Read the case scenario and answer the questions below. The policy described in the scenario uses the Causes of Loss - Special Form attached below. Please read the policy carefully before answering the question. Please answers based on the policy provided. 

 

Scenario

Bulls and Bears Inc. (BBI) is a specialty manufacturer that makes brass statues for sale in gift shops. The plant is located near the Mississippi River in a suburb of St. Louis. BBI's risk manager purchased a commercial property policy for the plant and its contents. The building has an actual cash value (ACV) or $500,000, including the permanently installed machinery used to produce the statues. The policy limit that applies to the building is $500,000. The policy has the standard 80% coinsurance clause and a $500 deductible. The policy also covers business personal property up to $200,000, and includes lost income coverage of $200,000 in the event of an insured loss. BBI also does some custom engraving work for customers. There is a $50,000 sublimit that applies to customer property that is in the building for this service.

It was a tough year for BBI. Its risk manager reported the following incidents:

• A tornado caused major damage to the plant's roof. The cost to repair was $50,000, but while the work was being completed, the manufacturing operation had to be shut down and the office staff had to lease temporary space for two weeks. The company was able to document lost income of $5,000 in addition to the extra costs of $2,000 attributed to the temporary location.
• The storm caused the river to overflow its banks. Although most of the main building remained dry, a storage shed containing marketing materials was flooded. The cost to repair the building and to replace the marketing materials was $12,000.
• BBI's president appeared on a local TV station and advocated a liberal political agenda: providing free college education supported by tax dollars. In response to this, a group opposed to these ideas marched around the BBI plant and pummeled the building with rocks, breaking most of the first story windows, doing about $3,000 of damage in the process.
• Although the New Madrid fault has been dormant for 100 years, it came back to life with a vengeance. Shortly after BBI repaired the damage done by vandals, a 7.0 magnitude earthquake hit the area. Although no structural damage was done to the main building, several windows were broken and shelves holding materials used in making the statues collapsed. The total tab this time was about $10,000.

Questions

1. Review the Commercial Property policy to determine if the tornado damage is covered. Note that the Special Form is an all risks insuring agreement: it covers all perils not specifically excluded. So you will need to review the exclusions in order to answer this question. Address each of the three causes of loss separately.
2. For those parts of problem 1 that are covered, how much would the policy pay? You may want to pay particular attention to how the deductible applies.
3. Is the storage shed that was damaged by flood waters a covered building? How should BBI ask for the policy to be written to make sure this structure is included?
4. Assuming the issue in question 3 is resolved in BBI's favor, does the commercial property policy provide coverage for this loss?  Why or why not?
5. Does the policy provide coverage for the vandalism loss? If so, how much would BBI receive from the insurer?
6. Does the policy cover earthquake damage? If not, what kind of policy should BBI purchase to cover this peril?