ISO Equipment Dealers Coverage Form

ISO EQUIPMENT DEALERS COVERAGE FORM ANALYSIS

(August 2018)

 

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INTRODUCTION

The Insurance Services Office (ISO) Equipment Dealers Coverage Form insures the named insured's stock of merchandise that consists primarily of mobile agricultural and construction equipment as well as the similar property of others that is in its care, custody, or control. It may be written on a reporting or a non-reporting basis and covers equipment that is inside and outside of buildings at the named insured's premises, while in transit, and while at other locations.

This coverage form was developed for equipment dealers, but it can be used by other businesses, such as department and discount stores. The coverage provided is very broad and is more practical to use than standard property coverage forms and policies.

ELIGIBILITY

Any business enterprise that primarily sells mobile agricultural and construction equipment is eligible. Other businesses, such as department and discount stores, can use this form but only for mobile agricultural and construction equipment. All other property must be excluded.

POLICY CONSTRUCTION

ISO Equipment Dealers Coverage requires at least these five forms:

Related Article: IL 00 17–Common Policy Conditions

Related Article: CM 00 01–Commercial Inland Marine Conditions

Note: Equipment dealers coverage may be issued as a stand-alone, monoline inland marine policy or as part of a commercial package policy.

CM DS 06–ADVISORY EQUIPMENT DEALERS DECLARATIONS

CM DS 06–Advisory Equipment Dealers Declarations contains the following information:

Policy Number

The policy number is entered in the space provided.

Effective Date

The effective date of coverage is entered in the space provided.

Premium for This Coverage Form

The premium for Equipment Dealers Coverage is entered in the space provided.

Limits of Insurance

Separate limits of insurance must be entered for each of the following in the spaces provided:

The address of the premises must be entered.

This limit applies only if the named insured acquires a premises during the policy period. Coverage applies for up to 30 days after the acquisition or until expiration, whichever comes first.

This is actually a catastrophe limit for all losses regardless of location. This limit must be closely monitored when changes are made to the limits above. If those limits are increased and this limit is not this limit will be a secondary cap reducing coverage for the policyholder.

Rates and Premiums

The following is entered in the spaces provided when coverage is written on a non-reporting basis:

The following is entered in the spaces provided when coverage is written on a reporting basis:

Deductible

The deductible is $500 unless a different amount is entered in the space provided.

Coinsurance

A coinsurance percentage or the words “No Coinsurance” must be entered in the space provided. The coinsurance percentage is 80% unless a different percentage is entered in the space provided.

Additionally Covered Property

Four additional types of property may be covered by entering a limit of insurance at the appropriate address for any or all the following:

Note: CM 99 01–Additionally Covered Property must be attached when entries are made in this section.

Special Provisions

Any special provisions are entered in the space provided.

 

EquipmentDealers_141

Types of property this coverage form can insure

CM 00 22–EQUIPMENT DEALERS COVERAGE FORM ANALYSIS

Note: This analysis is of the 01 13 edition. Changes from the 03 10 edition are in bold print.

Introduction

CM 00 22 opens by stating that certain provisions restrict coverage and encourages the named insured to carefully read the policy to understand what is covered, what is not covered, and to determine its rights and duties. It highlights that the insurance company uses the terms you and your to refer to the named insured that is shown on the declarations and the terms we, us, and our to refer to the insurance company that provides coverage. It also directs attention to Section F–Definitions because understanding the specific terms in the policy is critical to understanding the coverage and exclusions that apply.

A. Coverage

The insurance company pays for direct physical loss or damage to covered property from a covered cause of loss.

1. Covered Property

Mobile agricultural and construction equipment is covered if they are part of the named insured's principal stock-in-trade. This equipment is covered if it is owned. Similar equipment that belongs to others but is in the care, custody or control of the named insured is also covered.

2. Property Not Covered

a. Not all types of mobile and agricultural equipment are covered. Automobiles, motor trucks, and motorcycles are not covered. In addition, aircraft and watercraft are not covered.

b. Money, other currency, securities, evidence of debt, notes, accounts, bills, and deeds are not covered.

c. Property that is being manufactured is not covered.

 

Example: Ed of Ed's Equipment likes to tinker. He has an engineering degree, an active imagination, and lots of spare parts lying around the yard. He plans to build a machine that can perform a specific job. Ed figures he can patent it if it works and make a lot of money. While doing some welding in a large enclosed shed, a spark from the torch ignites the machine Ed is working on and destroys it. Ed escapes with his life and tries to submit a claim for that machine under this coverage form. The adjuster knows Ed well and investigates the claim carefully. Upon learning that Ed's invention is a piece of machinery being built, he denies the claim based on this exclusion.

 

d. Any property the named insured leases, rents, or sells is not covered but only after the named insured or a carrier for hire responsible for delivery no longer has custody of it. Property sold under a deferred payment contract is excluded even though the named insured may continue to have a financial interest in it.

 

Example: Ed sells a tractor to one of his long-time customers under a deferred sales contract. The customer pays 50% of the sales price and agrees to pay the balance over 36 equal monthly installments. A fire occurs at the customer’s yard and destroys the tractor before all payments are made. As a result, this coverage form does not cover Ed’s financial interest in the equipment.

 

e. The following property is not covered:

This property can become covered by entering the information needed on the declarations and attaching
CM 99 01–Additionally Covered Property.

f. Property of others that is listed on the declarations is not covered.

Note: The advisory declarations does not have spaces to describe such property. This may have to be done by separate endorsement.

g. Contraband is not covered. These are goods that are illegal to possess or that are legal but are in the course of illegal transportation.

3. Covered Causes of Loss

The covered causes of loss under this policy is direct physical loss or damage to the named insured's covered property. The only exceptions are those causes of loss that are listed and described in Section B.  Exclusions.

4. Additional Coverage–Collapse

Only abrupt collapse is covered under this coverage. What abrupt collapse is and is not is described below. 

a. As used in this coverage, abrupt collapse means that the building or part of the building must abruptly fall down or cave in. As a result of such falling down or caving in, the building or part of the building cannot be occupied for its intended purpose.

b. Payment for such abrupt collapse as described in paragraph item a. is for only direct physical damage to the covered property that is inside the building. However, payment is made only if one or more of the following cause the collapse:

·         Hidden decay. This applies only if the insured was not aware of the hidden decay prior to the collapse.

·         Hidden insect or vermin damage. This applies only if the insured was not aware of the hidden insect or vermin damage prior to the collapse.

·         Defective construction material or construction methods. This applies only if the collapse occurs after a building has been built, remodeled, or renovated and depends on one of the following contributing to the collapse:

o    Hidden decay or hidden insect or vermin damage as described above

o    One or more of any of the following listed causes of loss. However, loss by them applies only if they are insured against in this coverage form and only to the manner in which they are. Fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing devices, sinkhole collapse, volcanic action, breakage of building glass, falling objects, weight of ice, sleet, or snow, water damage, and earthquake are the causes of loss.

o    Weight of people or personal property

o    Weight of rain that accumulates on a roof

c. While this is additional coverage, it does not increase the coverage form's limits of insurance.

5. Coverage Extensions

a. Debris Removal

When a covered loss or damage produces debris, coverage is provided for the actual incurred expenses to remove that debris.

The payment is capped in two different ways. If either of the following results in the incurred debris removal expense not being fully compensated, an additional, per location, $10,000 is available for that expense.

·         The amount of debris removal expense is limited to no more than 25% of the sum of the deductible plus the physical loss that produced the debris.

·         A further capping applies. The amount of the covered loss plus its incurred debris removal expense cannot exceed the limit of insurance on the declarations.

The debris removal expenses must be reported to the insurance company within 180 days of the date of loss.

This coverage does not apply to costs to extract pollutants from land or water or to remove, restore, or replace polluted land or water.

Note: This coverage form has two detailed examples of how this coverage extension applies.

b. Pollutant Cleanup and Removal

When a covered cause of loss occurs that results in a pollutant event, the debris removal Extension above specifically excludes coverage for the cleanup. This Extension, however, pays to clean up the pollutants but only if the discharge, dispersal, seepage, migration, release or escape of the "pollutants" happens during the policy period. Only expenses that are reported within 180 days of the date of loss are paid.

The most paid is $10,000 per premises as an aggregate amount during each separate 12-month policy period.

This coverage does not apply to costs to evaluate the presence or effects of pollutants. However, it does pay for testing that is part of the extracting of pollutants process from either land or water.

This limit is in addition to the limit of insurance on the declarations.

 

Example: The brakes on one of Ed's older self-propelled harvesters fail during testing. The failure causes it to run through the fence at the back of the property and down an incline until it stops near a creek at the bottom of the hill. The crankcase ruptures and oil spills into the creek. This coverage responds to the necessary cleanup, subject to the limit, as long as Ed incurs the expenses and reports the loss to the insurance company within 180 days.

 

c. Theft Damage to Buildings

a. The named insured’s lease may make it legally responsible for theft damage to a building it occupies, or the named insured may be the building owner. In these situations, this coverage form provides coverage for the theft damage to the part of the building the named insured occupies and to building service equipment that is inside the building. Such damage resulting from attempted theft is also covered.

b. Coverage does not apply to loss or damage due to fire. It also does not apply to damage to glass or to any lettering or artwork on the glass.

Note: This coverage extension is included in the limit of insurance for the property at the covered location where the damage occurs. It is not in addition to it.

 

Example: Ed's building is badly damaged when a would-be thief decides to break in and steal spare parts by kicking his way into the building. He kicks through the garage door as well as through every door that leads to the sales area. When he kicks the door into the parts department, he loses his balance, falls, and breaks both his leg and his arm. He is apprehended, nothing was taken, and Ed recovers the cost to repair the doors.

B. Exclusions

1. Primary Exclusions

The causes of loss in this exclusion do not apply to loss or damage caused directly, indirectly, or in any sequence in a chain of events that contribute to the loss. Exceptions to the chain of events condition are stated in the specific exclusion subpart. Coverage form wording emphasizes that coverage for any loss event described in these exclusions does not apply even if the event is widespread.

a. Governmental Action

Coverage does not apply if the government seizes or destroys property. This exclusion has an exception. Coverage applies to loss or damage due to such ordered acts of destruction at the time of a fire to prevent the fire's spread. The exception applies only if the insurance provided by this coverage form covers the fire.

b. Nuclear Hazard

There is no coverage for loss or damage for anything related to nuclear hazards. Reactions, radiation, and contamination are not covered. This exclusion has an exception. There is coverage if the nuclear reaction, radiation, or radioactive contamination results in a fire. The exception applies only if the insurance provided by this coverage form covers the fire.

c. War and Military Action

This exclusion lists three specific warlike activities that are excluded.

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

d. Water

Loss or damage caused by water is excluded but not all types of water. Water, as used in this exclusion, is only flood, surface water, waves, tides, tidal waves, tsunamis, or overflow of any body of water or their spray, all whether driven by wind or not. Storm surge and material that is waterborne, moved, or carried by water in any way is also water. Coverage is excluded, regardless of whether the damage is due to an act of nature or otherwise.

This exclusion has an exception. If water, as described above, causes a fire, explosion, or theft and this coverage form would otherwise cover that fire, explosion, or theft, that fire, explosion or theft loss or damage is covered.

This exclusion applies to only property at the named insured's premises.

2. Secondary Exclusions

There is no coverage for loss or damage caused by the following exclusions. Note that the lead-in language is not as strong or inclusive for these exclusions as the language in 1. Broad Exclusions.

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

a. Delay, Loss of Use, and Loss of Market

Coverage under this form is direct damage coverage. Therefore, delay, loss of use, loss of market, or any other consequential loss is not covered.

b. Unexplained Disappearance

When covered property is gone and there is no obvious cause or explanation of what happened to it there is no coverage.

 

Example: Ed arrives at work on Monday after the business was closed over the weekend and one of his most expensive tractors is gone. There is no damage to the fence, no tire tracks, or anything to suggest what happened. It is like it simply disappeared. Ed has the purchase invoice and other paperwork to prove that he owns it but that is not enough to prove the loss to which this exclusion applies. Ed reports the loss to the police and hopes the excavator will turn up someday.

 

c. Shortage Found Upon Taking Inventory

Any loss that is discovered as a result of an inventory shortage and there is no explanation as to what happened to the property, similar to unexplained disappearance, is excluded. This is sometimes referred to as "inventory shrinkage."

 d. Dishonest or Criminal Acts (01 13 changes)

There is no coverage for loss or damage that is due to dishonest or criminal acts (including theft) from any of the following:

(1) Acts that the named insured, its partners, employees, directors, trustees, authorized representatives or managers and members of a limited liability company commit. This also includes such acts that leased workers and temporary employees commit.

(2) Acts of managers or members of a limited liability company, if the named insured is a limited liability company

(3) Acts by anyone with an interest in the property, their employees, or their authorized representatives. This also includes such acts that their leased workers and temporary employees commit.

Note: This edition removes item (4) in the previous edition that addressed others entrusted with property for any reason. It is re-introduced in newly added exclusion j.

This exclusion applies whether the persons act alone or in collusion with others or if the acts occur during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, leased workers, or temporary workers. However, loss due to theft of covered property by employees, leased workers, or temporary workers is excluded.

e. Processing or Work Upon the Property

Loss or damage that is caused by or that results from the actual processing or work being done on the covered property is excluded. There is an exception. When the processing or work being done results in a fire or explosion coverage applies to the loss or damage that fire or explosion causes but only if the fire or explosion are considered covered causes of loss under this coverage form.

f. Artificially Generated Current

Loss or damage is excluded when it is caused by results from artificially generated electrical, magnetic, or electromagnetic energy damaging, disturbing, disrupting, or interfering with any of the following:

Examples of this excluded energy are an electrical current, charges a magnetic or electromagnetic field produces, and microwaves but is not limited to just these. There are two exceptions:

g. Voluntary Parting

There is no coverage if the named insured or someone the named insured entrusts property to is tricked or deceived into giving property away.

h. Unauthorized Instructions

Coverage does not apply if a loss occurs because the covered property was given to another person or sent to another place based solely on unauthorized instructions.

i. Neglect

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

j. Theft (01 13 addition)

There is no coverage for theft committed by anyone entrusted with property. This exclusion applies whether a person is acting alone or is in collusion with others who committed the theft.

This exclusion applies 24 hours a day. This means that acts that occur during business hours are excluded as well as acts committed after hours.

This exclusion does not apply to covered property entrusted to carriers for hire.

Note: This exclusion was previously part of exclusion d. above. This change does not affect coverage. It makes the exclusion more visible.

3. Other Exclusions

The subparts of this exclusion are sometimes referred to as the anti-concurrent causation exclusions. These exclusions are unique in that, if a loss is covered as a covered cause of loss, except for these exclusions, it is still covered. On the other hand, if the loss would have been excluded anyway, it is still excluded.

Editorial Note: This coverage form does not title these exclusions. The titles given suggest the exclusion’s content.

a. Weather Conditions

Loss or damage due to weather conditions is excluded but only when the loss is caused by a weather condition combined with a cause of loss excluded in 1. Primary Exclusion above.

 b. Acts or Decisions

Governmental entities and related groups make decisions and take actions that not only affect others but may also cause loss or damage. Loss or damage that results from such acts or decisions is excluded.

c. Faulty, Inadequate, or Defective Planning

Loss or damage that is due to faulty, inadequate, or defective planning, design, materials, and maintenance is excluded. An important provision is that it applies both on and away from the designated premises.

d. Collapse

Note: Collapse is initially totally excluded here but limited coverage is added back in Section 4. as Additional Coverage–Collapse.

Collapse is excluded. This means the following property conditions are also excluded:

(1) Any type of sudden caving in or falling down

(2) When the structural integrity of the building is lost or compromised. The evidence of this could be parts of the property that separate from the rest of the building or the building appearing to be in danger of caving in or falling down.

(3) Cracking, sagging, expanding, settling, shrinking, bulging, or bending, but only as they relate to items (1) and (2) above

There are two exceptions to this exclusion.

e. Wear, Tear, and Other

Loss or damage caused by wear and tear is excluded. Damage caused by qualities in covered property that causes it to damage or destroy itself is excluded. Damage due to latent defect, gradual deterioration, depreciation, mechanical breakdown, insects, vermin, rodents, corrosion, rust, dampness, heat, or cold is also excluded.

C. Limits of Insurance

The limits on the declarations are the most paid for loss or damage in a single occurrence.

D. Deductible

The deductible on the declarations must be exceeded before the insurance company pays anything. Once the deductible is satisfied the insurance company will pay up to the limit of the insurance that applies. The deductible applies on a per occurrence basis.

E. Additional Conditions

1. Valuation

This valuation clause replaces General Condition F. Valuation in CM 00 01–Commercial Inland Marine Conditions.

Related Article: CM 00 01–Commercial Inland Marine Conditions

a. Unsold Property

This property is valued at the lowest of the following:

b. Sold Property

Property sold but that has not yet been delivered is valued at its net selling price after adjustments for allowances and discounts.

c. Property of Others

Property of others in the named insured's care, custody, or control is valued at the lowest of the following:

2. Additional Conditions

These conditions are in addition to those in IL 00 17–Common Policy Conditions and CM 00 01–Commercial Inland Marine Conditions.

Related Articles:

IL 00 17–Common Policy Conditions

CM 00 01–Commercial Inland Marine Conditions

a. Coverage Territory

The insurance company insures covered property anywhere in the United States of America, its territories and possessions, Puerto Rico, and Canada.

b. Coinsurance

This condition applies if there is a coinsurance percentage on the declarations.

The insurance company does not pay the full amount of any loss if the value of all covered property (subject to coinsurance) at the time of loss multiplied by the coinsurance percentage on the declarations exceeds the limit of insurance at all locations. The following are the steps the insurance company takes to determine the amount it pays:

Step 1: Determine the value of items, at the time of the loss, of all covered property. Exclude values that are in transit.

Step 2: Multiply Step 1 by the coinsurance percentage on the declarations.

Step 3. Divide the limit for the covered property subject to coinsurance by the result determined in step 2.

Note: Stop here if the result is 1.00 or higher because no coinsurance penalty applies. Go to Step 4. only if the result is less than 1.00.

Step 4. Multiply the total amount of loss, prior to deductible application, by the percentage determined in step 3.

Step 5. Subtract the deductible from Step 4.

The insurance company does not pay more than the amount determined in step 5. or the limit of insurance, whichever is less. It does not pay any remaining part of the loss.  

c. Records and Inventory

The named insured must keep accurate records of its business and maintain them for at least three years after the policy expires or is cancelled. As a minimum, records must include the following:

In addition, the named insured must conduct a physical inventory of its stock-in-trade at least once a year.

d. Protective Safeguards

When the named insured states that protective safeguards at a premises are in place, those safeguards must be maintained in proper working order throughout the policy term. This condition applies only whenever the business is closed. If the named insured fails to maintain the protective safeguards as required coverage is suspended until the equipment or service is restored to proper working order.

 

Example: Mabel is running out the door and calls back to her assistant, Paul, that he must secure the alarm before he leaves. Paul is welding at the time and does not hear her. Paul finishes the repair and leaves. He assumes Mabel is still working so he does not lock up or put on the alarm. Mabel is surprised to find the doors unlocked and the alarm not on when she opens the next morning. She is not happy when she walks in and finds the shop disheveled and many items missing. She turns in the significant claim and is extremely upset when she discovers that the entire claim has been denied because the protective safeguards had not been in working order at the time of the loss.

F. Definitions

There is one definition.

Pollutants

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

ENDORSEMENTS

ISO has developed three endorsements to use with the Equipment Dealers Coverage Form.

CM 99 01–Additionally Covered Property

This endorsement extends coverage to other property that consists of furniture, fixtures, office supplies, machinery, tools, fittings, patterns, dies, molds, models, improvements, and betterments. It has its own coinsurance provisions because of the number and types of additional property that can be covered. When this endorsement is attached, an entry must be made on the Declarations to show the limit of insurance, the type of property and the premises where coverage is to apply.

CM 99 02–Reporting

This endorsement is used when the named insured select coverage on a value-reporting basis. It provides details on when reports are to be submitted, how premium is calculated and adjusted, and the minimum premium. It also includes details on a final premium adjustment if the policy is cancelled, how coinsurance terms are re-introduced if reports are not submitted at all, and how losses are adjusted if reports are late. It provides for annual re-rating if coverage is written for more than a one-year term.

CM 99 03–New Business–Premium Adjustment

When this endorsement is used, the policy premium is computed based on anticipated business operations.  After the named insured has been in business for six months a new application must be submitted so that the insurance carrier can reevaluate the actual exposure and charge an equitable premium using rates that were in effect on the policy effective date.

UNDERWRITING CONSIDERATIONS

An equipment dealer typically has a significant on-premises property exposure. This means that the basic property underwriting considerations will apply.

Related Article: ISO Commercial Property Program Underwriting Considerations

 

If covered property is kept outside, fencing and other protection that is required to restrict access to the premises must also be evaluated along with key control and methods used to disable equipment to prevent theft. Repair work can represent a significant part of an insured’s revenue, so the safeguards are important. Flammable liquid control and separation of such liquids from heat-producing activities is important.