CP 00 99–STANDARD PROPERTY POLICY ANALYSIS

(June 2019)

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INTRODUCTION

The Insurance Services Office (ISO) CP 00 99–Standard Property Policy is a self-contained, limited-option version of CP 00 10–Building and Personal Property Coverage Form. Coverage applies for only selected Basic Causes of Loss. CP 00 99 is a policy, not a coverage form. It has its own conditions and IL 00 17–Common Policy Conditions does not attach to it. This policy is far from “standard,” but it may be a great starting place for a startup or for a business with limited resources.

Note: If this policy is used to replace coverage written on CP 00 10, the named insured should be made aware of the reductions in coverage and be required to acknowledge them in writing. The signed acknowledgement should be placed in file.

CP 00 99–STANDARD PROPERTY POLICY ANALYSIS

This analysis is based on the 10 12 edition. Changes from the 06 07 edition are in bold print.

This policy opens by defining the terms "you or your" as the named insured and "we, us, and our" as the company that provides the insurance coverage. Named insured is not defined. As a result, it means only entities listed or named on the declarations. If a given entity is not listed, there is no coverage for its property, even if the property is described on the declarations. This policy has other words that have special meanings. They are defined in I. Definitions.

A. COVERAGE

CP 00 99 obligates the insurance company to pay for direct physical loss or damage to certain types of property. The property must be at a location listed or described on the declarations. However, this is not open-ended coverage. The loss or damage must be caused by one of the covered causes of loss in the policy in order for coverage to apply.

Coverage applies to only loss or damage that occurs at a definite place and time. There is no coverage for a loss event that is not tangible or that is not capable of being measured.

The reference to premises means that coverage applies to only property located in or on the premises listed or described on the declarations. This is the reason why the declarations is very important. Coverage does not apply if the location and type of property is not properly listed or described.

1. Covered Property

Covered Property is defined in two ways. First is a list of the types of property eligible for coverage. The second is a list of types of property not covered.

a. Building

Building is the first type of covered property. The following property is covered in addition to the actual building or structure listed on the declarations:

Completed additions. This means an addition to the described structure during the policy term is covered even though it did not exist at policy inception.

MedCheck

Example: The Middletown Medical Mall built a one-story addition for its growing operations and to add extra storage space. The addition was made during the policy period. It was considered building once it was complete and builders’ risk coverage no longer insured it.

Fixtures, including outdoor fixtures. Light poles, fences, satellite dishes, and similar property are considered fixtures. Indoor light fixtures, cabinets, and restaurant booths are also considered fixtures.

Example: The ceiling tiles, lighting, cabinets, and the sink in Middletown’s lunchroom are all considered part of building because they are fixtures.

Permanently installed machinery and equipment. The key word is permanently. Machinery or equipment that is placed permanently is considered building. If it is not, it is considered personal property. This is a very important distinction when rating and pricing the exposure as well as at the time of loss or damage. In most cases, the premium charge for property that qualifies as building is significantly lower than the charge for personal property. The difference is because permanently installed property is usually considered less vulnerable to loss. This distinction is also important when determining whether the coverage is the landlord or the tenant's responsibility, as well as with respect to coinsurance issues.

Example: The Magnetic Resonance Imaging (MRI) machine in the Middletown Medical Mall is building (not personal property) because it is permanently installed.

MRIMachine

Owned personal property used to maintain or service the building. Some property in this category appears to be personal property because it is portable but is treated as building property because of its relationship to the building. Property such as fire extinguishing equipment, outdoor furniture, floor coverings, and appliances used for refrigerating, ventilating, cooking, dishwashing, or laundering is not personal property. It is classified and treated as building property and should be listed as such. However, such listings are not necessarily exclusive. Other property used to service and maintain the premises not included on a list of property may still be treated as building property.

Example: Phil purchased his building for $100,000 and insured it for that amount. He later installed outdoor lighting fixtures for $10,000, a security system for $15,000 and bought lawn and plant maintenance equipment for $10,000 and kitchen appliances for $1,000. He had a loss and was surprised when informed that he was underinsured. He thought the building was worth $100,000 but the insurance company stated that its value was $136,000.

Two other types of property are covered. However, they are covered only if not insured elsewhere:

Additions being built. Alterations and repairs to the building or structure are also covered.
Any materials, equipment, supplies, and temporary structures situated on the described premises or within 100 feet of it. These are building only if they are to be used to make additions, alterations, or repairs to the specifically described building or structure.

Note: This coverage is provided because of the way most building owners work on their buildings. Repairs and alterations are often handled as time and money permits. The materials and property may be obtained early and kept on site until the repairs or alternations can be made. These materials would be considered business personal property without this item.

b. Your Business Personal Property (10 12 changes)

Business personal property is the next type of covered property. There are three distinct conditions property must meet in order for coverage to apply:

The named insured must own the property.

The property must be located or situated at any of the following:

In or on a building listed or described on the declarations
In or on a structure listed or described on the declarations
In the open within either 100 feet of the building/structure or 100 feet of the premises, whichever is greater
In or on a vehicle within either 100 feet of building/structure or 100 feet of the premises, whichever is greater

The property must be considered as personal property.

Note: A premises is not the same as a building. A premises is the land where the building is situated. This means personal property can be off the premises and still be covered. An example is personal property in a vehicle on the street in front of the premises. There is no coverage if it is parked down the street and over 100 feet away from either the building or the premises though.

Example: CP 00 99 considers a truck’s cargo to be personal property if all of the following apply:

The named insured owns the cargo.
The vehicle is within 100 feet of the building or the premises.
It is covered property under CP 00 99.

The following is considered personal property. Certain provisions in 2. Property Not Covered limit this otherwise inclusive listing. Personal property is:

Furniture and fixtures

This could include the same fixtures included as building property. If the named insured owns the building, the fixtures should be included in only the building coverage. This is because payment is limited to not more than the value of the property, even if it is covered in more than one place in the policy.

Machinery and equipment

This does not refer to permanent or mobile, but both are eligible for coverage. If the named insured owns the building, as well as the machinery or equipment, any permanently installed machinery and equipment should be covered as building, not as personal property. This is because duplicate coverage wastes premium but does not increase coverage.

Stock

This is as defined in I. Definitions.

All other personal property

This property is covered only if it passes a two-part test. The named insured must own it and it must be used in the named insured’s business.

Example: Middletown Medical Mall’s building has a large basement. Melvin (Middletown’s sole owner) has a large family that is rapidly outgrowing its home. Melvin decides to move some extra household items to the Middletown building’s basement instead of renting space in a storage facility. If a fire occurs, the Standard Property Policy does not pay anything for the household items damaged or destroyed. This is because the property is not used in the business, even though Melvin owns it.

Labor, materials, or services provided on personal property of others

Coverage applies to these components. However, the personal property of others is not covered.

Improvements and betterments

Improvements and betterments that the named insured cannot legally remove from a building have no value to the named insured except for their use value. As a result, coverage does apply but is only if both of the following conditions apply:

The improvements are in a building the named insured does not own.
The named insured must have incurred the expense to install the improvements but not be legally permitted to remove them.

Use interest is the value the named insured invested in the improvements. The value is based on the length of the lease agreement.

Related Article: Improvements and Betterments

Example: Tom’s Exotic Repairs leases a building to house his garage business. The lease is for 10 years with an option to renew for another 10. Tom installs $50,000 in improvements that he cannot remove and take with him if he moves out. The value of the improvements is pro-rated over the remaining part of the lease period if they are damaged in a covered loss. If the loss occurs on the day Tom opens for business, he should receive a claim settlement for the entire value. If the loss occurs near the end of the lease period, the amount he receives is much less.

Personal property of others

Coverage on this property applies only if the named insured is contractually obligated to provide the coverage. Agreements for leased office equipment generally require that the named insured cover it. This provision responds to that requirement. However, this coverage is superseded if coverage under Personal Property of Others applies.

c. Personal Property of Others (10 12 changes)

There is no coverage under Your Business Personal Property for Personal Property of Others, except for the coverage a lease agreement requires. All other personal property of others is covered only if there is a limit for this type of property on the declarations. Coverage applies for only personal property in the named insured's care, custody, or control and located or situated at any of the following:

In or on a building listed or described on the declarations
In or on a structure listed or described on the declarations
In the open within either 100 feet of the building/structure or 100 feet of the premises, whichever is greater
In or on a vehicle within either 100 feet of building/structure or 100 feet of the premises, whichever is greater

Personal property of others is not required to be used in the named insured’s business in order for coverage to apply.

Example: Melvin’s close friend is planning a surprise birthday party for his wife. He asks to store all of the presents and party supplies in Middletown Medical Mall’s basement. That property is covered if a loss occurs but only if there is a limit of insurance for personal property of others on the declarations.

Note: The named insured should be informed that any loss settlement is with the personal property's owner, not with the named insured. This coverage is not the same as Bailees Coverage.

3. Covered Causes of Loss

Unlike CP 00 10–Building and Business Personal Property Coverage Form and other property coverage forms, the causes of loss are built into
CP 00 99–Standard Property Policy. It includes only three automatically covered causes of loss. Additional causes of loss listed in CP 00 99 may be added by making entries on the declarations. If the named insured selects all of the available causes of loss options, the coverage is similar to that provided by CP 10 10–Causes of Loss–Basic Form.

a. Fire

5. Coverage Extensions

There are several coverage extensions that apply to covered property if 80% or higher coinsurance applies or if coverage is written on a reporting basis. They are limited to protecting property located in or on buildings listed on the declarations as well as property within 100 feet of the described premises either in the open or in or on a vehicle. Any exceptions to these requirements are stated in the specific extension of coverage.

Each extension provides additional limits of insurance. None is subject to the coinsurance condition.

Unlike other property coverage forms, the coverage extensions in CP 00 99 are limited to the state where the described property is located.

a. Newly Acquired or Constructed Property

Contacting an insurance agent to report a new acquisition is not automatic behavior. This extension gives the named insured some peace of mind coverage for new purchases. However, this coverage is not free. The property acquired must be reported and an additional premium paid starting from the date of acquisition.

Buildings

If building coverage is provided, this extension applies to new buildings the named insured owns and that are being constructed at a premises listed and described on the declarations. It also applies to buildings the named insured purchases at other premises are also covered if they are intended for a use similar to other scheduled buildings or as a warehouse. The maximum limit for any newly built or purchased building is $250,000.

Note: As stated above, the newly purchased building's use must be similar to that of existing buildings or be used as a warehouse. This limitation does not apply to buildings being constructed at a premises listed on the declarations. The insurance company accepts risks based on occupancy and should not be expected to automatically add a new location with a dramatically different occupancy than what is already on the policy.

Example: Lucky Larry’s Land Speculators owns 12 office buildings.

Scenario 1: Larry decides to purchase a restaurant building up for sale because of its dramatic architecture and location, location, location! A fire occurs two days after Larry acquires the property but before he has a chance to notify the insurance company. Larry expects coverage under this coverage extension. Coverage does not apply because the occupancy is not similar to that of other scheduled buildings.

Scenario 2: Larry decides to buy an office building just over the river from the rest of his buildings. Unfortunately, before he notifies his agent of the purchase a tornado destroys it. He discovers that he has no coverage under this extension because his recently purchased and damaged building was located in a different state.

The occupancy limitation does not apply to buildings being constructed at a premises already listed on the declarations.

Your Business Personal Property

If coverage is provided on the named insured’s business personal property, this extension applies to any and all the following:

Business personal property (newly acquired or existing) at newly acquired locations. Property at fairs, trade shows, or exhibitions is not covered.
Business personal property (newly acquired or existing) in newly constructed or acquired buildings at locations already listed on the declarations

Note: Newly acquired business personal property coverage at a described location is no longer automatically provided. This could be a significant reduction of coverage for businesses with rapid and constant turnover of stock. (10 12 change that removes coverage)

The maximum limit per building is $100,000.

This coverage extension does not apply to certain types of personal property of others that are in the named insured's custody on a temporary basis. If the reason the personal property is with the named insured is because the insured is installing or performing work on it, there is not coverage under this extension. In addition, if the personal property is part of the named insured’s wholesaling or manufacturing activities there is no coverage under this extension.

Note: Unlike the requirement under newly acquired building, there is no requirement that newly acquired business personal property be the same as or similar to existing business personal property. However, it must qualify as eligible business personal property.

Period Of Coverage

Coverage is provided on a very limited time frame. It ends on whichever of the following is earliest:

The policy expires
30 days after the property is acquired or construction on it begins
The date the property or value is reported to the insurance company

Note: This provision is occasionally applied with unfortunate and undesirable results.

Example: If Maynard’s Mall Mania acquires a building on 12/31/19 and the policy renews on 01/01/20, the newly acquired building is not covered as of 01/01/20.

This is especially important for the named insured that requests that the 30-day time period be increased to 180 days. Even then, coverage still ends on the earliest of the dates indicated above.

The construction date is the date the named insured begins constructing a new building. Because covered property does not usually include foundations, coverage and the 30-day limitation do not begin until construction above grade level begins.

The date that building and/or personal property was acquired is reported to the insurance company so that premium can be charged for the entire period it was covered. This extension is provided for the insured's convenience, but coverage requires a premium charge. It is better to owe premium than to have an uninsured loss.

b. Personal Effects and Property of Others

Coverage for business personal property can be extended to include personal effects that belong to the named insured, its partners, officers, members, employees, or managers. An important restriction of this part of the extension is that it does not cover theft.

Coverage also extends to property of others in the named insured’s care, custody, or control. However, this part of the extension does not have the theft limitation.

The most paid at a described location is $2,500. This is the most available, regardless of the number of persons involved and the value of the property lost. Loss adjustments that involve such claims are handled directly with the property's owner.

c. Valuable Papers and Records (Other Than Electronic Data)

This policy does not insure the cost to restore and replace valuable paper and records information. This coverage extension provides a small limit of insurance to pick up this cost but only for valuable papers and records not considered electronic data.

The limit is $2,500 at each location. Higher limits are available. The cost of research and duplication is considered additional coverage, but the blank material used for the process is covered under business personal property coverage and is NOT additional coverage.

Note: There are two options if the insured requires higher limits. One is to increase the limits for this coverage extension. The second is to use a separate Inland Marine Valuable Papers and Records coverage form. While increasing this coverage form's limits for this exposure may be simpler and less expensive, doing so means much more limited causes of loss plus the portability features of a floater form in a stand-alone policy. Both coverage forms should be compared carefully before recommending a particular coverage approach.

ISO Valuable Papers and Records Coverage Form

AAIS Valuable Papers and Records Coverage

d. Property Off-Premises

Business personal property tends to move around. This extension recognizes this fact and provides up to $10,000 as it does so. However, this coverage applies only to property usually situated at a described location that is away from the premises for a short period. The personal property can temporarily be at a:

Location the named insured does not own, lease, or operate
Storage location the named insured leases but only if the lease was made after the policy period began
Fair, trade show, or exhibition

If storage space leased during the policy period is still leased when the policy renews, it must be added to the policy as a separate covered location. Otherwise, coverage at that leased storage space ends.

This extension has two important limitations. It does not apply to property in or on a vehicle. It also does not apply to property the named insured’s salespersons possess unless the property and the salespersons are at a fair, trade show, or exhibition.

Inland marine coverage forms are available to cover off premises property, property in transit, or property at the premises of others for storage, service, or repair.

Related Article: Who Needs Inland Marine Coverage?

e. Outdoor Property (10 12 changes)

Under Property Not Covered, q. (2) excludes the following:

Fences
Radio and television antennas and satellite dishes
Trees, shrubs, and plants. Stocks of trees, shrubs, or plants held for sale or that are part of vegetated roofs are exempted. (10 12 change)

This coverage extension insures this property but only for loss or damage caused by or that results from the aircraft, explosion, fire, lightning, riot, or civil commotion causes of loss and those apply only if they are covered causes of loss under this policy. The limit of insurance is $1,000 in any one occurrence, subject to a maximum of $250 for any one tree, shrub, or plant.

The limit must be sufficient to cover both the damaged property’s replacement or restoration and its debris removal. (10 12 change)

Note: The 10 12 edition debris removal revision specifically states that it does not apply to removing anything this coverage extension insures.

The expense to remove the debris of any tree, shrub, or plant owned by others is also covered unless the named insured is a tenant, the landlord owns the tree, shrub, or plant, and the named insured occupies the premises. (10 12 addition)

An endorsement is available to include or schedule additional coverage for outdoor trees, shrubs, and plants.
CP 14 30–Outdoor Trees, Shrubs, and Plants allows the named insured to increase these coverage extension limits and schedule specific coverage for this property. CP 14 50–Radio or Television Antennas is available to increase limits on that property. In addition, inland marine coverage forms are available that provide both higher limits and broader coverage.

ISO Commercial Property Program Available Endorsements and Their Uses

Who Needs Inland Marine Coverage?

f. Non-owned Detached Trailers (10 12 change)

Business Personal Property coverage can extend to include coverage for non-owned trailers that meet all of the following conditions:

The trailer is used in the named insured’s business.
The trailer is at a premises listed on the declarations and be in the named insured's care, custody, or control.
The named insured is contractually responsible to pay for loss or damage to the trailer.

Note: Using the phrase "contractually responsible" is unusual and may be a preview of things to come in other areas of insurance that have been murky or unclear in the past.

However, there is no coverage for loss or damage that occurs:

When the trailer is attached to a motor vehicle or motorized conveyance, whether moving or not
During any hitching or unhitching operations. This applies even if the trailer is accidentally unhitched from a motor vehicle or a motorized conveyance.

The most paid under this extension is $5,000. Higher limits are available. This coverage is excess over any other insurance that covers such property, whether that insurance can be collected or not.

Note: The limit could be per-trailer or per premises. However, since there is no such statement, the limit should be applied per occurrence. If the named insured uses many non-owned trailers, the limit should be increased to reflect those values.

g. Business Personal Property Temporarily in Portable Storage Units (10 12 addition)

Business personal property temporarily stored in portable storage units is covered subject to the following criteria:

The unit is located either within 100 feet of the building or 100 feet of the premises, whichever distance is greater.
The storage unit is portable. It may be a detached trailer.
The unit is not used more than 90 days.
The coverage limitation within the causes of loss form with respect to sand, dust, sleet, snow, ice, or rain within a building or structure applies to any property inside the storage unit.

The business personal property is covered for not more than 90 days once placed inside the storage unit.

This coverage Extension is subject to a $10,000 sub-limit. It does not increase the limit for business personal property coverage. The sub-limit can be increased.

This is not duplicative or excess coverage so if a damaged item is covered elsewhere under this coverage form or by endorsement, there is no coverage under this extension for that item.
B. EXCLUSIONS

CP 00 99–Standard Property Policy has two categories of exclusions.

1. Primary Exclusions

The first group of exclusions applies whether or not the loss event results in widespread damage or affects a significant geographical area and is essentially absolute. Subject to specific exceptions, each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

a. Ordinance or Law (10 12 change)

Local governments develop ordinances and laws that relate to construction, remodeling, and repair of buildings. Most are not retroactive. As a result, existing buildings are grandfathered out of the ordinance until they must undergo renovations or repairs. When a substantial loss occurs and rebuilding, remodeling, or repair is necessary, the grandfathered laws activate and come into play. This exclusion states that the coverage form does not apply to any costs that must be incurred because the laws and ordinances are being enforced. The compliance with the ordinances or laws is also not covered.

This exclusion also states that coverage does not apply to the expense to remove undamaged portions of the building or to rebuild them. There is also no coverage for the additional cost to rebuild at a different location because ordinances or laws do not permit rebuilding the building at the existing location. Finally, it does not pay remodeling costs needed to bring the building up to current standards.

b. Earth Movement (10 12 change)

Earth Movement has five separate components:

(1) Earthquake includes any sinking, rising, or shifting of the earth directly related to the earthquake. The
10 12 edition adds tremors and aftershocks to this list.

(2) Landslide includes any sinking, rising, or shifting of the earth directly related to the landslide.

(3) Mine Subsidence applies to only man-made mines, whether the mine is operating or not. Mine subsidence coverage is an option that may be purchased separately. In some states, mine subsidence coverage is required to be offered in certain counties. If coverage applies to property located in Illinois, Indiana, Kentucky, Pennsylvania, or West Virginia, the laws in those states should be reviewed carefully to determine the way to handle this exposure.

(4) Sinkhole Collapse is covered but all other sinking, rising, shifting, eroding, contracting, or expanding of the earth is excluded. Loss or damage caused by or that results from water movement beneath the ground and poor soil conditions is also excluded.

However, if any of the events described above cause or result in a fire or explosion, the insurance company pays for the ensuing loss or damage the fire or explosion causes.

(5) Volcanic eruption is excluded unless fire, breakage of building glass, or volcanic action ensues. Volcanic action is considered airborne blasts and shockwaves, dust, ash, and particulate material the volcano emits, as well as lava flow. The costs to remove dust, ash, and particulate matter are excluded unless there is direct damage to the covered property.

Volcanic eruptions are unpredictable, cause widespread damage, and usually occur over a period of days. An eruption that takes place over a period of 168 consecutive hours is treated as one occurrence. This is very important to the named insured that has a substantial deductible for this coverage. Instead of a number of deductibles applying to multiple events, only one deductible applies to each 168-hour period. On the other hand, this also means that only one limit is available for all losses that occur within that same time period.

All aspects of this exclusion apply, regardless of whether or not nature or any other force causes the event. (10 12 addition)

c. Governmental Action

Coverage does not apply if the government seizes or destroys property. However, coverage does apply if the action taken was to prevent the spread of fire. This coverage applies only if the policy covers the fire the government is trying to stop.

Example: Phoebe’s Pharmacy is damaged when the Drug Enforcement Agency breaks down the door in order to confiscate controlled substances being grown in the basement. There is no coverage for the building damage and also no coverage for the stock because of the governmental action.

d. Nuclear Hazard

There is no coverage for loss or damage for anything related to nuclear hazards. Nuclear reaction, radiation, and contamination are excluded. However, the loss or damage that an ensuing fire causes is covered.

Note: CP 10 37–Radioactive Contamination provides either limited or broad coverage for radioactive contamination.

Example: An electrical power plant fueled by nuclear energy explodes, raining nuclear radiation and contamination on Hurryin’ Henry’s building and premises. There is no coverage for decontamination. However, coverage applies for the fire damage if the explosion rains flaming debris that damages Henry’s property.

e. Utility Services

Loss or damage due to utility failure is excluded if the failure begins away from the described premises. When the failure begins on the named insured premises, there is also no coverage if the source of the failure is on-premises equipment that supplies off-premises utility service to the described premises. Utility failure is loss of power, water, communications, and other utility services. It also includes lack of capacity and reduction in supply.

Utility services loss due to damage to equipment the utility owns that is on the named insured’s premises is also excluded.

Communication services include Internet, cellular, satellite, and other access services. Power surge that occurs because of the power failure is excluded. If power failure or surge results in a covered cause of loss, coverage applies to the damage that covered cause of loss causes.

Examples:

A fire at the Ellis Electric power plant causes a blackout. Marty’s Meat Locker loses refrigeration and some of his meat spoils. There is no coverage for the spoiled meat.
Looters figure out that Marty’s alarm system is inoperative due to the power outage, break in, and vandalize the premises. The vandalism loss is covered.
The Henrytown Hotel’s roof mounted satellite dish and its connecting lines are dislodged by a serious windstorm. Several scheduled meetings are cancelled because teleconferencing is not available. The resulting loss of income from the cancelled meetings is not covered because business income is not part of this policy.

Related Article: Utility Service Coverage

f. War and Military Action

This exclusion lists three specific warlike activities.

This can be a declared, an undeclared, or a civil war.

Military force of a warlike nature

These activities must utilize military personnel or agents of a government or other type of authority. The actions taken to thwart any of these activities are also considered war.

Insurrection, rebellion, revolution, and attempts to usurp power

Any government action taken to respond to such actions is also considered war.

Note: The words "terrorism" or "terrorist" are not in this exclusion.

g. Water (10 12 changes)

Note: This exclusion was changed in January 2009 by introducing mandatory endorsement CP 10 32–Water Exclusion Endorsement. The mandatory wording in that endorsement is now incorporated into this exclusion and CP 10 32 is no longer needed. Loss or damage caused by the action of water outside the building is excluded. To further clarify this exclusion, it is broken down into five separate components.

Each defines exactly what water means within this exclusion. It is any of the following:

(1) Flood. It is also surface water, tides, tidal water, and waves. Waves include tidal waves and tsunami. Overflow of any body of water is also excluded. A body of water is a natural or man-made river, creek, ocean, or lake. Spray from any of the above, wind-driven water, and storm surge are also excluded.

(2) Mudslide and mudflow which occurs when a sudden large volume of water mixes with unstable soil conditions and is excluded.

(3) A discharge, overflow or backup of water from sewers or drains. It is also such discharge, overflow or backup from sumps, sump pumps and any related equipment. Related equipment is not defined. In the 10 12 edition, the water can be discharged in other ways. A description of those other ways is not provided. In the 06 07 edition, the water had to come from a sewer, drain, or sump. In the 10 12 edition, it may also come from a sump pump or related equipment.

(4) Underground water that presses against, flows into or seeps through foundations, walls, floors, paved surfaces, basements, doors, windows, and other building openings.

(5) Waterborne material. This section introduces the term "waterborne material." Damage caused by this material carried by waters described in (1), (3), and (4) above is excluded. Damage due to material being moved or carried by mudslides or mudflow described in (2) above is also excluded.

ISO adds a paragraph that explains when this entire exclusion applies. It applies whether any of the events are caused by an act of nature or otherwise. In order to clarify the term "otherwise," ISO provides an example that uses the terms “dam,” “seawall," "levee," "boundary" or "containment system" and states that any of them failing to contain the water is an "otherwise" type situation. However, it is important to note that using this example format does not limit the exclusion to failure of only those specific items. The goal is to define the term "otherwise" as broadly as possible.

Much like other exclusions, if fire or explosion occurs because of any action of water, coverage applies to the loss or damage the fire or explosion causes. In addition, if a sprinkler leakage loss occurs due to these actions of water, coverage applies to the loss or damage the sprinkler leakage causes.

Sprinkler leakage coverage applies only if sprinkler leakage is a covered cause of loss on the policy.

Related Article: CP 10 65–Flood Coverage Endorsement

Example: Mud slides down the hill next to Tony’s premises and stops at his storage building. The building, which is hooked up with full heating and lighting, shifts on its foundation and mud engulfs the personal property inside. There is no coverage. However, if the shifting foundation causes the gas line to rupture and explode, coverage applies to the resulting damage the explosion or fire causes.

h. Fungus, Wet Rot, Dry Rot, and Bacteria

Loss or damage caused by or that results from the existence or any activity of fungus, mold, rot, bacteria, and other similar growing organisms is excluded. However, if the existence of one of them causes a specified cause of loss to occur, coverage applies to the loss or damage from that specified cause of loss.

This exclusion does not apply if the fungus, mold, rot, bacteria, or similar organisms result from a fire or lightning loss. It also does not apply to coverage that Additional Coverages f. Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria provides.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that result from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that result from any of these events.

Editorial note: ISO does not give titles to the following exclusions. To assist in the analysis, we have provided a title to help identify the exclusion’s main intent.

a. Artificially generated energy

Coverage does not apply if electrical, magnetic, or electromagnetic energy generated artificially causes damage, interferes with, disturbs, or disrupts:

Networks, devices, systems, wires, or appliances of an electrical or electronic nature
Cellular or satellite devices, appliances, systems, or networks

Examples of artificially generated energy include electrical current, charges a magnetic field produces, electromagnetic, and microwaves, among others, but this listing is not inclusive. However, loss or damage caused by a fire that results is covered.

Note: Open-ended exclusions like this have been largely ineffective when courts interpret them. The courts maintain that it is the insurance company's responsibility to be precise in its language since it authors the form.

Example: ABC Machine Shop’s wiring needs to be replaced but management keeps delaying the repairs. Due to the old wiring, a short circuit occurs and damages one of the machines. In addition, the short circuit generates sparks that ignite a nearby pile of greasy rags and starts a fire. There is no coverage for the machine’s electrical damage, but coverage is available for the subsequent damage the fire causes.

b. Rupture or bursting

There is no coverage for any rupture or bursting of water pipes unless due to a covered cause of loss. However, if sprinkler leakage is covered, coverage applies to the automatic sprinkler system rupturing or bursting.

c. Water or Steam Leakage or Discharge

There is no coverage for water or steam leaking or being discharged unless the system that carries the water or steam is first damaged by a covered cause of loss. There is an exception when sprinkler leakage coverage applies.

However, a covered leakage or discharge that continues for 14 days or more is also not covered.

Note: There is no mention as to whether or not the sprinkler leakage exception applies to the 14 days portion of this exclusion.

d. Steam boiler explosion

Loss or damage caused by steam boilers, steam pipes, steam engines, or steam turbines exploding is excluded. However, this exclusion applies only if the named insured owns, operates, leases, or otherwise controls them. If there is a fire or a subsequent explosion, coverage applies to the subsequent loss or damage.

e. Mechanical Breakdown

Machines regularly break down because of use. This is an anticipated cost of doing business that regular scheduled maintenance should prevent. As a result, mechanical breakdown is excluded. Rupture and bursting caused by centrifugal force is considered mechanical breakdown and is also excluded.

The exception to this exclusion is that if mechanical breakdown results in a covered cause of loss, the insurance company pays for the loss or damage it causes.

f. Neglect

There is no coverage if an insured does not use reasonable measures to save and preserve property from further damage during and after the time of loss.

Example: Kitty can’t believe that fire has ripped through her store. She sees only ashes and burnt items and weeps. She refuses to search for undamaged items and won’t allow anyone to even enter her store. She leaves the store unattended in order to reconnect with her chi. Four weeks later she is ready but by then all previously undamaged items have been destroyed by resulting mildew and mold. Kitty will be paid for the value of the items damaged by the fire but will be paid nothing for damage resulting from her neglect following the loss.

C. LIMITS OF INSURANCE

This section states the maximum limits the insurance company pays in any one loss. In most cases, the limit on the declarations is the total amount that can be recovered for a single loss. If an outdoor sign (whether attached to the building or not) is damaged or destroyed, coverage applies up to $2,500 per sign in each occurrence.

The limits provided for the following coverages are in addition to the limits of insurance for other coverages listed on the declarations:

Fire Department Service Charge
Pollutant Clean-up And Removal
Electronic Data

Insurance company payments made under Additional Coverages b. Preservation of Property do not increase the limit of insurance that applies.

Note: The limits for the coverage extensions are in addition to the limits of insurance on the declarations, even though this section does not specifically say so. The explanation of the limits is at the end of Coverage Extensions.

D. DEDUCTIBLE

The deductible is the amount of a loss that the named insured must pay. However, the amount of loss must be reduced by any coinsurance condition penalty before the deductible is applied. This becomes the adjusted loss amount.

The adjusted loss amount is compared to the deductible amount. If it is less than the deductible, the named insured is responsible for the entire loss amount.

Example: Paul’s Poultry has a $100,000 limit of insurance on Business Personal Property and a $1,000 deductible. The police quickly end an attempted break-in but not before the thieves damage the entry door and remove some processed chicken breasts. The loss to the door is $730. Paul pays for the repairs from his own funds because the amount of loss is less than the deductible.

If the adjusted loss amount exceeds the deductible, the insurance company pays the lesser of the amount of loss above the deductible or the limit of insurance.

Example: The thieves return to Paul’s two nights later. This visit is more successful, and they remove a significant amount of inventory. Their concern about getting caught prompts them to set a fire to cover their tracks. The fire loss totals $123,000. The amount of loss is $122,000 after applying the $1,000 deductible. However, the insurance company pays only $100,000 because that is the limit of insurance.

If the occurrence that causes the loss involves two or more items of covered property and each has its own separate limit of insurance, the occurrence deductible is applied only once.

Example: Joe’s Living on the Edge Restaurant’s building is damaged by fire. Joe insures the main building for $250,000, subject to a $1,000 deductible. He also has a garage at the rear of the main building insured for $25,000. The loss amounts are $125,000 on the main building and $10,000 on the garage. The loss payment on the main building is $124,000, based on the $125,000 loss reduced by the $1,000 deductible. The deductible is applied to the loss on the main building. The garage is not subject to a deductible and its $10,000 loss is paid in full.

An optional deductible endorsement is available. CP 03 20–Multiple Deductible Form is used to apply different deductibles to different coverages or types of property.

E. CANCELLATION COMMON POLICY CONDITION

Note: The cancellation condition is the most frequently regulator-mandated amended part of the policy. Most states have amendatory endorsements that explain the actual cancellation and non-renewal requirements.

1. The named insured can cancel the policy by notifying the insurance company in writing of its intent to do so. The notification must be sent prior to the cancellation date.

2. The insurance company must give the first named insured at least five days’ written notice before it cancels the policy.

Note: This is a major difference between this policy and other commercial coverage forms. CP 00 99 requires only five days compared to CP 00 90–Common Policy Conditions that gives 10 days’ notice for non-payment of premium and 30 days for all other reasons.

3. The insurance company delivers or mails the notice to the first named insured at the last known mailing address.

4. The notice must include the effective date of cancellation. That is the date that coverage ends.

5. Only the first named insured receives any unearned premiums. Refunds are on a pro rata basis when the insurance company cancels. The refund may be less than pro rata if the named insured cancels. Cancellation is effective as of the date on the notice even if a refund is not offered or made.

6. Proof of mailing is sufficient for proof of notice.

Note: This means that the insurance company is not required to get a signed notice of receipt from the named insured.

F. OTHER COMMON POLICY CONDITIONS

This section in CP 00 99 contains information that is in IL 00 17–Common Policy Conditions. The IL 00 17 is attached to almost all other commercial coverage forms and policies but not the CP 00 99.

1. Changes

This policy contains all agreements between the insurance company and the named insured. The first named insured must ask the insurance company to make any changes to policy terms. Changes are not effective however until the insurance company agrees to them and endorses the policy.

2. Examination of Your Books and Records

The insurance company has the right to examine any and all books and records that relate specifically to the insurance policy at any time during the policy period or up to three years after it expires.

3. Inspections and Surveys

The insurance company has the right to make inspections and/or conduct surveys. It then may also provide reports and recommendations to the named insured.

This right is intended for the insurance company’s benefit. The inspections and surveys are not intended to be safety inspections for the benefit of third parties or employees. They should not be viewed as either a warranty or a representation that the named insured complies with any safety or health codes.

This condition applies to the insurance company that provides coverage as well as to any rating advisory organization. The only exception to the inspection being only for the insurance company’s benefit is when the insurance company agrees to provide mandatory boiler, pressure vessel, or elevator inspections.

4. Premiums

The first named insured is responsible for paying the premium. It also receives any return premiums if the policy is adjusted or cancelled.

5. Transfer of Rights and Duties under This Policy

The named insured may not transfer its rights and duties without the insurance company’s written consent. However, there is an exception.

When an individual named insured dies, his or her rights and duties transfer to the named insured’s legal representative. This representative retains those rights and duties as long as he or she acts within his or her scope of duties as a legal representative. Any party that has proper temporary custody of the named insured’s covered property has all policy rights and duties with respect to it until a proper legal representative is appointed.

G. LOSS CONDITIONS

1. Abandonment

The named insured still owns the property after a loss and is responsible for all expenses associated with it. The insurance company decides when it will accept any ownership of the property. It can decide to never accept ownership.

Example: A sinkhole tilts the Moneybags Mega Mall and causes it to slide off its foundation. It affects a traffic lane on a major traffic thoroughfare and creates a major traffic obstruction. Moneybags informs Smarter Than We Look Insurance Company that it will accept a cash settlement and close the mall. However, Smarter Than We Look is not about to be taken in by this “offer” and refuses it. This means that Moneybags must either move the building back to its original position or arrange for it to be demolished. Moneybags is also responsible for all fines and penalties that the city assesses for the traffic obstruction.

2. Appraisal

The insurance company and the named insured may occasionally disagree on the value of property or on the actual amount of loss. The appraisal condition is designed to solve this problem. In the first step, one of the parties decides it has reached an impasse with the other party and makes a written request for an appraisal. Each party then hires an independent appraiser. Each appraiser must be both competent and impartial.

Example: Joe’s Living on the Edge Restaurant’s insurer is We Don’t Pay Nuthin Mutual. Joe and We Don’t Pay disagree on the roof’s value after a lightning strike causes damages to it. They both agree to submit the dispute to appraisal. Joe’s selected appraiser is his sister-in-law. We Don’t Pay’s totally impartial party does not have any appraisal credentials. Both appraisers are rejected. Joe’s selection is biased, and We Don’t Pay’s is not qualified.

The appraisers then choose an umpire. If they cannot agree on one, they can request that a judge of a court that has jurisdiction over the matter select one. Once all parties are selected and in place, each appraiser states the value of the property and the amount of loss. If both parties agree, the amount of loss is settled. Only disputed amounts are submitted to the umpire. Any decision made by any two of the three is binding on both the insurance company and the insured.

The expenses associated with this process fall outside the category of expenses the policy pays. The named insured pays the following costs or expenses. The insurance company does not reimburse it for them:

Its appraiser
Its equal share of the cost of the umpire
Its equal share of any other appraisal expenses

The insurance company pays the following costs and expenses. None of them reduce the limit of insurance:

Its appraiser
Its equal share of the cost of the umpire
Its equal share of any other appraisal expense

Example: A tornado seriously damages Francesca’s Finer Furniture. Francesca Fauntleroy owns the business and believes the value of the loss is $575,000. Low Loss Payment Mutual’s claim representative visits the site and determines the loss to be $345,000. The differences are significant and beyond negotiation, so Francesca sends a letter to Low Loss and requests an appraisal. Each party selects a qualified and impartial appraiser, but they cannot agree on an umpire, so they ask a local judge to select one. Francesca’s appraiser determines the loss to be $625,000 while Low Loss’s appraiser determines a value of the loss of $550,000. The umpire reviews their figures and agrees with Francesca on some items and with Low Loss on others. After all the figures are summed, the final appraised value is $610.000.

3. Duties in the Event of Loss or Damage

The named insured is expected to act reasonably whenever a loss occurs. Lack of action on the named insured’s part could end the insurance company’s obligation to pay the loss. The named insured must:

Notify the police or other law enforcement authorities if a law may have been broken. This requirement may sound obvious, but the circumstances of a loss may make this issue more complicated than it appears.
The insurance company has the right to refuse to pay the loss in a case where the named insured is not comfortable or not willing to call in law enforcement. The insurance company needs this requirement to protect its interests, which include being certain that the claim is legitimate as well as making sure there is a chance of finding and punishing the responsible parties.
Give prompt notice to the insurance company of loss or damage and describe the property involved. This notice is not a complete and thorough report. It provides just enough information for the insurance company to begin to process the claim and decide how to respond. Some court cases have challenged the meaning of "prompt." As a result, the best advice is for the named insured to send as much loss information to the insurance company as soon as it knows that a loss has occurred.
Describe how, when, and where a loss occurred as soon as possible after it occurs. This requirement is slightly different than the prompt notification obligation. This notice provides the details. This obligation helps the company determine if the loss is actually covered.

HOW is what actually caused the loss. The answer determines if the loss is covered.
WHEN is the exact time of the loss. Because coverage applies only if the loss occurs during the policy period, this information is very important. There is coverage if the loss occurs at 12:02 a.m. on the inception date. There is no coverage if it started at 11:59 p.m. the day before the inception date. In addition, accurate information on when the loss or damage occurred may help resolve whether the loss occurred suddenly or over a period of time. This is important. There is a distinction because sudden losses tend to be fortuitous and covered while losses that take place over a period of time may be maintenance issues that are not covered.
WHERE is important because most coverages require that the property be at a location or premises listed on the declarations. If the loss occurs somewhere else, the policy must be examined carefully to determine if any coverage applies at such locations.

Take appropriate steps to protect covered property from any further damage. The time to leave town is never immediately after a loss occurs. The requirement to protect property involves taking reasonable measures, not extraordinary or unreasonable ones. Covering property with tarps to protect against moisture damage, boarding up windows, and hiring security guards are examples of reasonable measures to take after a loss. Any expenses the named insured incurs are taken into consideration in the loss adjustment and settlement but paying these expenses does not increase the limit of insurance. Finally, the named insured should separate the damaged property from the undamaged property and set the damaged property aside for examination whenever possible.

Example: The front window of Anytown Appliances blows in during a violent thunderstorm. Flying glass, debris, and water badly damage the electronics on display. The police notify Anytown’s owner, Anton, and he notifies his insurance agent and the insurance company. Anton goes to the store after the storm ends to evaluate the situation. He worries because the security system is not operational. He boards up the window and contacts the alarm company. The alarm company recommends a security company that can provide extra security until the window is repaired and the alarm system is made operational. After making these arrangements, Anton examines the electronics, moves the damaged ones to the rear of the store, and begins to clean-up. The insurance company includes the expenses for temporary security and boarding-up the window in its loss adjustment and settlement.

Provide inventories of the damaged and undamaged property when the insurance company requests them. This includes quantities, costs, values, and the amount of loss claimed. This detailed information is important to properly adjust the loss and offer a fair settlement. The named insured controls the inventory and is responsible for supplying the information needed.
The insurance company has the right to verify that the information the named insured provides is accurate and correct. For this reason, it may inspect the property in order to prove the loss or damage. It may also examine the named insured's books and records that relate to the loss or damage. It can also take samples of the damaged and undamaged property and make copies of the named insured's books and records.

This condition requires that the insurance company be reasonable in its requests. Reasonable is not defined and the two parties might disagree about the intent of this condition. For example, the company may believe that repeat visits are necessary in order to be thorough. The named insured may believe that the company is employing delay tactics to slow down the settlement. The intent of this condition is to prevent the company from harassing the named insured, but it also benefits the insurance company. The way it is written means an uncooperative insured cannot claim that a single visit is sufficient for the loss to be adjusted and settled.

Show good faith in the truth and accuracy of a claim for loss by providing the insurance company with a signed and sworn proof of loss. This must be done within 60 days after the company requests it, along with any other information needed. The insurance company provides the necessary forms and instructions on exactly the information it needs.

Note: If the company's requests are unclear and the named insured is confused, any delay in providing the information cannot be used as an excuse to deny coverage.

Cooperate with the insurance company as it investigates and settles the claim.

In addition to the points outlined above, the insurance company has the right to examine any insured under oath. The examination can take place without another insured being present. It can be done as often as necessary with respect to anything related to either the insurance coverage or the claim itself. It can also include examining the named insured's books and records. In all examinations, the written document used to record the insured's answers must be signed.

Note: Loss investigation is a serious part of the insurance claims process. The insurance company must have complete access to information it needs to investigate and settle the claim. This may include information the named insured would rather not disclose. Claims adjusters want to believe their insurance customers are honest but the sheer number of incidents of fraud makes them cautious. While the insurance company cannot use intimidation or harassment, it must still be diligent in order to protect its assets and to prevent or limit fraud.

4. Insurance under Two or More Coverages

This policy may have two or more coverages that apply to the same loss. In that case, the insurance company does not pay more than the actual amount of loss or damage.

Note: Stated another way, the named insured cannot collect more than the total amount of the loss. This is consistent with the Principle of Indemnity. This condition is part of the CP 00 90–Commercial Property Conditions that is attached to all Commercial Property Coverage Forms except for this one.

5. Loss Payment (10 12 changes)

a. and b. The insurance company must use one of the four options below to settle a claim:

Pay the value of the lost or damaged property.
Pay the cost to repair or replace any lost or damaged property. This cost does not include any expense for increased cost due to any ordinance or law that regulates use, repair, or construction of any property being enforced or complied with.
Take all or any part of the property at an agreed or appraised value.
Pay to repair, rebuild, or replace the damaged property with property of similar type and quality. This payment does not include any expense for increased cost due to any ordinance or law that regulates use, repair, or construction of any property being enforced or complied with.

The value of the damaged or destroyed property or the cost to repair or replace the property is based on the terms of the valuation condition of the policy or any other provision that amends or replaces the valuation condition.

c. The insurance company must tell the named insured the option it will use within 30 days after it receives a properly prepared and signed sworn proof of loss.

d. Insurance is meant to indemnify, not reward. As a result, the insurance company does not pay more than the named insured's financial interest in the covered property at the time of loss.

e. The insurance company has the right to adjust claims for loss or damage to property the named insured does not own directly with the property's owner. However, the insurance company has the right to settle those claims with the named insured and allow the named insured to work with the property’s owner. Any settlement reached must satisfy all claims for the property because the insurance company pays only once. The most the insurance company will pay for such a loss is the property owner’s financial interest in the property.

f. The insurance company that provides the property coverage may decide to defend the named insured against suits due to claims brought by the property's owner. In such cases, the insurance company does so at its own expense.

g. The insurance company must pay the loss within 30 days after it receives the named insured's signed and sworn proof of loss. This obligation depends on the named insured meeting all policy conditions as well as the value of the loss being determined by one of the following:

The parties having agreed on the amount of loss
An appraisal award having been made

h. Buildings that abut one another often share a party wall. This wall separates the two buildings but is also part of each building. Loss settlements are not affected if the same insured owns all buildings. However, loss settlements may be more difficult if different insureds own the shared party wall.

When both building owners plan to repair and rebuild, the insurance company pays its named insured’s proportional share of the damage to the party wall. However, the insurance company pays the full value of the party wall if the named insured wants to rebuild but the other building owner does not. It then has the right to subrogate against the adjoining building owner.

Example: Paraguay’s Specialties shares a common building wall to the south with Mercy Me and to the north with Gilda’s Beauty Emporium. A fire starts at Gilda’s and spreads to Paraguay and Mercy Me. The loss is substantial. Paraguay decides to rebuild but Mercy Me is almost relieved to cash out and leave. Gilda’s is returning so Paraguay’s insurance company works with Gilda’s insurance carrier and each pays its share of that party wall. However, Paraguay’s insurance company pays the full amount for the wall on the south side and must decide whether or not to subrogate against Mercy Me for its share of that wall.

6. Other Insurance

There are times where more than one insurance coverage form or policy covers a specific loss. This condition explains how this policy responds in such cases.

a. If the named insured has other insurance subject to the same plan, terms, conditions, and provisions as this policy, the loss is shared proportionately. The insurance company’s share is based on the portion this limit bears to the total limits of all other insurance that covers the property on the same basis.

b. If there is any other insurance (this could be the named insured’s or another other party’s) that applies to a covered loss that is not as described in a. above, this insurance is excess. It pays only the amount that exceeds any other insurance, whether collectible or not, and whether it pays or not. The insurance company never pays more than the limit of insurance on the declarations.

Note: This condition is found on CP 00 90–Commercial Property Conditions that is attached to all Commercial Property Coverage Forms except for this one.

7. Recovered Property

Either the named insured or the insurance company may recover property after a loss is paid. The party that recovers the property must promptly contact the other and inform it of the recovery. The named insured has the right to decide whether to return the claim payment and keep the recovered property or allow the insurance company to keep the property. The insurance company is responsible for recovery expenses and any repair to the recovered property, subject to the limit of insurance.

8. Vacancy

Insurance companies are interested in insuring successful and ongoing businesses. Risk pricing contemplates an active occupancy. As a result, rates on vacant properties are heavily surcharged. Because vacancy is often discovered only after a loss occurs, the loss conditions dramatically limit coverage if the insurance company was not informed of the vacancy in advance.

a. Description of Terms

This condition has harsh penalties. As a result, it is very important to understand the definition of vacancy. If the named insured is a tenant, the only part of the building considered when analyzing vacancy is the portion it occupies. That portion is considered vacant if the business personal property on premises is not sufficient for it to conduct its customary operations.

Example: Miller’s Mini Mall has space for four tenants but has only one at the present time. Iggy’s Interior Innovations occupies 10% of the space. Miller is in negotiations to add new tenants, but none are close to committing and it has been over three months since the last one moved out. A small fire occurs in an unoccupied portion of the building and the smoke permeates Iggy’s space, causing a significant loss. This condition does not affect Iggy’s loss because he is a tenant and his space is considered occupied, not vacant.

If the named insured is the building owner or a general lessee, the entire building is considered in determining vacancy. The building is vacant unless at least 31% of the total square foot area is occupied.

Buildings under construction or being renovated are not considered vacant. Questions could arise as to how long a project can be considered under construction and under renovation. If a building is being renovated but the renovation involves only the owner working on the building in his spare time because he knows there are no tenants interested in it, how long will it be before that building is considered vacant?

b. Vacancy Provisions

Having defined vacancy, the vacancy condition can be stated. The insurance company does not pay for ANY LOSS OR DAMAGE if the building where it occurred was vacant or unoccupied over either of the following:

30 consecutive days before the loss or damage for losses due to vandalism if vandalism is a covered cause of loss
60 consecutive days before the loss or damage for losses due to any other covered cause of loss

These provisions apply whether or not the vacancy or unoccupancy begins before or after this policy’s inception date. However, coverage applies if the vacancy or unoccupancy is usual or incidental to the designated occupancy.

Example: Summer Daze is an ice cream shop open only from April through October. All inventory is removed from the building while it is closed with only the permanently installed equipment remaining. A loss occurred on January 25. Because the vacancy was usual to the occupancy the loss was covered.

Note: If the underwriters were not aware of this usual unoccupancy, the coverage could be denied under the misrepresentation condition.

Attaching CP 04 50–Permit Endorsement voids this condition.

Note: This vacancy penalty is much more restrictive than the corresponding condition in other commercial property coverage forms and policies. The client should be made aware of the differences.

2. Concealment, Misrepresentation, or Fraud

This policy is void if the named insured is involved in policy-related fraud. It is also void if ANY insured intentionally conceals, or misrepresents a material fact with respect to any of the following:

a. This policy

b. The property this policy covers

c. The named insured’s interest in the covered property

d. Any claim presented with respect to this policy

Note: This condition merits careful attention. Each state has its own philosophy as to what it considers concealment, misrepresentation, or fraud and what it believes is unacceptable by an insured with respect to these acts. This results in laws and amendatory endorsements that determine when the insurance company can void, cancel, or suspend coverage. This means that agents should discuss this matter with their clients.

Related Court Cases:

Insured's Material Misrepresentation in Application Warranted Denial of Coverage

Insurer Can Rescind Policy Based On Insured's Material Misrepresentations on Application

Insured’s Material Misrepresentation Entitled Carrier to Rescind Policy

This condition is part of CP 00 90–Commercial Property Conditions that is attached to all Commercial Property Coverage Forms except for this one.

3. Control of Property

This insurance is not affected by any acts or neglect by any person beyond the named insured’s direction or control.

If this policy covers more than one location, breach of this condition at one location does not affect coverage at another location where the breach did not exist at the time of loss.

CP 00 90–Commercial Property Conditions Form Analysis

4. Knowledge or Control

We will not pay for loss or damage while the chance of loss or damage is increased by any means within your knowledge or control.

During the period when chance of loss or damage has been increased this policy will not pay for any loss or damage under this policy. This applies only if either of the following applies:

The named insured is aware that the chance of loss or damage has increased
The named insured has control over what is causing the chance of loss or damage to increase.

Note: This is a very important restriction of coverage. It is very broad because it restricts all loss or damage without regard to the cause of loss or location. There is no similar restriction in other commercial property coverage forms and policies.

Example: Stephanie owns several buildings. A loss occurs at one of the buildings. An investigation reveals that a meth lab was operating in the building at the time of the loss.

Scenario 1: Stephanie had been told by her building superintendent that a tenant had a meth lab in his kitchen. Stephanie ignored the information. There is no coverage for the fire loss because a meth lab increases the chance of loss or damage and Stephanie had knowledge that a meth lab was operating.

Scenario 2: Stephanie had been told by her building superintendent that a tenant had a meth lab in his kitchen. Stephanie ignored the information. When a tornado destroys Stephanie’s building, coverage is denied because Stephanie had knowledge of the increased chance of loss or damage even though that increase had no impact on the actual loss that occurred.

Scenario 3: Stephanie had been told by her building superintendent that a tenant in Building 1 had a meth lab in his kitchen. Stephanie ignored the information. When a tornado destroys Stephanie’s Building coverage is denied because Stephanie had knowledge of the increased chance of loss or damage even though that increase was not in the building that was destroyed.

Note: Scenarios 2 and 3 could be challenged but the wording of the condition does support this approach.

5. Legal Action against Us

Legal action may not be brought against the insurance company unless both of the following conditions apply:

a. All policy terms have been completely met.

b. Such legal action begins within two years of the date of direct physical loss or damage.

Note: This condition is found on CP 00 90–Commercial Property Conditions that is attached to all Commercial Property Coverage Forms except for this one.

6. Liberalization

The insurance company may adopt revisions to this policy that broadens coverage without an additional premium charge within 45 days before or during its policy period. If it does, such broadened coverage immediately applies to this policy.

Note: This condition provides the full benefit of coverage upgrades that the insurance company makes without a premium charge. One reason it is important is that many insurance companies begin and try to renew policies well before the expiration date. This is in an attempt to reduce expenses, increase efficiencies, and comply with various state non-renewal laws. As a result, a given insured may not always receive the most current policy upgrade, even if it is effective for that renewal. This condition eliminates the need and the associated costs to endorse such policies to reflect upgraded coverage not subject to a premium charge.

However, the converse of this rule does not apply. Changes that reduce coverage or that are accompanied by a premium charge do not automatically apply.

Note: This condition is found on CP 00 90–Commercial Property Conditions that is attached to all Commercial Property Coverage Forms except for this one.

7. Mortgageholders

a. Mortgageholder is not defined in this policy except to state that trustees are included as mortgageholders.

b. The insurance company pays for covered loss or damage to buildings or structures to each listed mortgageholder in the order of precedence and as its respective interest appears. The mortgageholder must prove its interest at the time of loss.

c. The mortgageholder retains the right to receive loss payments even when foreclosure proceedings or similar actions are being taken against the named insured. However, once the foreclosure is complete all rights to this policy end because the named insured no longer has any interest in the property. Instead, the bank is the owner and its policy should respond.

d. If the named insured’s claim is denied because of its actions or because it failed to comply with any of the policy's terms and conditions, the mortgageholder retains its right to receive loss payments but only if it has done all of the following, as applicable:

Paid any premium due when the insurance company notified it that the named insured had not done so
Submitted a signed, sworn proof of loss within 60 days after the insurance company notified it that the named insured had not done so
Notified the insurance company of any change it knows of in ownership, occupancy, or substantial change in risk

Once the mortgageholder intervenes, the policy’s terms apply to it because it assumed the named insured's position.

e. If the insurance company pays the mortgageholder for a covered loss or damage but refuses to pay the named insured because of its actions or because it did not comply with the terms and conditions of the policy both of the following apply:

The mortgageholder’s rights under the mortgage transfer to the insurance company to the extent of the amount paid.
The mortgageholder’s right to recover the full amount of its claim is not impaired.

The insurance company has the option to pay off the entire mortgage, including any accrued interest. If it does, it owns the mortgage and the named insured must pay the remaining mortgage debt to the insurance company.

f. If the insurance company cancels the policy for non-payment of premium, it must give at least 10 days prior written notice to the mortgageholder before the cancellation takes effect. It must give at least 30 days written notice to the mortgageholder for any other reason.

g. If the insurance company decides to not renew the policy, it must give at least 10 days written notice to the mortgageholder prior to the expiration date.

8. No Benefit to Bailee

The named insured is the only person or organization that can benefit from this insurance, even if another party has custody of covered property.

Payments are made to the named insured but only for its financial interest in the property. There is no coverage for the time, labor, loss of use, or other potential loss of another party that has custody of covered property.

Note: This condition is found on CP 00 90–Commercial Property Conditions that is attached to all Commercial Property Coverage Forms except for this one.

9. Policy Period, Coverage Territory

Loss or damage must begin during the policy period on the declarations and occur within the coverage territory. The coverage territory is the state where the premises listed and described on the declarations is located.

The coverage territory in this policy is not as extensive as in the other commercial property coverage forms and policies because the territory does not expand beyond the state in which the listed premises is located.

Note: This condition is found on CP 00 90–Commercial Property Conditions that is attached to all Commercial Property Coverage Forms except for this one.

10. Transfer of the Rights of Recovery against Others to Us

This condition details how the right of recovery against another party or insurance company transfers to the insurance company after it pays the named insured for the covered loss or damage. This is also known as subrogation. Any rights of recovery against others that the named insured has transfer to the insurance company once it pays that party. Those transferred rights extend to the amount of payment made.

The party that receives payment and transfers its rights must do everything necessary to secure and protect the insurance company’s rights. It must not do anything after a loss occurs to impair them.

However, the named insured may waive its rights against another party subject to all of the following:

It must do so in writing.
It must do so prior to the loss.
It may be done after a loss but only if, at the time of loss, the party against whose rights have been waived is:

Someone that this insurance covers
A business firm the named insured owns or controls
One that owns or controls the named insured or that is the named insured’s tenant

Such waiver of rights does not restrict this insurance.

This is similar to a condition found in IL 00 17–Common Policy Conditions that is attached to almost all other commercial policies except for this one.

I. DEFINITIONS

1. Fungus

This term includes any and all forms of fungus. Mold, mildew, spores, scents, mycotoxins (or by-products that the fungus releases or produces) are examples of items considered fungus, but the term is not limited to only them.

2. Pollutants

This term refers to any solid, liquid, gaseous, or thermal irritant or contaminant. It includes smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.

Note: ISO uses this definition in all its coverage forms.

3. State

When the word state is used it means not only one of the 50 states but also the District of Columbia and Puerto Rico.

4. Stock

This is merchandise held for sale or in storage. Raw materials, goods in process, and finished goods are all considered stock. In addition, supplies that that will be used in the packing or shipping of stock is stock.

5. Unoccupied

This means that the operations or other customary activities of the occupancy are suspended but that the contents that pertain to the occupancy remain.

6. Vacant

This means that there are no operations or customary activities of the occupancy as well as no contents that pertain to the occupancy.

CP 00 99–STANDARD PROPERTY POLICY ANALYSIS

INTRODUCTION

CP 00 99–STANDARD PROPERTY POLICY ANALYSIS

3. Covered Causes of Loss

5. Coverage Extensions

This is not duplicative or excess coverage so if a damaged item is covered elsewhere under this coverage form or by endorsement, there is no coverage under this extension for that item. B. EXCLUSIONS

1. Primary Exclusions

2. Secondary Exclusions

C. LIMITS OF INSURANCE

E. CANCELLATION COMMON POLICY CONDITION

F. OTHER COMMON POLICY CONDITIONS

1. Changes

2. Examination of Your Books and Records

3. Inspections and Surveys

4. Premiums

5. Transfer of Rights and Duties under This Policy

4. Insurance under Two or More Coverages

6. Other Insurance

8. Vacancy

2. Concealment, Misrepresentation, or Fraud

3. Control of Property

4. Knowledge or Control

5. Legal Action against Us

6. Liberalization

7. Mortgageholders

8. No Benefit to Bailee

9. Policy Period, Coverage Territory

10. Transfer of the Rights of Recovery against Others to Us

I. DEFINITIONS

3. State

5. Unoccupied

6. Vacant

This is not duplicative or excess coverage so if a damaged item is covered elsewhere under this coverage form or by endorsement, there is no coverage under this extension for that item.
B. EXCLUSIONS