AAIS Accounts Receivable Coverage

AAIS ACCOUNTS RECEIVABLE COVERAGE ANALYSIS

(August 2018)

 

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INTRODUCTION

The American Association of Insurance Services (AAIS) Accounts Receivable Coverage Form insures the named insured’s losses for amounts that are due from clients but that it cannot collect because of loss to records of accounts receivable. Covered losses include the following:

This coverage form is not used as much as in the past because Accounts Receivable Coverage is an additional coverage or an extension of coverage with significant sub-limits in many BOPs, COPs, CAPs, and other expanded commercial property coverage forms and policies.

Accounts receivable coverage should not be dismissed or treated as unnecessary before thoroughly and carefully reviewing it though. The coverage provided is usually broader than the coverage because it is written as Inland Marine which is broader and more flexible.

ELIGIBILITY

Any commercial account is eligible for Accounts Receivable Coverage. Businesses or other operations that regularly extend credit terms to their customers for purchases are the primary entities that purchase this coverage.

 

POLICY CONSTRUCTION

AAIS Accounts Receivable Coverage requires at least these four forms:

Related Article: CL 0100 AAIS Commercial Lines Common Policy Conditions

IM 1005–SCHEDULE OF COVERAGES–ACCOUNTS RECEIVABLE

This Schedule of Coverages is used with IM 1000–Accounts Receivable Coverage. IM 1005 contains the following information:

Schedule of Locations

Spaces are available to enter limits of insurance for the following:

Description of Storage Containers

Spaces are available to enter the following for each location that has a storage container:

Note: There is no coverage for accounts receivable outside of such storage containers when the business location is closed for business. This means that entries in this section must be accurate.

Optional Coverages

The only optional coverage available is the Named Customer Exclusion.

The name(s) and address(es) of customers excluded from this coverage must be entered in the spaces provided.

IM 1014–Named Customer Exclusion must be attached when entry is made in this section.

Optional Endorsements

If either of the following endorsement is to be attached the box next to its name must be checked.  If IM 1012 is selected, a percentage must also be entered.

Rates and Premiums

Accounts Receivable Coverage is usually written on a non-reporting basis. This section has spaces to enter the annual premium and the non-reporting rate per $100 that applies.

Rates and Premiums–Optional Endorsements

IM 1013–Accounts Receivable Reporting Conditions is an optional endorsement that provides coverage on a reporting basis. If it is attached, the selection for this endorsement must be checked and a reporting and adjustment period selected.

Note: The named insured can select a different period for reporting than the period it selects for premium adjustment.

Values must be reported for each location on the schedule of coverages. This section includes a provision that any additional premium developed after expiration based on reports of value submitted is due on the date of the billing invoice.

IM 1000–ACCOUNTS RECEIVABLE COVERAGE ANALYSIS

This analysis is of the 01 05 edition.

Agreement

This section states that the insurance company provides the coverage described in return for the named insured paying the required premium. This agreement is subject to all the coverage form’s terms, the schedule of coverages, and any additional conditions that apply. Endorsements or additional schedules identified on the schedule of coverages also apply.

A statement that certain words and phrases identified in bold print in the coverage form are defined in the Definitions section that is immediately following this Agreement.

Note: There is no clearly marked space on the schedule of coverages to list endorsements or additional schedules that apply at inception.

Definitions

Defined words are used throughout the coverage form. When these terms are used in the coverage form, the meaning provided in this section must be applied. Ten terms are defined:

1. You and your

The parties that are specifically named on the declarations as insureds.

2. We, us, and our

The insurance company that is providing the coverage.

3. Branch premises

A premises that is not named on the schedule but that is occupied by the named insured and from where records of accounts receivable are sent to a premises that is listed on the schedule of coverages.

4. Limit

The amount of coverage that applies.

Note: There is no reference as to what it applies; it just applies.

5. 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.

6. Schedule of coverages

Any page labeled as such that contains coverage information, including declarations or supplemental declarations.

7. Sinkhole collapse

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

8. 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.

9. Terms

These are all provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

10. 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 the covered property unless there is direct physical damage to the property. 

 

Example of an account receivable

Property Covered

The insurance company covers the property described below unless it is excluded or is subject to limitations.

1. Scheduled Premises

a. Coverage

Coverage applies to direct physical loss by a covered peril to accounts receivable that are within a building.

b. Coverage Limitation

Only accounts receivable located inside buildings that located at a premises that is listed and/or described on the schedule of coverages are covered.

c. Storage Limitation

After the premises has closed for business, coverage applies only for those records of accounts receivable that are in the storage containers listed on the schedule of coverages. The only exception to this limitation is that if the named insured or its employees are using them at the time of loss, coverage will continue to apply.

2. Transit and Premises Not Described

a. Coverage

Direct physical loss to records of accounts receivable are covered when in transit or at locations not listed on the schedule of coverages.

b. Coverage Limitation

Coverage applies for transit when a limit is entered in the Transit on the schedule of coverages and coverage applies for Premises Not Described when a limit is entered in the Premises Not Described space on the schedule of coverages.

3. Sums, Charges, and Costs That We Cover

The following apply to property covered under both item 1 and item 2 above.

a. Amounts that the named insured cannot collect from its customers after the loss, even though the amount is due.

 

Example: Joe's Antiques, Collectibles, & Junk sustain a covered loss and many of the records of accounts receivable are lost. His accounts receivable limit is adequate, and he is not subject to a coinsurance penalty. This coverage reimburses him based on How Much We Pay 2. Loss Settlement Terms if there is no other way that he can determine the amounts his customers owe him.

 

b. Interest charges on loans the named insured takes out to offset amounts that cannot be collected until the loss is adjusted and the insurance company pays the amounts it owes

 

Example: Joe's own accounts payable are coming due and his creditors are not very understanding of his situation, even though his insurance company is working hard to adjust his loss. Joe takes out a loan to pay his creditors until the accounts receivable loss is resolved and he is reimbursed. This coverage pays the interest charges Joe must pay as a result of taking out the loan.

 

c. Higher than usual collection costs when the reason for the higher costs is a result of the loss

 

Example: Joe hires a collection agency to track down some of his delinquent accounts that know about his loss and think they can avoid paying the balances they owe him. Several are found in various parts of the country but the expenses to locate them are significant. This provision reimburses Joe for those additional collection expenses.

 

d. All reasonable costs that the named insured incurs to reconstruct records of accounts receivable

 

Example: Joe's situation is unique, and it is difficult to reconstruct the records. Fortunately, it is not so difficult that the insurance company simply gives up and offers the policy limits instead of continuing to adjust the loss. This coverage provision pays to completely reconstruct the records and give Joe a "fresh start" on re-establishing and maintaining all his records of accounts receivable.

Property Not Covered

There is no coverage for the following property:

1. 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.

2. Property in Storage

Records of accounts receivable that are being held in storage away from locations listed on the schedule of coverages are not covered.

Coverage Extensions

There are two coverage extensions. 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.

1. Emergency Removal

a. Coverage

This covers direct physical loss to covered property that was removed from the scheduled location in order to avoid loss or damage from an impending covered peril. The loss can occur while in transit between the scheduled location and the sanctuary location. This coverage is unique in that the property that is being moved is not subject to any exclusion while in transit or at a sanctuary location. However, the reason for moving the property must be due to a covered peril.

b. Time Limitations

The named insured must notify the insurance company within ten days after it moves the property. Coverage does not extend past the expiration date. However, there is no other time limitation.

c. Coverage Limitation

This coverage is part of the applicable limit for coverage as Property Covered describes, not in addition to it.

Note: Coverage does not extend past the expiration date. If the named insured has property at an emergency location when coverage renews, the emergency location must be listed as a premises or coverage no longer applies.

2. Branch Premises

a. Coverage

Covered direct physical loss to the named insured's records of accounts receivable inside a building at a branch premises is provided. Such damage to such property while in transit between a branch location and a location listed on the schedule of coverages is also covered.

 

 

b. Limit

The most paid for any loss is 10% of the highest amount on the schedule of coverages for a described location.

 

Example: Carver’s Deli has 13 retail locations throughout the city, but all accounts receivable invoicing, and collections are handled at the downtown location. The only premises described on the schedule of coverages is the downtown location. The limit of insurance is $1,250,000. When records being sent from one of the branches are lost because the driver left them on the roof of the car and drove off, a $50,000 loss is incurred. The available limit is $1,250,000 x .10% = $125,000 which means the loss will be fully covered.

 

c. Coverage Limitation

The coverage provided by this extension does not increase the limit for accounts receivable at any of the locations listed on the schedule of coverages.

d. Separate Limit

This is a separate limit. It is not part of the applicable limit for coverage under Property Covered.

Perils Covered

Coverage applies to risks of direct physical loss unless the loss is limited, or an excluded peril causes the loss.

Other Coverages–Collapse

1. Coverage

Loss to covered property when caused by a direct physical loss that involves the collapse of a building or structure or any part of a building or structure containing covered property.

2. Covered Perils

The only collapse coverage provided is collapse caused by one of more of the following:

3. Collapse Means

Collapse is the sudden and unexpected falling in or caving in of a building or structure (or any part of it) that prevents the building from being occupied for its intended purpose.

4. Collapse Does Not Mean

The following buildings and structures are not considered to be in a state of collapse:

5. Coverage Limitation

This coverage does not provide any increase in the limit for covered property.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is 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 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 a civil authority destroying property as a means of controlling a fire causes the loss or damage. This exception applies only if the fire is the result of a covered peril.

b. Nuclear Hazard

The insurance company does not insure against loss or damage from any nuclear reaction, radiation, or contamination, whether the nuclear incident was controlled or not, or was caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke. However, coverage applies to direct loss or damage caused by fire that results from the nuclear hazard.

c. 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. Acts or Decisions

There is no coverage for loss caused by or that results from any acts or decisions by any person, organization, or government entity. This also includes failing to act or decide.

This exclusion has an exception. The act or decision, or the failure to act or decide, may result in a covered peril. In that case, the loss or damage that peril causes is covered.

b. Collapse

Loss caused by collapse is excluded.

This exclusion has two exceptions.

 c. Concealment

Coverage does not apply to loss caused by the named insured's acts of destruction, alteration, falsification, or concealment of the accounts receivable it is when done to conceal criminal, fraudulent, dishonest, or illegal giving, taking, or withholding of money, securities, or other property.

This exclusion is limited to the actual wrongful giving, taking, or withholding.

 

Example: A break-in at Composite Industries resulted in multiple acts of vandalism, removal of several items and loss of many records of accounts receivable. The value of lost records of accounts receivable is $75,000. The adjuster hired an investigator who discovered that the accounts receivable loss happened after all of the damage. Further investigation reveals that a bookkeeper had been embezzling money and decided to use the break-in to destroy evidence of her theft. The adjuster determined that all of the records had been intentionally destroyed by the bookkeeper and denied all coverage.

 

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, committed by any of the following 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 the custody of a carrier for hire.

e. Damage, Disturbance, or Erasure of Electronic Data

No coverage is provided for loss that is due to electrical or magnetic damage, disturbance, or erasure of electronic data or records but only when the result of any of the following causes:

f. Discrepancy

A loss that is discovered because discrepancies in books or accounting records are excluded when the discrepancy is the only evidence that a loss occurred. These discrepancies can be used to support a claim in cases where there is other evidence that a loss occurred but cannot be the only proof of a loss.

 

Example: Francis has been working on the books and cannot get her accounts and collections to balance. She has tried everything so concludes that the reason it cannot balance is because records of accounts receivable have been stolen. She notifies her boss and they submit a loss report to the insurance company. Because Francis cannot produce any evidence other than the balancing problem, there is no coverage and the claim is denied.

 

g. Errors and Omissions

Coverage does not apply to losses that result from bookkeeping, arithmetic, accounting, or errors and omissions in billings.

h. Fault, Defect, or Error

Loss or damage that is due to errors, faults or defects in planning, zoning, surveying, site plans, grading, compacting, land use, or development is not covered. Loss or damage due to property related design, blueprint, specification, workmanship, building, maintaining, installing, renovating, remodeling, or the repairing errors, faults or defects are also excluded.

An important provision is that this exclusion applies both on and away from the designated premises and applies regardless of negligence.

This exclusion has an exception. One of these events may result in a covered peril. In that case, the loss or damage that peril causes is covered.

i. Loss of Use

There is no coverage for loss that is the result of delay, loss of use, or loss of market.  

j. 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 two exceptions:

k. Unauthorized Instructions

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

 

Example: Mary received a call instructing her to take the account receivables to Marty. She did as instructed, and then returned to the office. Two days later, Mary tells her boss that Marty has not returned the records. Her boss is very confused because he never heard of a man named Marty. Any loss due to this transfer is excluded.

 

l. Voluntary Parting

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

m. Weather

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.

This exclusion has an exception. The weather conditions may result in a covered peril. In that case, the loss that peril causes is covered.

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: It is important to realize that any such costs incurred will 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 liens, and mortgage. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information including inventories, specification and estimates the company may require in settling the loss.

4. Examination

Examination of the named insured 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 and to inspect it.

7. Volunteer Payments

The named insured has the right to make payments, assume obligations, pay, or offer rewards, or incur other expenses. However, unless the insurance company has given written approval for such actions, the named insured cannot expect any reimbursement. The only exception is that the insurance company will pay for the costs incurred to protect property as item 2. above describes.

8. Abandonment

The insurance company decides when and if it will take ownership of the named insured’s property. The named insured is therefore not permitted to abandon damaged property to the insurance company until the insurance company agrees in writing to accept it.

9. Cooperation

The named insured must cooperate with the insurance company. Any actions required of the named insured within this policy must be performed.

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. Loss Settlement Terms

The insurance company pays the least of the following, subject to items 1., 3., 4., and 5. in this section:

o    Amounts that did not sustain loss or damage

o    Amounts that the named insured collected

o    Amounts established by another means

o    Amounts allowed for probable bad debts that the named insured usually cannot collect

o    Interest and service charges that are not earned

 

It may not be possible to establish the outstanding amount of accounts receivable at the time of loss. In that case, the total of the average monthly amounts for the 12 months leading up to the month when the loss occurred is determined. The total is then adjusted for any normal fluctuations or other demonstrated variances in amounts of accounts receivable in the month when the loss occurred.

3. Coinsurance

This provision applies to only losses that occur at a covered premises that is listed on the schedule of coverages.

The following items are not subject to coinsurance:

The insurance company does not pay the full amount of any loss if the value, at the time of the loss, of all accounts receivable (subject to coinsurance) at the premises where the loss occurred multiplied by 80% exceeds the limit of insurance at that premises. 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 at the loss premises that is subject to coinsurance.

Step 2: Multiply Step 1 by the coinsurance percentage of 80%.  

Step 3. Divide the limit for the covered property at the premises 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 the application of a deductible, by the percentage determined in Step 3.

Step 5. Subtract the applicable 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.

Note: This coinsurance applies per premises. If coinsurance is to apply over all premises, attach IM 1015–Coinsurance Provisions – Accounts Receivable.

4. Insurance under More Than One Coverage

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

5. 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 on 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 item 5. 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 it can be collected or not. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless this policy has a loss payee.

2. 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. Either the amount of loss is determined through a written agreement between the company and the named insured or after an appraisal award is filed with the company.

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

a. Your Death

This applies only when the named insured is an individual. When a named insured dies, the person who has custody of the named insured's property is an insured for that property until a qualified legal representative is appointed. Once the named insured’s legal representative is named, that person but only for the property covered under this policy.

b. Policy Period is not Extended

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

5. Liberalization

A revision of this coverage form or an applicable endorsement that takes effect during the policy period or within six months of when this coverage takes effect may broaden coverage without an additional premium charge. In that case, the broadened coverage applies to this coverage.

6. 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 any insured engaged in fraud or false swearing with respect to 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 a particular claim being denied.

7. Policy Period

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

8. Recoveries

The named insured pays the insurance company the total amount of recoveries it obtains for a loss the company paid. Recovery amounts that exceed the amount the company paid belong to the named insured.

Note: No statement is provided as to who pays the recovery expenses.

9. Restoration of Limits

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

10. 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 company secure those rights. The insurance company is not obligated to pay the loss if the named insured hinders or impairs its rights of subrogation.

The named insured has the right to agree in writing to waive recovery rights from any party if it does so before a loss occurs.

11. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been 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 that law’s provisions and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that state.

12. Territorial Limits

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

ENDORSEMENTS

AAIS has developed four endorsements to use with Accounts Receivable Coverage.

IM 1012–Duplicate Records

This endorsement adds a requirement that the named insured duplicate at least the percentage of accounts receivable stated on the schedule of coverages. The records duplicated must be maintained and kept for at least six months after they are duplicated.

IM 1013–Accounts Receivable Reporting Conditions

This endorsement replaces the coinsurance provision and provides coverage on a monthly, quarterly, or annual reporting basis. A different period can apply for reporting than the premium adjustment period. Values must be reported for each location on the schedule of coverages.

IM 1014–Named Customer Exclusion

When this endorsement is attached, an entry must be made on the schedule of coverages listing the names of customers whose accounts are not to be included as covered property. When used, the limit of insurance can be reduced by the value of those accounts without incurring a coinsurance penalty. It also means that no coverage applies if those records are lost and cannot be collected.

IM 1015–Coinsurance Provisions–Accounts Receivable

This endorsement revises the coinsurance provision to be based on all premises instead of only one. All other terms and conditions remain the same.

IM 1275–Calendar Date or Time Failure Exclusion

This endorsement excludes losses due to any electronic data processing equipment, computer program, software, media, or data failing to correctly recognize, interpret, or process any encoded, abbreviated, or encrypted date or time. It is attached only when selected on the schedule of coverages.

UNDERWRITING CONSIDERATIONS

The key element in accounts receivable coverage is duplication. The named insured should create at least partial duplicate records and maintain them for the usual amount of time that common practices in the line of business involved suggest. Storage arrangements are also important. Approved and rated storage receptacles provide greater protection against loss. Both duplication and using acceptable receptacles translate into rate credits that can reduce the premium costs for this coverage. Underwriting issues that are important in personal property coverage are also important considerations for this coverage. These include construction of the building the named insured occupies, the degree and extent of private and public protection, other occupancies in the building, and the nature of outside exposures.

Related Article: ISO Commercial Property Program Underwriting Considerations