AAIS Infrastructure Property Coverage

142.28

AAIS INFRASTRUCTURE PROPERTY COVERAGE

(February 2018)

 

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INTRODUCTION

The American Association of Insurance Services (AAIS) IM 7320– Infrastructure Property Coverage insures the physical parts of interrelated systems that provide for the basic needs of a community. Examples of the systems are the roads, communications, water supply, and the electrical grid.

ELIGIBILITY

Any individual, private enterprise, or governmental entity that has infrastructure property is eligible.

POLICY CONSTRUCTION

AAIS Renewable Energy Generating Equipment Coverage requires at least these four forms:

Related Article: CL 0100–AAIS Commercial Lines Common Policy Conditions

IM 7321–SCHEDULE OF COVERAGES–INFRASTRUCTURE PROPERTY COVERAGE

This schedule of coverages is used with IM 7320–Infrastructure Property Coverage. IM 7321 contains the following Information:

Policy Number

There is a space to enter the policy number.

Type of Covered Infrastructure 

There are five types of infrastructure listed, with a space for another that must be listed and described. Only one type may be selected and that is achieved by checking the box next to it. The following are the types of infrastructure that can be covered:

Described Facilities

This section has spaces to list the facility’s location, enter a description of it, and enter the limit of insurance that applies.

Catastrophe Limit

This section has a space to enter the catastrophe limit of insurance. It is the most paid in a single occurrence that involves one or more structures, equipment, facilities, buildings (if added by endorsement), or any combination of these along with Coverage Extensions, Supplemental Coverages, or Other Coverages.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $25,000 unless a different limit is entered.

Deductible

The deductible that applies is entered in the space provided.

Valuation

There are two valuation options. A box must be checked to select the one desired. The two options are:

Coinsurance

One of the following coinsurance options must be selected:

Income Coverage

Coverage

There are two income coverage options if coverage is selected. A box must be checked to select the one desired. The two options are:

Limit

The Income Coverage Limit must be entered in the space provided if one of the two income coverages is covered.

Waiting Period

A waiting period must be checked if one of the income Coverage options is selected. The two options are:

The number of days must be entered in the space provided.

Coverage Extensions

Two income coverage extensions are available. A box must be checked to select the one desired. The two options are:

The number of days other than the 30 days the coverage form includes must be entered in the space provided.

This section has two possible entries:

The limit other than the $10,000 limit the coverage form provides must be entered in the space provided.

The number of hours other than the 12 hours the coverage form includes must be entered in the space provided.

IM 7320–INFRASTRUCTURE PROPERTY COVERAGE ANALYSIS

This analysis is of the 06 12 edition.

INTRODUCTION

The terms "you" and "your" are the party(ies) identified on the declarations as the insured. "We", "us," and "our" is the insurance company that provides coverage. These are the only two definitions in this introduction. However, there are many other defined terms used in this coverage form. The other terms can be found in the Definitions Section at the end of the coverage form. It is very important to review these definitions because they can broaden or restrict coverage.

Agreement

The insurance company agrees to provide the coverage described in the coverage form and in the schedule of coverages. The named insured agrees to pay the premium. This entire agreement is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Property Covered

1. Coverage

Direct physical loss or damage to the named insured’s infrastructure property is covered if caused by a covered peril. Coverage also applies to similar property of others that is in the named insured's care, custody, or control.

2. Coverage Limitation

Coverage applies only while the above described property is part of a facility that is listed and described on the schedule of coverages.

3. Limit

A limit must be entered on the schedule of coverages beside a described facility. This is the most paid in a single occurrence for loss or damage to all infrastructure property at that described facility.

Note: The specific infrastructure property itself is not described or itemized.

4. We Do Not Pay

When the value of the infrastructure, despite having been repaired or replaced, is considered to have been diminished because of loss or damage, the insurance company will not pay for that diminishment.

Property Not Covered

Seven specific types of property are not covered:

1. Aircraft or Watercraft

Aircraft and watercraft are not covered. Unmanned Aerial Vehicles (AUV or drone) are aircraft and therefore not covered.

2. Buildings

No buildings are covered. The buildings that house the infrastructure that support the operation infrastructure are not covered. This extra wording is supplied to support the basic wording that buildings are not covered.

3. Contraband

Property that is illegal to possess is not covered. Property that is legal to possess but that is being used as part of an illegal trade or that is being transported illegally is also not covered.

4. Cost of Excavation

The costs to excavate, fill, backfill, or grade land are not covered. There is one exception. If covered property sustains a covered loss or damage below ground, coverage does apply to the excavation costs incurred that are necessary to repair, replace, or rebuild the property.

 

Example: A bulldozer being transported comes lose and strikes Muddville’s water tower. One leg of the structure is badly damaged and must be replaced. The cost to excavate in order to remove and replace the damaged leg is not covered because the damage was not below the surface.

5. Land

Land is not covered, even the land where the covered property is located.

6. Trees, Shrubs, or Plants

Lawns are not covered as well as trees, shrubs, or plants.

7. Vehicles

Any type of vehicle that is self-propelled and was designed for highway use – even if not licensed – is not covered.

Note: This property is more correctly insured under commercial automobile coverage forms.

Related Article: CA 00 01–Business Auto Coverage Form Analysis

Coverage Extensions

Provisions That Apply To Coverage Extensions

There is one coverage extension. The limit is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

Debris Removal

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension. Debris removal does not include any costs for removing, restoring, replacing polluted land or water or to extract pollutants.

There are two parts of the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss or damage. The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

Debris removal expenses must be reported to the insurance company within 180 days of the date of loss in order for this extension to apply.

 Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There is one supplemental coverage. It has its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension. They also are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

Pollutant Cleanup and Removal

The named insured's expenses to extract pollutants from land or water are covered if a covered peril that occurred during the policy period in any way caused their release or discharge. However, there are significant restrictions.

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

Testing for, evaluating, observing, or recording pollutants costs are excluded except for those required as part of a covered pollutant extraction process.

A per location 12-month policy period aggregate limit of $25,000 applies. This limit can be increased.

 Perils Covered

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by 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. Civil Authority

There is no coverage for a loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property but this exclusion is not limited to only these. The only exception is when the loss or damage is caused by a civil authority destroying property as a means of controlling a fire. This exception applies only if the fire is the result of a covered peril.

 b. Earth Movement

Coverage does not apply to any natural or man-made earth movement. This is regardless of the cause or whether the cause of the earth movement began at the covered property or if others’ actions caused it at the named insured’s request or for its benefit.

There are four exceptions:

c. Flood

The insurance company does not pay for loss or damage caused by flood or by material that the flood carries or moves. This exclusion applies even if the water is driven by wind such as a storm surge. Damage caused by material that mudslide or mudflow carries or moves is also excluded.

There are two exceptions:

d. Nuclear Hazard

The insurance company does not cover loss or damage caused by or that results from any nuclear reaction, radiation, or contamination. This is absolute and applies whether the nuclear incident was controlled or not, and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from the nuclear fire, direct loss or damage from that fire is covered but the damage from the nuclear hazard remains excluded.

 e. Ordinance or Law

There is no coverage for any loss or increased construction costs because of enforcing any government regulation that controls the use, construction, or repair of any property. This includes demolishing that property and removing its debris. This exclusion also applies to enforcement that occurs even if the property has not been damaged and to increased costs incurred as a result of complying with the regulation. This includes any construction, demolition, or debris removal activities.

f. Sewer, Septic Tank, Sump, or Drain Backup and Water below the Surface

Coverage does not apply to loss or damage that any of the following causes:

There are two exceptions:

g. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike action by a military force are all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against any such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it is the result of war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that results 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 results from any of these events.

a. Animal Nesting, Infestation, or Discharge

Loss or damage that is caused by or that results from any nesting, infestation, discharge, or release of waste products or secretions by animals is excluded. The term animal includes birds, insects, or vermin but is not limited to just these. If any of these excluded events results in a specified peril occurring, coverage applies to the loss or damage that specified peril causes.

 

Example: Several bats occupied the water tower at Mercy Hospital. Their waste products cause metal fatigue. The metal fatigue is not covered. However, when the tower collapses due to the metal fatigue and damages other covered water property, the loss to the other property is covered.

 

b. Collapse

Coverage does not apply to loss or damage caused by or that results from collapse. There are two exceptions.

 

Example: Mercy Hospital believes coverage should apply to the collapse of the tower itself because it was due to hidden vermin damage. The insurance company rejects its claim because it discovers documentation proving that Mercy was well aware of the bat infestation but did not take any action to repair the known damage.

 

c. Contamination or Deterioration

Loss or damage that is caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

There is one exception. If a covered peril occurs as a result of any of these, coverage applies to the loss or damage that covered peril causes.

d. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts that any of the following commit alone or in collusion with another:

Coverage applies if employees destroy property. It does not apply if employees steal.

This exclusion does not apply to covered property in a carrier for hire’s custody.

Coverage for this exposure should be purchased using a commercial crime coverage form.

Related Article: ISO Commercial Crime Coverage Forms and Policies Analysis

e. Defects, Errors, and Omissions

This exclusion applies regardless of where the error, omission, act, or defect originated and regardless of if being performed directly by the named insured or by others doing so based on the named insured’s request or for its benefit.

The insurance company does not pay for loss or damage caused by, that results from, or that consists of the following:

Note: Under this item, the coverage form states that any act, error, or omission in giving of improper instruction is also excluded but the wording is unclear as to intent.

There is also no coverage for loss to business personal property that defects or deficiencies in specifications, designs, workmanship, materials, or inherent or latent defects cause.

There is one exception. If an error, omission, act, or defect results in a covered peril, coverage applies to the loss or damage from that covered peril.

f. Electrical Currents

Loss caused by electrical arcing or currents is excluded unless the electrical is from lightning. There is one exception. When excluded arcing or currents results in a fire, any loss or damage from that fire is covered.

Another exception is that if power or other utility service is interrupted and a covered peril results causing loss or damage, that resulting loss or damage is covered.  

g. Increased Hazard

When loss or damage occurs because the hazard is significantly increased, this is not covered. This applies only if the named insured was aware of the increase or had control over it.

h. Loss of Use and Consequential Loss

Loss or damage caused by or that results from loss of market, delay, loss of use, or any kind of consequential loss or damage is excluded.

i. Mechanical Breakdown

Loss or damage caused by or that results from a mechanical breakdown or moving parts of machinery of machinery bursting or rupturing because of centrifugal force is excluded. However, if any of these results in a specified peril occurring, coverage applies to the loss or damage that specified peril causes.

j. Neglect

Coverage does not apply to loss or damage due to the named insured neglecting to use all reasonable measures to save covered property at the time of loss and afterward. There is also no coverage for loss caused by the named insured neglecting to use all reasonable measures to keep covered property from being endangered by a covered peril.

Note: It is always important to consider what the word “reasonable” means.

k. Pollutants

There is no coverage for loss caused by or that results from any release, discharge, seepage, migration, dispersal, or escape of pollutants. There are three exceptions:

l. Rain, Snow, Ice, or Sleet

Loss or damage that rain, snow, ice, or sleet causes to property that is in the open is excluded. There are two exceptions:

m. Settling, Cracking, Shrinking, Bulging, or Expanding

Loss or damage to pavements, footings, foundations, walls, ceilings, or roofs is not covered if it is caused by or that results from settling, cracking, shrinking, bulging, or expanding. The one exception is that if a specified peril occurs, the loss or damage that specified peril causes is covered.

n. Smog

Loss or damage that is caused by or is the result of smog is excluded. The one exception is that if smog causes a specified peril to occur, the loss or damage that specified peril causes is covered.

o. Smoke, Vapor, or Gas

Smoke, vapor or gas caused loss or damage is not covered but only if they come from industrial operations or agricultural smudging.

p. Steam Boiler Explosion

Loss or damage that is caused by the explosions of steam boilers, pipes, turbines, or engines is not covered if they are owned, leased or operated by the named insured or under its control.

There are two exceptions.

q. Temperature/Humidity

Loss or damage to covered property caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded. If any of these results in a specified peril occurring, the loss or damage it causes is covered.

r. Voluntary Parting

There is no coverage for loss or damage to covered property voluntarily given to others, even if the surrender was due to a fraudulent scheme, trick, or false pretense.

s. Wear And Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded.

Additional Property Not Covered or Subject to Limitations

1. Boilers

Loss to steam equipment such as engines, boilers, turbines, or pipes is not covered if caused by any condition or occurrence that is inside them. There is an exception that loss to such equipment is covered if an explosion of gas or fuel in a firebox, flue, or combustion chamber causes the loss.

Hot water boilers of heaters are not covered for any occurrence that is not the result of an explosion. Examples of such an occurrence are rupturing, bursting, or cracking.

2. Glassware/Fragile Articles

The breakage of glassware, porcelains, and other fragile articles is excluded unless the loss is caused by or results from a specified peril. The one exception is for loss that is part of covered property; it is not subject to this exclusion.

3. Missing Property

The unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to suggest what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. This exclusion does not apply to covered property in a carrier for hire’s custody.

4. Unauthorized or Fraudulent Transfer

When covered property is transferred or delivered from a described facility to a place or person outside a described facility there is no coverage when a loss occurs because it was based on fraudulent or unauthorized instructions. This is absolute and includes instructions that are transmitted by an owned or non-owned computer or by any other mode of telecommunications transmission.

Other Coverages

1. Collapse

The insurance company covers direct physical loss or damage that involves collapse as follows:

a. Coverage applies to collapse of covered property (or any part of it) if one or more of the following causes the collapse:

·         Specified perils as defined within this coverage form 

·         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.

·         Weight of personal property or people

·         Weight of water that accumulates on roofs

·         Defective construction material or construction methods. This applies only if the collapse occurs while the building is being built, remodeled, or renovated.

·         Defective construction material or construction methods. This applies only if the collapse occurs after a building has been built or remodeled and is caused by one of the first five causes of collapse listed above even though defective methods or materials may have contributed to the collapse.

 

Example A transmitting tower collapses. The investigation reveals that a recent renovation was poorly done and resulted in a hole being created that permitted decay to set in. The decay in the hole caused the collapse. Even though the hole was due to defective methods, the collapse is covered because it was due to the hidden decay.

 

b. This section defines collapse as it applies in this coverage form. It is whenever covered property (or any part of it) suddenly and unexpectedly caves in or falls in. The result of such an event must be that the property (or the part of it that collapsed) cannot function or operate as intended.

c. None of the following is collapse:

2. Tearing Out and Replacing

When the insurance company pays for a loss to infrastructure property that is caused by leaking water, other liquids, molten material, or powder it also pays for any cost incurred to tear out undamaged covered property in order to find the cause of the leak. In addition to paying for the repair of the torn out covered property, the insurance company will also pay to repair the damage to the appliance or system so that it no longer leaks.

What Must Be Done In Case Of Loss

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice to it be in writing.

2. You Must Protect Property

During and after a loss, the named insured must take all reasonable steps to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs to do so if the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: Such costs incurred reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after the company requests it. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured’s interest and the interest of others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must produce any records related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Records include tax returns and bank microfilms of all related cancelled checks but records are not limited to just these.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

The named insured may not voluntarily make payments, assume obligations, pay or offer rewards, or incur other expenses without the insurance company's express approval. If it does, it does so at its own expense. The only exceptions are those costs incurred to protect property as item 2. above describes.

8. Abandonment

The named insured may not abandon damaged property to the insurance company without its written consent.

9. Cooperation

The named insured must cooperate with the insurance company and perform all acts this coverage form requires.

Valuation

1. Replacement Cost

The value of covered lost or damaged property is based on the cost to replace it without a deduction for depreciation. It is limited to the cost to repair it with similar property, on the same site, and for the same purpose, but not for more than the named insured spends to repair or replace it.

Note: This does not mean that the property must be rebuilt on the same premises. It only means that, if the property is rebuilt elsewhere, the insurance company does not pay more than it would have paid to rebuild at the old premises.

This valuation does not apply until the named insured actually repairs or replaces the damaged or destroyed property. A claim can be made for actual cash value before the property is repaired or replaced. A claim for replacement cost valuation can be made later if the named insured informs the insurance company of its intent to do so within 180 days after the date of loss.

Replacement cost does not apply to items 3. and 4. below.

2. Actual Cash Value

Covered property’s value is based on its actual cash value at the time of loss when there is an entry for Actual Cash Value on the schedule of coverages. Actual cash value includes a deduction for depreciation.

3. Pair or Set

The value of a loss that involves damage to or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

4. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages.

3. Loss Settlement Terms

Subject to other items in this section, the insurance company pays the least of the following:

4. Catastrophe Limit

The most the insurance company pays in a single occurrence is the Catastrophe Limit on the schedule of coverages. This is regardless of the number of structures, equipment, described facilities, buildings (if this coverage form insures buildings), or any combination of these coupled with coverage that Coverage Extensions, Supplemental Coverages, or Other Coverages provides.

Note: It is very important to update the catastrophe limit when structures or added, values updated or new premises added. 

5. Coinsurance

a. When coinsurance applies to a coverage provided, the insurance company pays only part of the loss if the limit is less than the percentage of the value of the covered property on the schedule of coverages.

b. The following are the three steps to determine the amount of loss to be paid:

Step 1. Multiply the percentage on the schedule of coverages by the covered property’s value at the time of loss.

Step 2. Divide the covered property’s limit by the result determined in step 1.

Note: There is no coinsurance penalty if the result is1.00 or higher.

Step 3. There is a coinsurance penalty when step 2. is less than 1.00. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in step 2.

The insurance company does not pay more than the amount determined in step 3. or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If there is more than one limit on the schedule of coverages, this procedure applies separately to each limit.

d. If there is only one limit on the schedule of coverages, this procedure applies to the total of all covered property insured under that limit.

e. This coinsurance provision does not apply unless there is a coinsurance percentage entered on the schedule of coverages.

6. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

7. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 7. a. above. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has the following four loss payment options if a covered loss occurs.

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company must notify the named insured of its intent to rebuild, repair, or replace within 30 days after receiving a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. The amount of loss is determined by either a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company has the option to adjust and pay losses that involve property of others either to the named insured acting on the property owner’s behalf or to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured when it pays the property owner. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on a covered claim’s value. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine a disputed claim’s value. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and give their appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within that time period, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the claim’s value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the umpire’s cost and other expenses equally.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

If the named insured dies, the person who has custody of the named insured's property is an insured until a qualified legal representative is appointed. The named insured’s legal representative becomes an insured once he or she is appointed. Both are insureds but only with respect to the property this coverage form insures.

b. Policy Period is not Extended

This coverage does not extend past the policy’s expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if it intentionally misrepresents or conceals a material fact or information. This means that the insurance is treated as simply having never existed versus denying a particular claim.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Paying the loss does not end the obligations of the named insured and the insurance company toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

11. Territorial Limits

Covered property must be located in the United States, its territories, and possessions, Canada, or Puerto Rico in order for coverage to apply.

Definitions

Certain terms within the policy are subject to unique definitions within this section. These terms may broaden or restrict coverage so it is very important to review this when evaluating coverage. Thirteen terms are defined:

1. Business

The named insured’s usual service or business operations that are related to its infrastructure services. Only such operations occurring on the described facility are considered business.

2. Earth Movement

This is a broad and expansive definition because of the nature of the property this coverage form insures. It means all of the following:

Movement of the ground, sediments, soil, strata, or substrates caused by an act of nature or by a man-made event. All of the following are considered earth movement but the term is not limited to only these:

Movement of the ground, sediments, soil, strata, or substrates caused by any act, error, or omission. All of the following are considered earth movement but the term is not limited to only these:

3. Facility

The premises or location that infrastructure property uses to provide private or public services.

4. Flood

A general but temporary condition where normally dry land becomes at least partially inundated.

The overflow can be the result of natural or artificial causes that could be by an animal, human, or natural forces.

 

Example: The wiring in a transmitter is destroyed because water unexpectedly flowed into and accumulated in it. The water accumulated because a family of beavers built a dam that blocked the nearby creek. This is considered a flood even though the proximate cause was the beavers building the dam.

 

 

This cause of the inundation may be due to an overflow of inland or tidal waters, waves, tidal waves, or tsunamis. It may also be due to spray from these that may be wind-driven or not.

Surface water runoff or unusually rapid accumulation is also flood, regardless of the source of the water.

Mudslide or mudflow is considered flood only when the cause is either surface water runoff or unusually rapid accumulation or waves or because water exceeded cyclical levels that would be expected.

5. Infrastructure property

This is the equipment and physical structures of an interrelated system that provides private or public service. Some examples of such services are water supplies, roads, telecommunications, and electrical grids but this is not limited to just these.

It does not include buildings that cover or house infrastructure property or buildings used to support infrastructure property’s operations.

6. Limit

The amount of coverage that applies to the insured property.

7. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants, and irritants. It includes, but is not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

8. Restoration period

This is the length of time the named insured should reasonably need to resume operations and restore its business to a level of service similar to the level that existed before the loss occurred. It begins on the date of physical loss or damage by a covered peril to property at a described facility. It ends on the date that the property should be repaired, replaced, or rebuilt or the date that business resumes at a new permanent facility, whichever is first. The policy’s expiration date does not limit this time period.

This term also means the increased period of time needed to comply with any law, ordinance, or decree in force at the time of loss that regulates any property’s construction, use, or repair or that requires demolishing all or any part of covered property that a covered peril damaged. However, there is no coverage for the costs associated with enforcing any law, ordinance, or decree that requires that the named insured or any other party address in any way the effects of pollutants.

This part of the definition applies to only IM 7322– Infrastructure Property Income Coverage Part Coverage Extensions 2. Off-Premises Utility Service Interruption if it is attached. In this application, the restoration period also is the reasonable length of time the named insured should need to resume its business. It begins on the date that a covered peril causes direct physical loss or damage to property that is not at a described facility owned by a utility, landlord, or another utility supplier. It ends on the date that the property should be repaired, replaced, or rebuilt. The policy’s expiration date does not limit this time period.

9. Schedule of coverages

Any page labeled as such that contains coverage information. Declarations and supplemental declarations are included.

10. Sinkhole collapse

A sinkhole is created when an underground opening is created by water acting on limestone or some other rock formation. The earth’s surface suddenly settling or collapsing into that sinkhole is sinkhole collapse. Sinkhole collapse does not include either the land’s value or the cost to fill sinkholes.

11. Specified perils

The named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, the weight of sleet, snow or ice and windstorm. Two terms need further explanation.

Falling objects does not include loss to personal property stored in the open. It also does not include damage to the interior of buildings or personal property stored in buildings unless a falling object first breaches the building's exterior.

Water damage is the sudden or accidental discharge or leakage of water or steam. However, it must be a direct result of a part of the system or appliance that holds the water or steam cracking or breaking.

12. Terms

All policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

13. Volcanic action

An airborne volcanic blast or shock wave. It is also ash, dust, and particulate matter along with any lava flow. The term does not include the cost of removing dust, ash, or particulate matter from covered property unless there is direct physical damage to the property. 

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the Infrastructure Property Coverage Form.

IM 7322–Infrastructure Property–Income Coverage Part

This endorsement is actually a coverage part. It is used to provide income (Earnings and Extra Expense) coverage.

IM 7323–Infrastructure Building Endorsement

This endorsement is used to insure the building(s) that covers or houses infrastructure property. It also insures buildings and personal property the named insured uses to support infrastructure property’s operations.

IM 7324–Infrastructure Building Schedule

This schedule is used with IM 7323–Infrastructure Building Endorsement. It has spaces to enter the facility number, the building coverage that applies, and the limits for that building coverage.

IM 7325–Earthquake and Flood Coverage Endorsement–Infrastructure Property Coverage

This endorsement is used to add earthquake and/or flood coverage.

IM 7326–Earthquake and Flood Schedule–Infrastructure Property Coverage

This schedule is used with IM 7325–Earthquake and Flood Coverage Endorsement–Infrastructure Property Coverage. It has spaces to enter the coverage(s) that apply, the limits for each coverage, and the deductible amount.

IM 7327–Sewer Backup Coverage–Infrastructure Property Coverage

This endorsement covers loss or damage caused by or that results from water or material that water carries that backs up, overflows from, or is discharged through a drain, sewer, sump, or septic pump. It also covers loss or damage caused by or that results from water or material that water carries beneath the ground’s surface.

UNDERWRITING CONSIDERATIONS

Introduction

The term infrastructure usually means the basic structures and equipment that are needed for the economy as a whole to function properly. Public works systems of governmental bodies, entities, or units and the resources required, the system’s basic framework or underlying foundation are considered infrastructure. There are five basic types of infrastructure.

Transportation Infrastructure

Transportation infrastructure involves instrumentalities of transportation such as the following:

Energy Infrastructure

Energy infrastructure involves a number of items that are familiar to nearly everyone:

Water Infrastructure

Water infrastructure includes some obvious and some more subtle items:

Communications Infrastructure

Communications infrastructure, like water infrastructure, has some obvious items as well as some that are less obvious. Many of these have transmission and receiver towers and above ground and underground transmission lines as well as structures, machinery, and equipment used to manage their processes.

Solid Waste Management Infrastructure

Solid waste management infrastructure basically disposes of what society throws away.

Earth measurement and monitoring infrastructure

This infrastructure is extremely specialized and deserves mention, even though it is not like the other five infrastructures outlined above.

Location Based Underwriting

There is obviously no one-size-fits-all, one and done, silver bullet underwriting approach because of the large number of types of property that infrastructure includes. The best approach is to apply the underwriting techniques that fit the particular type of property. Many of these exposures are at fixed locations and the Construction, Occupancy, Protection, and Exposure (COPE) approach is an appropriate starting point for them.

Related Article: Commercial Property Underwriting Considerations

Another approach is to apply the underwriting techniques that apply to specific types of property, such as radio and television transmission towers, electronic data processing equipment, and irrigation equipment.

Management

Infrastructure is generally a federal, state, county, or municipal responsibility. They all have the right to tax their citizens in order to pay for maintenance; often they are cash-strapped and unable to keep up with current plant failures let alone performing long-term maintenance goals. It is important to know the funding source for the property and the success of tax referendums or bond issues to pay for the infrastructure.

Public/Provide Partnerships.

Some public infrastructure projects are becoming public-private partnerships with long-term goals and long-term contracts. These should be carefully reviewed because of obligations of the public and the private side of the contract. Of particular interest should be the private entities background and history of providing the services required in the contract. If the public entity owns the structures and the private entity is responsible for the operations and maintenance, it is important to have appropriate oversight by the public entity.