AAIS Mobile Equipment Dealers Coverage

AAIS MOBILE EQUIPMENT DEALERS COVERAGE ANALYSIS

(August 2018)

 

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INTRODUCTION

The American Association of Insurance Services (AAIS) Mobile Equipment Dealers Coverage was formerly called Implement Dealers Coverage. It covers losses incurred by mobile equipment dealers. The mobile equipment stock can include mobile agricultural and construction machinery along with equipment, material-handling machinery, and equipment. Vehicles that are designed for highway use cannot be covered and neither can aircraft or watercraft.

ELIGIBILITY

Dealers with stock of mobile agricultural and construction machinery and equipment, material-handling machinery and equipment, and similar related property, parts, accessories, and supplies are eligible. Stock of vehicles designed for highway use cannot be covered. Stock of watercraft or aircraft also cannot be covered.

 

POLICY CONSTRUCTION

AAIS Mobile Equipment Coverage requires at least these four forms:

Related Article: CL 0100 AAIS Commercial Lines Common Policy Conditions

IM 1155–SCHEDULE OF COVERAGES–MOBILE EQUIPMENT DEALERS

This Schedule of Coverages is used with IM 1150–Mobile Equipment Dealers Coverage. IM 1155 contains the following information:

Schedule of Locations

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

Note: The Catastrophe Limit caps the limit for all coverages at all locations. It is important to adjust this limit when changes are made in the other limits to prevent an unanticipated capping following a catastrophe.

Deductible

The deductible amount the named insured retains for each covered loss must be entered in the space provided.

Optional Coverages

There are two optional coverages. Each applies if there is an entry for it on the schedule of coverages.

The name of persons, firms, or organizations whose property is not to be covered can be scheduled.

Note: This may be used when items are covered under a floor plan policy or when a contractual relationship releases the named insured from insuring certain properties.

The peak season limit that is to be entered is the sum of the schedule of location limit above PLUS the peak season increase. This limit replaces the schedule of location limit during the peak season time period. 

The inclusive dates during which the coverage applies and the location number where coverage applies is entered in the spaces provided.

Note: The dates are very important because the peak season limit applies during only the scheduled dates. Once the dates are over, the schedule of location limit for the entered location applies.

Optional Endorsements

Two optional endorsements are available based on entries on the schedule of coverages.

This endorsement deletes the coinsurance provisions in the coverage form.

This endorsement extends coverage to additional classes of business personal property. Coverage applies only if a limit of insurance is entered in the spaces provided. The following coverages are available:

Replacement cost applies if a checkmark is entered in the space provided.

Rates and Premium

Mobile Equipment Dealers 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 Premium–Optional Endorsements

IM 1264–Reporting Conditions

This optional endorsement deletes the coinsurance provision and 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.

The available adjustment periods are monthly, quarterly, and annual.

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

The premium basis for reports of value is entered in the space provided.

The reporting rate per $100, the deposit premium, and the minimum premium must be entered in the spaces provided.

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 on the billing invoice.

IM 1150–MOBILE EQUIPMENT DEALERS 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. Flood

Flood is flood, but it also is surface water, waves, tidal water, and other overflow of bodies of water. It may or may not be wind driven. Spray from any of these is also flood regardless if driven by wind or not.

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. 

 

Examples of a mobile equipment dealer's stock held for sale

Property Covered

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

1. Premises

a. Coverage

The named insured’s stock and similar property that belongs to others but is in the named insured’s care, custody and control is covered for direct physical loss or damage caused by a covered peril.

 

 

b. Coverage Limitation

Coverage applies to only the named insured’s stock and similar property of others. The only stock covered is mobile equipment such as agricultural, construction, or material-handling equipment and related accessories and supplies. These items are covered only while at locations on the schedule of coverages.

 

Example: Maybelline’s Fine, Inc. has established a reputation for selling and servicing any type of vehicle that can be driven. She sells new and used automobiles, agricultural equipment, construction equipment, recreational vehicles, and motorcycles. Her mechanics service anything she sells. This equipment dealer coverage form insures only Maybelline’s stock of mobile and agricultural equipment and similar property of others. Other coverage forms and policies must cover the automobiles, recreational vehicles, and motorcycles.

 

2. Off Premises

a. Coverage

Coverage applies off premises but only for the applicable limits on the schedule of coverages. Loss or damage caused by covered perils to the named insured’s stock and similar property of others that are in the named insured's care, custody, or control and away from locations listed on the schedule of coverages is covered.

b. Coverage Limitation

Coverage does not apply while on a location that is listed on the schedule. Coverage applies only when the covered property stock is at another location or while it is in transit.

3. Newly Acquired Locations

a. Coverage

Coverage for physical damage to covered property at a newly acquired location when caused by a covered peril applies automatically when a limit is entered for Newly Acquired Locations on the schedule of coverages. Only covered property of the named insured or similar or related property of others is covered.

b. Time Limitation

While coverage that the newly acquired location is automatic, it applies for no more than 30 days. During the time period, the acquisition must be reported to the insurance company. If not reported, coverage ends at the end of thirty days. Coverage also ends once the location is reported to the carrier.

Note: This limitation does not state that coverage ends on this policy’s expiration date. This could imply that the 30 days of coverage continues even after the expiration date.

c. Additional Premium

This is not free coverage. The premium for the newly acquired location is calculated based on the date on which it was acquired.

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. Furniture, Fixtures, and Other Property

Office supplies, improvements and betterments, machines, tools, fittings, patterns, dies, molds, and models are not covered as well as furniture and fixtures.

Note: IM 1263–Personal Property Coverage can be attached to this coverage form to insure most of this property as well as other property not listed here.

3. Manufactured Property

Property that is being manufactured or assembled is not covered.

Note: Once it has been manufactured it can become covered property.

 

Example: Maybelline draws up plans for a machine that performs several functions. She imagines making a lot of money on her invention as she works on it in a large enclosed shed. A spark from the welding unit ignites some combustible material nearby and burns down and destroys both the shed and the machine. She submits a claim for the equipment under this Mobile Equipment Dealers Coverage, but it is denied based on this exclusion.

 

4. Money and Securities

Several types of property are not covered under this item. Accounts, bills, currency, food stamps, evidence of debt, and lottery tickets not held for sale, in addition to money, notes, or securities are all not covered.

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

Related Article: Commercial Crime Coverage Analysis

5. Property Leased, Rented, or Loaned

Coverage does not apply to any property that the named insured leases, rents, or loans to others.

Note: The statement in the form is “property that is leased, etc.;” it doesn’t say “while it is leased.”  This raises the question as to whether property that is available to be leased out is covered when it is not being leased, rented, or loaned to others. And if so, when does it become not covered?   

6. Property of Others

When the named insured has responsibility for the property of others because it is arranging for its transportation property or acting as a carrier for hire, there is no coverage for that property under this coverage form.

7. Sold Property

Property that has been sold remains covered until it is delivered. Coverage ceases upon delivery even if the property has been sold under an installation agreement.

 

Example: Maybelline sells a front-end loader under a deferred sales contract. The customer reports that the loader caught on fire and refuses to make further payment. The loss to the loader is not covered because it had been sold. The refusal of the customer to pay is Maybelline’s loss and is also not covered.

 

8. Vehicles, Aircraft, and Watercraft

Aircraft, watercraft, automobiles, trucks, and motorcycles are not covered property.

Other vehicles are also not covered property but only if designed for highway use.

Note: The other vehicles part is particularly important on this coverage form because it means that any mobile equipment that is designed for highway use is not covered. It is important to review any submitted list of items before scheduling because if a scheduled item is a vehicle designed for highway use, it is not covered. Remember it does not say that it is not covered if it is being used on a highway; it says it is not covered if it designed to be used on a highway regardless of how it is actually used. 

9. Property of Named Persons, Firms, or Corporations

Mobile equipment dealers may hold items on consignment or may have items insured under a floor plan coverage form. To prevent duplicate coverage, the property that belongs to the party listed in the schedule of coverages is not covered.

Coverage Extensions

There are four 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. Debris Removal

b. Debris removal does not include any costs for removing, restoring, replacing polluted land or water or to extract pollutants.

c. 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.

d. An additional $10,000 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.

e. The named insured must report debris removal expenses to the insurance company within 180 days of the loss date for this coverage extension to apply.

a. Coverage

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension.

b. We Do Not Cover

Debris removal does not include any costs for removing, restoring, replacing polluted land or water or to extract pollutants.

c. Limit

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.

d. Additional Limit

An additional $10,000 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.

e. You Must Report Your Expenses

The named insured must report debris removal expenses to the insurance company within 180 days of the loss date for this coverage extension to apply.

f. Coverage Limitation

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

Note: Item f. appears to contradict Item d. Item f. states that this coverage is included within the limit. However, Item d. states that $10,000 is available when debris removal expense plus the loss to property exceeds the limit.

2. Emergency Removal

a. Coverage

This covers direct physical loss to covered property that was removed from the scheduled location 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.

 

Example: A wildfire in the next county went out of control and officials warn all residents to collect their possessions and leave as quickly as possible. Maybelline arranges to move her most heat sensitive equipment to a warehouse outside the fire’s projected path. A flash flood washes the warehouse away the day after Maybelline’s equipment arrives and is stored. The damage to the equipment that the flood caused is completely covered because the equipment had been moved there to protect it from the wildfire.

 

b. Time Limitation

The named insured must notify the insurance company within ten days after it moves the property. Coverage does not extend past the policy’s expiration date.

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 policy’s 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.

3. Pollutant Cleanup and Removal

a. Coverage

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.

b. Time Limitation

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

c. We Do Not Cover

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

d. Limit

A 12-month policy period aggregate limit of $10,000 applies. This limit can be increased in the schedule of coverages.

e. This is a Separate Limit

This limit applies in addition to the applicable policy limit described under Property Covered.

 

Example: The semi-truck barrels onto Maybelline's property and plows through four pieces of equipment. Oil and gasoline pour out of the damaged equipment and into the ground and a retaining pond. This coverage responds to the necessary oil and gasoline cleanup, subject to the limit, as long as Maybelline incurs the expenses and reports the loss to the insurance company within 180 days.

 

4. Theft Damage to Building

a. Coverage

Coverage applies to direct physical loss or damage that thieves cause to the part of the building the named insured occupies. Thief-caused damage to equipment that is used to maintain or service the building is also covered.

b. Coverage Condition

This coverage applies only if the named insured owns the building or if it is legally liable to the building owner for this type of damage. The covered property must be in a premises that is on the schedule of coverages.

c. We Do Not Cover

Damage or loss that is caused by fire is not covered. Damage to glass, glass lettering, or glass decorations is also not covered.

d. Coverage Limitation

This is not additional insurance. Any payment is part of the limit for covered property.

Optional Coverage

This optional coverage applies only if the required entries are on the schedule of coverages.

Peak Season

This coverage applies only when a location number, limit, and period of coverage are entered on the schedule of coverages for peak season. The limit entered replaces the regular limit for the described premises, but it applies only during the inclusive dates entered on the schedule of coverages.

 

Example: Maybelline’s equipment inventory increases significantly twice a year. One period is from March 1 to April 15. The other is from August 15 to October 1. She doubles her limits of insurance during those time periods. Unfortunately, a very wet spring resulted in the amount of equipment on the premises still being very high on April 16 when a windstorm came through. Her limits of insurance had returned to normal even though her inventory had not. As a result, a coinsurance penalty reduced the amount of the loss she would have otherwise been paid.

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 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 or 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 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 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. Flood

The insurance company does not pay for loss or damage caused by flood.

There are two exceptions:

Note: This means that coverage applies to covered property in transit and at unlisted premises.

c. 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.

d. Sewer Backup and Water below the Surface

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

There are two exceptions:

Note: This means that coverage applies to covered property in transit and at unlisted premises.

 e. 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. Animal Nesting, Infestation, or Discharge

Coverage does not apply to loss or damage when it is due to nesting, infestation, discharge, or release of waste products or secretions by animals. The term animal includes birds, insects, and vermin but is not limited to only these.

This exclusion has an exception. If any of these excluded events results in a covered peril, the loss or damage that peril causes is covered.

c. Collapse

Loss caused by collapse is excluded.  

This exclusion has two exceptions.

d. 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.

 

Example: Vandals break into Maybelline’s and several outside items are damaged on their exterior, but some others are damaged because their gas is contaminated with sugar. The exterior damage caused by the vandals is covered because vandalism is not excluded. The damage due to contamination is excluded but because the proximate cause is vandalism, an argument could be advanced that because vandalism is covered the damage to the gas tanks is also covered despite the contamination exclusion.

 

e. 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.

f. Electrical Currents

There is no coverage for loss or damage that is due to artificially generated electrical currents damaging electrical apparatus or wiring that is inside the insured property. This exclusion applies only to the property that artificially generated the current.

This exclusion has an exception. Electrical currents may result in a fire or explosion. In that case, the loss or damage the fire or explosion causes is covered.

 

Example: Some smaller agricultural equipment is battery operated. Maybelline keeps them plugged in overnight, so they are fully charged for any customer who might want to try it during the next day. A power surge one evening overpowers the surge protector and fries four of the battery chargers. The damage to the chargers is not covered.

 

g. 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.

h. Loss of Use

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

i. Mechanical Breakdown

Loss that is due to mechanical breakdown is excluded. The only exception is that when such an excluded loss causes a covered peril then the resulting loss from that covered peril is covered.

j. 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.

 

Example: When Maybelline arrives at work on Monday she discovers that one of her most expensive excavators is gone. There is nothing to indicate that is was stolen because the fence is intact, and locks are in place. Maybelline can produce proof that she owns the excavator but has nothing to prove what happened to the excavator. Coverage is declined so Maybelline reports the loss to the police and hopes the excavator will turn up someday.

 

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 two exceptions:

 m. Process to Repair, Adjust, Service, or Maintain

When loss or damage is the result of a repair to, adjustment of, service of, or maintenance of covered property is excluded.

This exclusion has an exception. If any of the above actions result in a fire or explosion the loss or damage from the fire or explosion causes is covered.

m. Temperature or Humidity

Coverage is not provided when dryness, dampness, humidity, or changes and extremes of temperature cause or result in loss or damage to covered property.

This exclusion has an exception. If any of the above result in a covered peril the loss or damage from that peril is covered.

n. 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.

o. 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.

p. Wear and Tear

Loss or damage caused by wear and tear is excluded.

This exclusion has an exception. Wear and tear may result in a covered peril. In that case, the loss or damage that peril causes is covered.

 

Example: Jerry attempts to evaluate an old lawnmower. He pulls the cord to get the mower going and the cord breaks. The cord breaking is not a covered loss. However, the lawn mower, which does not have a safety-off switch, jerks away from Jerry and smashes into a shelf that holds a variety of accessories and other equipment. The shelf falls and many items on it are damaged. The damage to the cord and the damage to the lawn mower is not covered because of the wear and tear exclusion. However, the damage to the shelf and the parts and accessories on it is covered because that loss and damage was due to the shelf falling down.

 

q. 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.

Valuation

1. Property Valuation

The valuation of covered property is as follows, subject to 2. Pair or Set and 3. Loss to Parts below:

a. Property That Is Sold

Property that has been sold but has not yet been delivered is valued at its selling price. The selling price is then reduced by all standard discounts and allowances.

b. Property That Is Not Sold

The value of property that is not sold is its actual cash value at the time of loss. Actual cash is replacement cost new minus depreciation.

c. Property of Others

The value of property of others has two parts to it. The first part is the amount for which the named insured is liable to the owner. The second part is the value of the named insured labor and material that have been invested into that property. These two parts are added together.

If the valuation determined above is more than the actual cash value of the damaged property, the valuation is limited to only the actual cash value.

d. All Other Property

The value of all other covered property is its actual cash value at the time of loss. Actual cash is replacement cost new minus depreciation.

2. Pair or Set

The value of a loss that involves damage 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.

3. Loss to Parts

The value of a lost or damaged part of the 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

The insurance company pays the least of the following, subject to items 1., 2., 3., and 5. in this section:

 b. Catastrophe Limit

This applies only if a catastrophe limit is entered on the schedule of coverages.

When a covered peril causes loss or damage at more than one premises that is listed on the schedule, the most paid in a single occurrence is the lowest of either of the following:

Note: Whenever a catastrophe limit is entered it is very important to adjust it any time the other limits on the declarations are increased to prevent an inadvertent capping.

4. Coinsurance

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

The insurance company does not pay the full amount of any loss if the value, at the time of the loss, of all covered property (subject to coinsurance) multiplied by 80% exceeds the limit of insurance. 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.

5. 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.

6. 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. Loss Payment Options

a. Our Options

The insurance company has 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 of 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. The only exception is when a loss payee is on the policy.

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 either through 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 to either the named insured 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

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

Payment of 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 incurs 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 other limitation, any recovery is prorated between the named insured and the insurance company, based on the company's respective interest in the loss.

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 as long as 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.

13. Business Records

The named insured is required to maintain business records throughout the policy period and keep them no less than three years after the policy expires. An itemized inventory of stock that is updated annually through a physical inventory is also required.

The business records the named insured is required to maintain must include all of the following:

The insurance company has the right to request access to the business records and inventory as often as it chooses, and the named insured is required to comply. However, such requests must be considered reasonable.

Note: This condition is very unusual because it requires the named insured to maintain records in a prescribed way. It is common in all Inland Marine dealer coverage forms but not in commercial property coverage forms.

Additional Coverage Limitation

Premises Protection

The protective devices that are in operation as of the policy effective date are required to remain in proper working order throughout the policy term. Failure to have the device in place in working condition at the named premises results in automatic suspension of coverage at the location. Also, failure to place the device into operation when the business is closed will result in automatic suspension of coverage at the location where the device is not in operation. Coverage is automatically restored when the device is back in working condition or is in operation.

 ENDORSEMENTS

AAIS has developed four endorsements to use with Mobile Equipment Dealers Coverage.

IM 1261–Coinsurance Waiver

This endorsement deletes the coinsurance provisions from How Much We Pay.

IM 1263–Personal Property Coverage

This endorsement extends coverage to other personal property. This property consists of furniture, fixtures, office equipment and supplies; machinery, tools and their parts, patterns, molds, models, and dies. It also covers the named insured's interest as a tenant in improvements and betterments it makes to the premises it occupies. Entries must be made on the schedule of coverages.

IM 1264–Reporting Conditions

This endorsement adds reporting requirements and conditions to Additional Conditions and deletes the coinsurance provisions under How Much We Pay. Entries must be made on the schedule of coverages

IM 1273–Coinsurance Provisions

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

 UNDERWRITING CONSIDERATIONS

To the extent that covered property is contained inside a building, the construction, private and public protection, and exposures to the building must be evaluated. Equipment dealers must further be evaluated based on the types of equipment they keep inside versus the types of equipment kept outside. If covered property is kept outside, the extent of fencing and other protection to restrict access to the premises must also be considered. The type and extent of repair work must be determined and thoroughly evaluated, especially if flammable liquids and welding activities are present.