ISO Patterns And Dies Coverage Form

ISO PATTERNS AND DIES COVERAGE FORM ANALYSIS

(April 2018)

 

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INTRODUCTION

The Insurance Services Office (ISO) Patterns and Dies Coverage Form insures the named insured’s owned patterns, dies, molds, and forms along with similar property of others that is in the named insured’s care, custody, or control. Patterns and dies are made of many types of material but the more expensive ones are made of metal. They are used to make other products. They are often shipped to off-site manufacturers to be used in one phase of the manufacturing process and may remain on those other premises for their entire useful life except when sent to the tool and die shops for repair and retooling. This coverage is not limited to any specific location.  

POLICY CONSTRUCTION

Patterns And Dies Coverage requires at least the following six forms:

Related Article: IL 00 17–Common Policy Conditions Analysis

Related Article: CM 00 01–Commercial Inland Marine Conditions

IH DS 97–PATTERNS AND DIES DECLARATIONS

The advisory Patterns and Dies Declarations does not have spaces for the named insured, its mailing address, other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 97 contains the following information:

Insurance Company and Producer Name

The name of the insurance company that provides the coverage and the name of the agent or broker that produces the business are entered in the spaces provided.

Limits of Insurance

This section has spaces to enter the limits of insurance for the following:

The property must be described and a limit entered for each described item.

A maximum limit per item and a limit for the most paid in a single occurrence must be entered for the items covered within the blanket.

This is a catastrophic limit, which caps all of the limits entered above. It is important to review and update this limit whenever changes are made in the above limits.

Coinsurance

This section has a space to enter the coinsurance percentage that triggers the coinsurance additional condition if coinsurance applies.

Deductible

This section has spaces for two separate deductibles. One is for property written on a scheduled basis. The other is for property written on a blanket basis. When a loss occurs the damages both scheduled and blanketed items, only the higher of the two deductible is applied to the occurrence.

Rates and Premiums

The following is entered when coverage is written on a non-reporting basis:

The following is entered when coverage is written on a reporting basis:

Special Provisions

Any special provisions are entered in the space provided.

IH 00 97–PATTERNS AND DIES COVERAGE FORM ANALYSIS

This analysis is of the 12 13 edition. Changes from the previous edition are in bold print.

Introduction

This section encourages the careful reading of the entire coverage form to determine what is covered, what is not covered, rights, and duties. It defines we, us, and our as the insurance company that provides this insurance coverage. It also defines you and your as the named insured on the declarations. The reader is also pointed to the Definitions section because certain words or terms used in the form have a more broadened or restricted meaning.

 A. Coverage

The insurance company pays for direct physical loss or damage to covered property but only when that loss is from a covered cause of loss.

1. Covered Property

Covered property is not only the named insured's patterns, dies, molds, and forms but also the similar property of others that is in the named insured’s care, custody, or control.

2. Property Not Covered

The only property that is not covered is the following:

a. Property while being shipped by mail

b. Contraband. Any property that is illegal for the named insured to own or that is in illegal trade or transportation is not covered.

 

Example: Larry is very excited. He has received a copy of a die that is used by one of his competitors. His plan is to use the die to make his product but at a lower price. That valuable die is destroyed in a fire but when the claims adjuster learns of its origins, he denies the claim because it was not legal for Larry to have the die.

 

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property with the exception of causes of loss that are listed in the exclusions section.

4. Additional Coverages

Some of the following additional coverages are also additional amounts of insurance.

a. Additional Acquired Property

The named insured may acquire additional property similar to the kind this coverage form insures during the policy period. If it does, such property is covered for up to 30 days but not past the expiration date. The most the insurance company pays for loss or damage is 25% of the sum of the limit of insurance for all scheduled equipment on the declarations or $10,000, whichever is less. The named insured must report the value of the newly acquired property to the insurance company within 30 days after it takes possession of it and pays premium for it from the acquisition date. If this is not done, coverage ends after 30 days or at the expiration date, whichever occurs first.

Three important conditions apply:

 

Example: The Sometimesitruns and Sometimesitdoesn't Truck Manufacturing Company uses many job shops to manufacture the various component parts of the truck models it manufactures. Because it sends patterns and dies off premises to those manufacturers, it purchases insurance on them. The larger and more valuable ones are scheduled for their specific values. The smaller and less valuable ones are insured on a blanket basis with a sub-limit per item and a total limit equal to the sum of their total value. One of the scheduled patterns breaks and a substitute worth $9,000 is quickly manufactured and shipped to the component manufacturer. That new pattern is covered for up to 30 days.

 

b. Debris Removal

A property damage loss usually creates debris that must be removed. The insurance company pays the cost of removing the debris of a covered loss. The expenses must be reported to the insurance company in writing within 180 days of the date of loss. The most paid is 25% of the sum of the following:

Payments under this Additional Coverage do not increase the limit of insurance that applies. However, the insurance company pays an additional $5,000 per occurrence when the direct physical loss or damage combined with the debris removal expense exceeds the limit of insurance or when the debris removal expense is more than the amount payable under the above described 25% limitation.

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

c. Preservation of Property

Covered property may need to be moved in order to keep it from being damaged by a covered cause of loss. When the named insured takes such action, the insurance company pays for any direct loss or damage that such property sustains during the move. In addition, coverage applies at the location where the property is stored for up to 30 days after the date it was moved there.

This additional coverage does not increase the limit of insurance.

Notes: There are several important points to consider:

The property removed must be moved back within 30 days from the date of the move. 

 

Example: Sometimes has already received all the patterns and dies for its next model year and holds them before it sends them out to the various component manufacturers. The weather forecast is for a hurricane to make landfall near its location. Sometimes worries about going out of business if the patterns and dies are damaged or destroyed this close to the start of the new model year production. It places the patterns and dies on its fleet of tractor-trailers and sends them to five different large warehouses situated much further inland for safety and to reduce the chance of the hurricane damaging them. The patterns and dies in one of the trucks are damaged because of how they were packed. Because this Additional Coverage is not subject to exclusions, the damaged patterns and dies are covered.

 

d. Pollutant Clean Up and Removal

The insurance company pays to clean up pollutants caused by or that result from a covered cause of loss that occurs during the policy period. The most paid is $10,000 per premises as an aggregate amount during each separate 12-month policy period. The expenses are paid only if they are reported to the insurance company in writing within 180 days of the date of loss.

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

This limit is an additional amount of insurance.

 B. Exclusions

1. Primary Exclusions

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

a. Governmental Action

This exclusion applies to the legal and authorized seizure or destruction of property by a government entity’s order. There is one exception. Loss or damage that is caused when the governmental entity orders property to be destroyed is covered if used as a method to prevent a fire from spreading is covered. However, this exception applies only if the fire being contained would have been a covered fire under this coverage form.

b. Nuclear Hazard

Nuclear reaction, radiation, or radioactive contamination is not covered. There is an exception. If a fire results from the nuclear reaction, radiation or radioactive contamination there is coverage for the direct loss or damage caused by that fire.

 c. War and Military Action

This exclusion lists three specific warlike activities.

2. Secondary Exclusions

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

a. Improper packing, stowage, or rough handling

Damage or loss that is due to insufficient, improper, or defective packing, storage, and stowage is not covered. Any loss that is due to rough handling is also not covered.

Note: This could be considered a type of intentional acts exclusion. The named insured’s employees decide how to handle or stow property or help pack it in many cases. The named insured controls these situations. As a result, losses caused when any of these activities is done improperly means paying for a cost of doing business.

b. Theft from an unattended vehicle

When the loss is due to theft from an unattended vehicle, there is no coverage. There are two exceptions.

c. Delay, loss of use, and loss of market

These are consequential or indirect losses that develop as a result of a direct loss or damage.

d. Unexplained disappearance

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

e. Shortage found upon taking inventory

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

f. Dishonest or criminal acts (12 13 changes)

These are any dishonest or criminal acts that the named insured, its partners, employees, temporary employees, leased workers, officers, directors, trustees, authorized representatives, or members and managers of a limited liability company commit. This also includes theft.

Such acts committed by anyone with an interest in the property, their employees, temporary employees, leased workers, or authorized representatives who act alone or who act in collusion with other parties or with each other are also excluded. This exclusion also applies whether or not the acts take place during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, temporary employees, leased workers, or authorized representatives. However, there is no coverage for theft by the named insured’s employees, temporary employees, leased workers, or authorized representatives.

The 12 13 edition removed the part of the exclusion in the previous edition that applied to dishonest or criminal acts committed by anyone entrusted with the property for any reason.

g. Processing or work upon the property

Loss or damage that is caused when covered property is being processed or worked upon is not covered. This applies regardless of who is doing the processing. There is one exception. If a fire or explosion results from such work or processing of covered property, any damage to covered property caused by that fire and explosion is covered but only if the fire or explosion is otherwise covered under this form.

h. Pollution

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:

Note: Refer to F. Definitions 2, Specified Causes of Loss for a list of the covered causes of loss that apply to this exclusion’s exception.

i. Artificially generated electrical, magnetic, or electromagnetic energy

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

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

j. Voluntary parting

The named insured or anyone else entrusted with the property being tricked or deceived into giving that property away.

k. Unauthorized instructions

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

l. Neglect

Neglect on an insured’s part to do take reasonable measures to preserve and protect covered property from subsequent damage during and after the time of loss.

m. Theft (12 13 addition)

Theft by any person the named insured entrusts covered property to for any reason, whether they act alone or act in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property that is in a carrier for hire’s care, custody, or control is not subject to this exclusion.

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or that result from any of the following loss events. In every case, if loss or damage by a covered cause of loss occurs as a result of one of these excluded events; coverage applies to the loss or damage the resulting covered cause of loss causes. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Wear and tear, depreciation

This is loss or damage due to wear, tear, and depreciation.

Notes:

Wear and tear is damage that occurs naturally as a result of aging or normal wear.

Depreciation is a loss of value due to wear.

b. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is loss or damage caused by hidden or latent defects in the property.

c. Breakdown of covered property

This is loss or damage that occurs because patterns, dies, molds, and forms break down.

d. Malfunction or failure of covered property to operate

This means that patterns, dies, molds, and forms do not perform or function as intended.

Note: There are many reasons this could happen. There is no coverage for any of them unless they result directly from a covered cause of loss.

e. Insects, vermin, or rodents

This is loss or damage to covered property caused by or that results from insects, vermin, or rodents.

Note: Some examples are damage from mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

f. Corrosion, rust, dampness, or extremes of temperature

This is corrosion or rust, dampness, or extremes of temperature that cause loss or damage to covered property.

Notes:

Rust and corrosion are low-temperature oxidation processes that result in deterioration over time due to inactivity or neglect.

Dampness and temperature extremes can affect the oxidation process that affects different forms of property. They can also have other effects on the same and other forms of property.

C. Limits of Insurance

The most the insurance company pays for loss or damage in a single occurrence is the limit of insurance on the declarations for the applicable coverage.

D. Deductible

The insurance company does not pay for loss or damage until the amount of the adjusted loss or damage (before capping with the limit of insurance that applies) exceeds the deductible on the declarations. It then pays the amount of the adjusted loss or damage that exceeds the deductible up to the applicable limit of insurance.

One deductible must be entered for scheduled property and another for blanket. If a loss occurs that damages both types of property on the higher of the two deductibles is applied when settling the claim.

E. Additional Conditions

These conditions are in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions.

1. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico and Canada. This includes property shipped by air within and between these points.

2. Coinsurance

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

The insurance company does not pay the full amount of any loss or damage if the value of the covered property at the time of loss or damage multiplied by the coinsurance percentage is more than the limit of insurance for all covered property at that location. In such cases, the amount the company pays is determined as follows:

Step a. Multiply the value of the covered property at the time and location of the loss or damage by the coinsurance percentage on the declarations.

Step b. Divide the limit of insurance for the covered property at the location where the loss or damage occurred by Step a.

Step c. Multiply the total amount of loss or damage at the loss location by Step b. before applying the deductible (if any).

Step d. Subtract the amount of deductible from Step c.

The insurance company pays the lesser of Step d. or the limit of insurance. Any amount that remains must be paid by other insurance or the named insured must pay it from its own funds.

F. Definitions

There are three definitions.

1. Pollutants

These are any solid, liquid, gaseous, or thermal irritants or contaminants. Pollutants also include smoke, vapor, soot, fumes, acids, alkalis, chemicals, or waste. Waste is any material intended to be recycled, reconditioned, or reclaimed.

2. Specified causes of loss

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

3. Water damage

Water damage occurs when part of a system of appliance holding water or steam cracks or breaks resulting in an accidental discharge or leakage of water or steam.

 

ENDORSEMENTS

ISO has not developed any specific endorsements for exclusive use with the Patterns and Dies Coverage Form. ISO has developed three other endorsements that can be used to respond to specific situations.

IH 99 08–Value Reporting Form

This endorsement is used to convert the coverage from non-reporting to reporting. Reports of value can be provided on a daily, weekly, monthly, quarterly, or policy year basis.

IH 99 19–Additional Covered Property

This endorsement is used to include coverage for types of property ordinarily excluded.

IH 99 20–Additional Property Not Covered

This endorsement is used to exclude certain types of property the coverage form insures.

UNDERWRITING CONSIDERATIONS

Underwriting patterns, dies, molds, and forms involves evaluating the physical features and characteristics of the locations where the property is located (both on and off the named insured premises) and the measures taken to care for and protect them.

Manufacturers frequently purchase coverage for patterns, dies, molds, and forms because they will subcontract the manufacturing of some parts that go into their finished product to other manufacturers or job shops. The manufacturer had the pattern, die, mold, or form for a specific part made and retains ownership of it. It sends them to the subcontractor or job shop to use to manufacture the part. The job shop retains the pattern, die, mold, or form until the job or the contract for services ends. At that point, the pattern, die, mold, or form is returned to the manufacturer.

 

Example: Parts and Pieces Machine Shop has a three-year contract with Solid Built, Inc. to manufacture cooling fan blades for automobile engines. Parts and Pieces has the necessary equipment to do the work and Solid Built supplies the die for the press. When the three-year contract expires, it is not renewed because Parts and Pieces continually missed critical deadlines. The die is returned to Solid Built until the new job shop takes over the job. The die was covered while at Parts and Pieces, while in transit between Parts and Pieces and while at Solid Built. It will then be covered at the new job shop.

 

Some of the important underwriting questions involve the actual pattern, die, mold, or form. The type of item must be clearly identified and its insurance value established, as well as determining the amount of time needed to replace it. These items are usually made of metal but some are made of plastic or other materials and their susceptibility to damage must be determined. These items are used in many different applications and require different degrees of precision. If a part requires extremely fine machining or tolerances, a damaged item may not be repairable to the extent needed to meet those requirements. In that case, it becomes a functional total loss. In addition, if a foreign manufacturer or a now defunct business made the item, the time needed and the cost to repair or replace it could increase dramatically and this time factor must be considered.

The contract between the manufacturer (or the item’s owner) and the subcontractor or job shop that has control of it and is using it should clearly establish each party’s responsibilities for it. It should also specify the party responsible for insuring it and the degree or amount of damage it must sustain before it must be repaired or replaced.

Subcontractors such as machine shops, jobbers, and manufacturers that have this property that belongs to their manufacturing partners might also need this coverage. The contract may require it but these items frequently develop nicks and cracks during the manufacturing process and must be sent out for machining or routine maintenance. Because the subcontractor is contractually responsible for the item, it might need this coverage for it when it is away from its premises for machining or refurbishing.

Manufacturers frequently overlook the need for this coverage because they pay more attention to other insurance issues. However, this can be a significant exposure for certain manufacturers. Not paying proper attention to it could lead to a significant gap in coverage, with no coverage in place when needed. Any business that makes a proprietary product must review its need for this coverage and establish an appropriate insurance solution.