UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCollege of Business D E P A R T M E N T O F F I N A N C EFinance 431 Assignment 4Spring, 2008 Due: March 11,2008Larry, Curly and Mo Pipes, three brothers, founded Speedy Plumbing and Heating on January 1, 1995, as a partnership. They each worked for the company as repairmen. The company also had one other employee, Tanya, who handled the bookkeeping and clerical work. They stayed in business fortwo years and then went out of business in December, 1996. While they were in business, they had the following CGL insurance policies:Insurer CNAPolicy Period 1/1/95-12/31/95Type of Policy OccurrencePolicy LimitsGeneral Aggregate Limit $500,000Products and Completed Operations Aggregate $500,000Per Occurrence Limit (Coverage A and C) $250,000Personal and Advertising Injury* $250,000Fire Damage Limit $100,000Medical Expense Limit $25,000Insurer AIGPolicy Period 1/1/96-12/31/96Type of Policy Claims MadePolicy LimitsGeneral Aggregate Limit $1,000,000Products and Completed Operations Aggregate $1,000,000Per Occurrence Limit (Coverage A and C) $500,000Personal and Advertising Injury* $500,000Fire Damage Limit $200,000Medical Expense Limit $100,000*(this is the most the policy will pay under Coverage B for damages because ofpersonal injury and advertising injury sustained by any one person or organization)The company bought a Supplemental Extended Reporting Period tail for the AIG policy. For each of the following incidents, indicate which policy or policies (CNA or AIG) would cover this situation, which coverage would apply, and how muchthe policy would pay. If the AIG policy provides coverage, indicate whether thebasic policy, the BERP or the SERP applies.1. On January 12, 1995, Larry worked on cleaning a natural gas furnace for a customer. He evidently did not close the gas line completely because the next day a gas leak from the furnace caused an explosion that destroyed the house where he had worked. Speedy reported the incident to its insurer on January 15, 1995. On March 12, 1995, the customer filed a claim against Speedy. On December 15, 1995, the customer won an award for $500,000 against Speedy. 2. On April 17, 1995, Curly was working on some plumbing repairs at a chemical company when he accidentally opened the wrong valve, allowing some toxic chemicals to be released on the sidewalk in front of the chemical company. A passerby suffered severe injuries when breathing the fumes. Speedy reported the incident to its insurer on April 20, 1995. The passerby filed a claim against Speedy on May 1, 1995. On January 5, 1996, the person won an award for $200,000 against Speedy.3. On May 17, 1995, Speedy tries to increase business by running an ad in the local paper that compares its response time to that of the major plumbing firm in town, Turtle Plumbing. The ad states, "Speedy responds quickly! Turtle is real slow!" The ad copy shows a rabbit (named Speedy Plumbing and Heating) beating a turtle (named Turtle Plumbing) in a race to a house. On June 1, 1995, Turtle files a claim for defamation against Speedy. Speedy reports this claim to its insurer on June 5, 1995. On April 27, 1996, Turtle wins an award of $100,000 against Speedy.4. On June 10, 1995, Mo broke a pipe while working on a customer’s house,causing water damage throughout the house. Speedy reported this incident to its insurer on June 15, 1995. On January 20, 1996, the customer filed a claim for this incident. On September 15, 1996, the customer was awarded $300,000 for the damage the water caused to the house.5. On October 2, 1995, Larry installs a furnace at a customer's factory. Because the safety valve was inadvertently left off, on November 12, 1995, when the customer turns the heat on the furnace overheats and starts a fire that burns the factory down. It takes several months to determine that the faulty furnace installation was the cause of the fire. The customer files a claim against Speedy on March 1, 1996. Speedy reports the claim to its insurer on March 6, 1996. On February 27, 1997, the customer wins an award of $600,000 against Speedy.6. On February 19, 1996, Speedy Plumbers contracted with a general contractor on a building project to do some plumbing work. The contractspecified that if the work was not finished by December 1, 1996, Speedy would have to compensate the general contractor $50,000. The workwas not finished on time. The general contractor filed a suit for the damages on December 15, 1996. On April 2, 1997, the general contractor won an award for $50,000. Speedy did not report this incident to its insurer until March 15, 1997.7. On March 21, 1996, in order to install some pipes in a building that Larry and Mo are working on, they rent a crane. They are trying to get the crane back to its owner as quickly as possible, since they are paying an hourly rental fee, so they attempt to lift all the pipes at once. The cable snaps and drops the load of pipes, which falls on a person walking on thesidewalk. The pipes and the crane are damaged. Speedy reports this incident to its insurer on March 22, 1996. The owner of the crane files a claim against Speedy on March 23, 1996. On April 15, 1996, the crane owner wins an award of $350,000. The pipes that were damaged were owned by Speedy. These cost $30,000 to repair. On July 14, 1996, the person injured by the falling pipes files a claim for his injuries from this accident. He wins an award of $400,000 on March 14, 1997. 8. On April 30, 1996, a customer comes to Speedy's office to pay his bill. While walking to Tanya's desk, the customer trips over on a loose board and breaks both his legs. Speedy reports this to its insurer on May 5, 1996. The customer files a suit against Speedy on July 2, 1996. On July 15, 1997, the customer wins a bodily injury award of $300,000. 9. On September 17, 1996, Curly installs a sump pump in a customer's home, but does not connect it properly. On December 24, 1996, the sump pump fails to work, and the customer's basement fills with water, destroying his valuable baseball card collection. The customer files a claim against Speedy on January 10, 1997. Speedy reports this to its insurer on January 17, 1997. On December 3, 1997, the customer wins an award on $400,000 against Speedy.10. On December 10, 1996, Mo installs a natural gas water heater in a customer's home, but does not vent the heater properly. On April 15, 1997, a