriers to be used
ii) Experience of shipownre
iii) Route ship will use
iv) Condition of harbors to be used
ii) Experience of shipownre
iii) Route ship will use
iv) Condition of harbors to be used
What recommendations would you provide clients when discussing packing of cargo?
i) only use new, well made packaging
ii) use tape w/ patterns to detect tampering
iii) use corrugated cardboard to detect tampering
iv) do not display logo's and trademarks
ii) use tape w/ patterns to detect tampering
iii) use corrugated cardboard to detect tampering
iv) do not display logo's and trademarks
What are three coverage options available to owners of aircraft when insuring their aircraft?
i) All Risk
ii) Ground & Taxiing Only
iii) Ground Risk Only
ii) Ground & Taxiing Only
iii) Ground Risk Only
What are three types of ded'ts that may be used in Aircraft Hull Insurance?
i) In Motion
ii) Moored
iii) Not in Motion
ii) Moored
iii) Not in Motion
What is the use of the 'Lay Up' end't?
this end't allows for partial refund of premiums when insured aircraft is not used for long periods of time
Coverage is only provided when certain people are in control of the aircraft. Identify these four individuals
i) Approved Pilot
ii) Pilot approvd by Transport Canada who is testing aircraft
iii) Pilot providing approved pilot with upgrading training
iv) Person competent and qualified to start and operate aircraft when not in flight
ii) Pilot approvd by Transport Canada who is testing aircraft
iii) Pilot providing approved pilot with upgrading training
iv) Person competent and qualified to start and operate aircraft when not in flight
What is the territory of coverage for Aviation Insurance?
Canada, USA excl. Alaska, French Islands fo St. Pierre and Miquelon, the Republic of Mexico or Bahamas
When reviewing applications for aircraft insurance, what report is important to underwriters?
Pilot Record and Report
What are 3 facts contained in this report that are important to underwriters
i) Class of license and endorsements
ii) Total hours as pilot in command
iii) Record of all accidents in the past five years
ii) Total hours as pilot in command
iii) Record of all accidents in the past five years
Describe the 3 "C's" of credit appraisals and outilne factors considered for each
i) CHARACTER: involves studying company's management performance
ii) CAPACITY: reviewing company's past job performance
iii) CAPITAL: involves reviewing company's financial ability to finish work on hand as well as job for which bonding is requested
ii) CAPACITY: reviewing company's past job performance
iii) CAPITAL: involves reviewing company's financial ability to finish work on hand as well as job for which bonding is requested
How are surety companies similar to banks?
Surieties are similar to banks because they are being asked to lend credit
Define the three parties of surety agreements
i) SURETY: Organization who under takes to pay money or to do any other act in event that his principal fails therein
ii) OBLIGEE: the party wo whom someone else is obligated under a contract
iii) PRINCIPAL: organization or person primarily liable
ii) OBLIGEE: the party wo whom someone else is obligated under a contract
iii) PRINCIPAL: organization or person primarily liable
What are three characteristcs of the promise made by sureties?
i) Promise made to obligee, not principal
ii) Secondary obligation occurring when princopal defaults
iii) Obligation of surety to bligee happsn as soon as principal defaults
ii) Secondary obligation occurring when princopal defaults
iii) Obligation of surety to bligee happsn as soon as principal defaults
Explain the following characteristics of surety bond: NO LOSSES EXPECTED
Surety companies based fees on the belief that they will not incur any losses. When principal defaults, surety should have adequate backup
Explain the following characteristics of surety bond: INDETERMINATE LENGTH AND NON CANCELABLE
Can't be cancelled by surety company once issued. Surety in effect as principal hasn't completed obligation yet
Explain the following characteristics of surety bond: BOND LIMIT OR PENALTY
Indicates amount of guarantee surety is providing to obligee
Explain the following characteristics of surety bond: BOND PREMIUM
amount surety charges principal for bonds issued on their behalf. Pemium is not an accurate term for surety bonds b/c sureties do not expect losses
Explain the following characteristics of surety bond: WRITTEN CONTRACT
Surety bonds must be written and signed, under seal, by both surety and principal
What are five examples of differences between surety contracts and insurance contracts?
i) Surety contracts are three party agreements, insurance contracts are two party agreements
ii) Sureties do not expect losses, insurers do expect losses
iii) Principals must pay sureties back when they default, insureds do not have to pay insurer when claims are made
iv) Sureties charge fees, insurers charge premium
v) Surety contract must be written, insurance coverage may be provided orally
ii) Sureties do not expect losses, insurers do expect losses
iii) Principals must pay sureties back when they default, insureds do not have to pay insurer when claims are made
iv) Sureties charge fees, insurers charge premium
v) Surety contract must be written, insurance coverage may be provided orally
State four types of bonds common in the construction industry
i) Bid Bonds
ii) Performance Bonds
iii) Labor & Material Payment Bonds
iv) Maintenance Bonds
ii) Performance Bonds
iii) Labor & Material Payment Bonds
iv) Maintenance Bonds
Provide three examples of risks faced by owners of construction projects
i) Low Bidder does not sign construction contract
ii) Contracts doesn't complete job at agreed price or fails during job
iii) Contractor doesn't pay subcontractors or materials suppliers
ii) Contracts doesn't complete job at agreed price or fails during job
iii) Contractor doesn't pay subcontractors or materials suppliers
Identigy 4 considerations of general contractors when determining whether or not to request bonding from sub-contractors
i) Contract w/ project owner may require subcontractrs to be bonded
ii) Contractor may be long-term relationship or have no relationship with subcontractors
iii) Size of subcontract
iv) Large difference in low bidding subcontractor may worry contractor resulting in request to subcontract to provide bonds
ii) Contractor may be long-term relationship or have no relationship with subcontractors
iii) Size of subcontract
iv) Large difference in low bidding subcontractor may worry contractor resulting in request to subcontract to provide bonds
What are three methods of deposit available to contractors when bidding on a new jon?
i) Bid Bonds
ii) Certified Cheques
iii) Surety's consent
ii) Certified Cheques
iii) Surety's consent
What two things owners are assured when deposits from contractors take the form of bid
i) Principal was investigated by surety and therefore pre-qualified
ii) Because of significant penalites of default, principal bid is in good faith
ii) Because of significant penalites of default, principal bid is in good faith
What are two guarantees owners receive when deposits take the form of bid bonds?
i) Principal will sign construction contract at agreed price
ii) Principal will be able to provide follow-up surety bonds for project
ii) Principal will be able to provide follow-up surety bonds for project
What is "consent of surety"?
This is a letter written by surety and signed under their seal indicating principal will provide follow-up bonding on project
What are three disadvantages of certified cheques as a form of bid deposit?
i) Amount equal to certified chq are froxen, thereby limiting contractors cash flow
ii) When certified chqs are used it is assumed contractor cannot qualify for bid bonds, therefore unable to provide follow-up bonding for project
iii) Bid Bonds are only valid for 60 days after tendering deadline. This time limit does not apply to certified chqs
ii) When certified chqs are used it is assumed contractor cannot qualify for bid bonds, therefore unable to provide follow-up bonding for project
iii) Bid Bonds are only valid for 60 days after tendering deadline. This time limit does not apply to certified chqs
Why would contractors default on bid bonds?
i) Error in judgment on project scope
ii) Mistake in arithmetic on project pricing
ii) Mistake in arithmetic on project pricing
What are two expenses sureties may incur when contractors default on bid bonds?
i) Pay any re-tendering costs and delay costs to project owner
ii) Pay and difference in bid from subsequent contractor & defaulting contractor's bid
ii) Pay and difference in bid from subsequent contractor & defaulting contractor's bid
What are two guarantees provided by performance bonds?
i) Principal will perform contract w/in conditions and terms of contract
ii) Principal will provide maintenance on work for one year after completion
ii) Principal will provide maintenance on work for one year after completion
What limit is usually requested on performance bonds?
50% of tendered price is usually limit on performance bonds
Can changes to the bonded project be made, and if so to what extent?
Changes are allowed to projects once underway. Sureties will only extend guarantees to project increases up to 10% of tendered price
What are four examples of involuntary default?
i) Bankruptcy
ii) lack of technical ability to perform contract
iii) Lack of add't credit needed to maintain accounts payable
iv) Delays in construction
ii) lack of technical ability to perform contract
iii) Lack of add't credit needed to maintain accounts payable
iv) Delays in construction
What are two examples of voluntary default?
i) Large errors made in project costs
ii) lack of current assets to pay current liabilities
ii) lack of current assets to pay current liabilities
What two actions could sureties take when contractors default under a performance bond?
i) Finance defaulting contractor to allow completion of project
ii) Collect bids from other contractors for project completion and present to obligee
ii) Collect bids from other contractors for project completion and present to obligee
Describe the guarantee provided by a labour and material payment bond
Surety guarantees that principal will pay all subtrades and material suppliers
What are three business benefits of labour and material payment bonds?
i) Construction costs and lower
ii) Access to labour and materials is faster
iii) Credit not needed for this project can be used in other projects
ii) Access to labour and materials is faster
iii) Credit not needed for this project can be used in other projects
When would a maintenance bond be required?
Obligees will request maintenance bonds when one year maintenance period provided by performance bonds is inadequate
Describe guarantees of maintenance bonds
Maintenance bonds guarantee that principal will come back and repair flaws in job for term of maintenance bond
What are trhee concerns if sureties that make issuing a maintenance bond difficult?
i) When long maintenance periods are provided, more flaws will become apparent
ii) With long maintenance periods, parties responsible for flaws becomes more difficult
iii) Courts are demanding higher & higher standards from contractors
ii) With long maintenance periods, parties responsible for flaws becomes more difficult
iii) Courts are demanding higher & higher standards from contractors
Outline information sureties require in the following areas: FINANCIAL STRENGTH OF OWNERS
Personal Financial Statements of All shareholders will be questioned
Outline information sureties require in the following areas: CORPORATE STRUCTURE
corporation, individual or partnership of principal will be identified
Outline information sureties require in the following areas: KEY PERSONNEL RESUMES
Skills, eductation & experience of senior employees should be described
Outline information sureties require in the following areas: BANKING INFORMATION
Bank Letter of Reference will be required indicating size of line of credit, overall banking experience
Outline information sureties require in the following areas: ACCOUNTING INFORMATION
Financial statements from past 3-5 Years
Outline information sureties require in the following areas: COMPLETED WORK RECORD
5 year history of previous projects including all contract information will be required
Outline information sureties require in the following areas: WORK IN PROGRESS RECORD
Financial status and list of work currently underway will be required
What are three items in financial statements important to surety underwriters?
i) Working Capital
ii) Net Worth
iii) Profitability
ii) Net Worth
iii) Profitability
Describe three factors which affect working capital
i) Sub Contract work will affect working capital b/c subcontrators of then will not be paid until general contractor is paid
ii) Customer paying habits will affect capital b/c general contractors may have paid project expenses prior to payment from project owner
iii) Labor & Material Ratio-Higher the labor component of projects the poorer the working capital if principal
ii) Customer paying habits will affect capital b/c general contractors may have paid project expenses prior to payment from project owner
iii) Labor & Material Ratio-Higher the labor component of projects the poorer the working capital if principal
Describe two methods used to report income on contractor's financial statements and identify which is most desirable to surety underwriters
i) completed contract method reports income or loss on projects only when completed. This can distort year end financial statements
ii) Percentage of completion method reports income or loss on project as a percentage of completion. This allows for a true reporting of financial condition of contractor at their financial year-end
ii) Percentage of completion method reports income or loss on project as a percentage of completion. This allows for a true reporting of financial condition of contractor at their financial year-end
When issuing bonds limits to contractors, what two limits will be provided?
i) Per job limit
ii) Work in progress limit
ii) Work in progress limit
Describe three types of guarantees contractors must provude sureties
i) Indemnity agreements are when shareholders pledge personnel assets in event of default
ii) Third Party indemnities are guarantees provided by individuals or othe corporations on behalf of principal
iii) Collateral security is cash or letters of credit
ii) Third Party indemnities are guarantees provided by individuals or othe corporations on behalf of principal
iii) Collateral security is cash or letters of credit
Once bonding limits have been established, surety underwriters will review each request for bonding. What are four factors considered in this process?
i) Type of work involved in contract
ii) Location of project in relation to contractors usual work area
iii) Size of job and amount of bonding requested
iv) Contract completion date considered in conjunction w/ work in progress
ii) Location of project in relation to contractors usual work area
iii) Size of job and amount of bonding requested
iv) Contract completion date considered in conjunction w/ work in progress
Describe an example of guarantees provided by license and permit bonds
Compliance guarantee bonds guarantee principal will abide by laws affecting their business
What is the guarantee provuded by Administration and Executors bonds?
principal will perform responsibilty in compliance w/ law of deceased persons estate
What are three responsibilities of administrators and executors?
i) Collecting assets and protecting them from loss
ii) Pay all debts incurred by deceased
iii) Provide court w/ all accounting records of necessary transactions
ii) Pay all debts incurred by deceased
iii) Provide court w/ all accounting records of necessary transactions
Describe 'guardian'
Someone who is charged in a will to look after affairs of a minor and is approved by courts
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