ISO Salespersons Samples Coverage Form

ISO SALESPERSONS SAMPLES COVERAGE FORM ANALYSIS

(April 2018)

 

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INTRODUCTION

The Insurance Services Office (ISO) Salespersons Samples Coverage Form applies to businesses and their salespersons or authorized sales representatives. It covers samples of the named insured's merchandise or stock in trade or the property of others but only when the named insured is legally liable for the samples. Coverage applies when the property is in the custody of the individual named insured or its authorized sales representative and in transit to and from the insured premises and the authorized sales representative. Coverage also applies to containers used with the samples. Coverage does not apply when on the named insured’s premises or at the salesperson’s premises – even when in a vehicle.

POLICY CONSTRUCTION

Salespersons Samples 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 96–SALESPERSONS SAMPLES DECLARATIONS

The advisory Salespersons Samples 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 96 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.

Description of Covered Property

This section has spaces to list and describe Covered Property.

Notes:

Including the words "consisting principally of" in the description is suggested so coverage is not necessarily denied if a specific type of property is inadvertently omitted or not properly described.

Coverage may apply to large or unique samples. In that case, coverage can be arranged on a scheduled basis and a different rating approach used than the approach used on other property. If the property is scheduled, the coverage form can be endorsed to include a coinsurance clause.

Limits of Insurance

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

This is a catastrophic loss limit that will limit the per occurrence loss to be paid. It is important to consider the potential of all samples being at a single location or subject to the same widespread occurrence such as a windstorm, earthquake, wildfire or flood.

Theft from Unattended Vehicle Exclusion

This section has a box to check to delete the Theft from Any Unattended Vehicle Exclusion.

Deductible

This section has a space to enter the amount of deductible that applies.

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 96–SALESPERSONS SAMPLES 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 limited to only samples of the named insured’s stock in trade. This includes the containers of those samples.

a. Coverage applies to the named insured’s owned property and property of others for which the named insured is legally liable. This broad definition is restricted to only such property when it is described on the declarations.   

b. Coverage is further restricted to apply only when the covered property is located at any of the following:

·        In the named insured’s salespersons’ or authorized sales representatives’ custody

·        In an individual named insured’s custody but only while acting as a salesperson

·        In transit to and from the named insured's locations and the location of the salespersons or authorized sales representatives

 

Example: Louie’s Logging Equipment displays his line of advanced log-splitters at a national logging convention. Louie also has permission to display a line of equipment manufactured by Steve’s Stump Removers to supplement and complete his display. Louie includes the values of Steve’s equipment along with his own on his Salesperson’s Samples Coverage Form. The value of both Louie’s and Steve’s property is covered up to the limit of insurance while in Louie’s custody.

 

Note: This coverage form does not apply to covered property on the named insured's premises and at other owned or controlled locations. Covered property taken off the premises by any party for any other reason is also excluded. This coverage form's narrow purpose is to cover the sales samples only while in the sales representative’s hands and in the course of transit to or from that sales representative.

2. Property Not Covered

The following described property is excluded:

a. Property that the named insured loans, leases, or rents to others  

b. Property that is being held for sale

Note: This coverage form specifically applies to property in the possession of salespersons. Similar property being assembled, manufactured, or held for sale is to be insured under other property coverage forms.

Related Article: CP 00 10–Building and Personal Property Coverage Form Analysis

c. Property at premises the named insured, its salespersons, or its authorized sales representatives own, operate, or lease

Note: This is very broad. The sales samples are not covered while at the named insured’s premises. Because the term premises is used, samples that are in the salesperson’s vehicle while in the named insured’s parking lot are not covered. In addition, they are not covered while on the salesperson’s premises. This means that the samples are not covered while in the salesperson’s home, his or her garage or in the salesperson’s vehicle while parked on the premises. This is a significant difference between this form and the AAIS form.

Related Article: AAIS Sales Representative Floater

 

Example: Jed is a salesperson for Wandering Wows. He keeps his samples in the trunk of his car.

Scenario 1: Jed is caught in the middle of a chain reaction traffic accident. The car behind him smashes into his trunk destroying all of the samples. This loss is covered.

Scenario 2: Jed parks his car in his attached garage. A tornado sweeps through his community destroying his home, garage, and car. The damage to the samples is not covered because they were on Jed’s premises at the time of the loss.

Scenario 3: Jed and his fellow salespersons are called into the home office for a sales meeting. All park in the employee parking lot. A flash flood sweeps through the area and all of the vehicles are flooded and the samples inside destroyed. The damage to the samples is not covered because they were on premises at the time of the loss. 

 

d. Accounts, bills, currency, deeds, evidence of debt, money, notes, or securities

Note: This property is a mix of property that should be covered under commercial crime, accounts receivable, and valuable papers coverage forms.

Related Article:

ISO Accounts Receivable Coverage Form Analysis

ISO Valuable Papers Coverage Form Analysis

ISO Commercial Crime Coverage Forms and Policies Analysis

 e. Jewelry, costume jewelry, precious stones, semi-precious stones, gold, silver, platinum, or other precious metals or alloys

 

Note: This type of property is more correctly written on Jewelers Block coverage forms and policies.

Related Articles:

ISO Jewelers Block Coverage Form

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

f. Furs or fur-trimmed garments

 

 

Note: This type of property is more correctly written on a Furriers Block or Furriers Customers coverage form or policy.

Related Articles:

Furriers Block Policy

Furriers Customers Custody Policy

ISO Furriers Block Coverage Form

145.34 , ISO Furriers Customers Coverage Form

g. Waterborne property. There is an exception. When the samples are on vessels that are traveling on the inland waterways the property is covered but only if the water portion of the transportation is incidental to the land transportation.

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

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

a. Debris Removal

A property damage loss almost always 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.

b. 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 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.

 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. 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.

b. 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.

c. Processing or work upon the property

Loss or damage that because processing or work is being performed on the covered property. There is no exception.

d. Theft from an unattended vehicle

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

 

Example: Louie unloads nearly all of his log-splitting equipment for the national logging convention from his box truck and leaves to visit with other exhibitors. He forgets to lock the roll down back door on the truck. He returns, rolls up the door, and finds the cargo area empty and the merchandise he had not unloaded gone. This loss is not covered because there are no marks on the truck that show that a forced break-in occurred. The good news is that he had placed a valuable specialty item in the locked driver’s compartment. The pry marks clearly proved that the door was forced open. As a result, that valuable specialty item is covered.

 

e. Unexplained disappearance

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

f. 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."

g. 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: F. Definitions 2. Specified Causes of Loss has a list of the covered causes of loss that apply to the exception to this exclusion.

h. 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:

 i. Voluntary parting

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

j. Unauthorized instructions

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

k. 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.

l. 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 a loss or damage caused by hidden or latent defects in the property.

c. Breakdown of covered property

This is loss or damage caused when covered property breaks down.

Note: This could occur because the property has been shown so many times that its parts no longer fit together or it simply wore out due to age.


d. Malfunction or failure of covered property to operate

This means that covered property does not perform or function as intended.

Note: There are many reasons this could happen and none are covered unless they are a direct result of 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 and 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.

Note: The All Covered Property in Any One Occurrence is a capping mechanism for this coverage. It is important to establish a maximum potential exposure based on how many salespersons could be involved in a single occurrence. Because this coverage includes flood, earthquake, and hurricane the number of salespersons that could be impacted by the same catastrophe must be anticipated. If the named insured annually calls all salespersons together for a meeting, it should be anticipated that all samples could be lost in a single occurrence especially if all of the salespersons stay at the same lodgings.

 

Example: Wandering Wow calls all of its salespersons together for its annual sales meeting. It selects the River Overlook Hotel because of its proximity to the home office and ample room. Over 100 salespersons drive in. The River Overlook Hotel is located by the river and its underground parking garage is built at the river edge. The river rises during the event. This doesn’t impact the hotel itself but it does inundate the parking garage. The samples in all of the salespersons’ vehicles are destroyed. No individual salesperson’s loss exceeds the Covered Property in the custody of Any one Salesperson Limit of $5,000.  The total loss is $250,000 but because the All Covered Property In Any One Occurrence is $100,000, only $100.000 is paid.

 

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.

E. Additional Conditions

1. Valuation

This condition replaces the Valuation General Condition in the Commercial Inland Marine Conditions.

a.     The value of each item of covered property on the declarations is that item’s limit of insurance.

Note: The declarations does not contain a space in which to enter this information. Such scheduling would require an endorsement.

b. The value of all other property is the least of the following amounts:

The value of lost or damaged property is determined as of the date of the loss or damage.

2. Other Condition

This condition applies in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions.

Coverage Territory

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

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 Salespersons Samples 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 salespersons samples coverage involves evaluating the samples themselves and their packaging or containers. It is important to emphasize that regular merchandise and/or property similar to the samples held for sale is excluded. The evaluation must focus on the sample’s susceptibility to loss or damage from many different causes of loss. The sample’s dollar value largely determines its desirability. The greater its value, the more likely that it will be a theft target. The sample’s size also plays into its value and attractiveness to thieves. Small items of great value are much more attractive than large items with the same or even greater value.

The salesperson or authorized sales representatives must also be evaluated according to the type of samples carried. The salesperson’s experience must be considered along with his or her individual loss experience for this coverage. Criminal and other background checks should be done before any employee is hired and the person’s record should be acceptable before being offered a position with the company. Salespersons who are employees are more easily and better controlled than authorized representatives, who are similar to independent contractors. Depending on all these factors and considerations, these salespersons and representatives may need to be bonded.

Samples in transit present some of the biggest underwriting challenges. The theft exposure is always present and affects certain types of property more than others. Samples transported in rural or country settings are usually less subject to theft than samples transported in larger urban areas. To the extent possible, samples should always be concealed when the vehicle is unattended. Depending on the type of property, concealment may not be enough and vehicle burglary and break-in systems and alarms may be required. If the property is delicate or fragile, the packing materials and packaging used are important factors. Experienced packers should always package fragile or delicate property. The number of days the salesperson and the samples are on the road is another important element to analyze and may determine if the motor vehicle requires additional theft deterrents.

Location exposures consist of exhibitions, fairs, conventions, and trade shows. Each of these must be evaluated individually and the exposures and characteristics determined in relation to the type of sample and its damageability and susceptibility to loss or damage.

The named insured and its management characteristics must also be reviewed. Well-managed businesses are financially sound, have good loss experience, select salespersons carefully, and compensate them well. They also know their product, the market, and the sales territory. They make proactive risk management decisions to protect both the samples and the salespersons from incidents that could lead to injury to the salesperson and/or loss or damage to the property.

Valuation issues arise from time to time on certain types of property. The named insured may request that certain covered property be valued on a replacement cost basis. Some of this property may be old, obsolete, or badly depreciated and its replacement cost far greater than its true actual cash value. Underwriters must review such requests carefully because an element of moral hazard may accompany them.

Large or unique samples may be better written on a scheduled basis. When this situation occurs, an accurate limit for the property should be selected or an agreed value determined for certain individual items. Scheduled property may be written subject to a coinsurance clause. This clause can be entered in the Special Provisions section on the declarations.

Two different types of commercial business operations usually purchase this coverage. The first is a commercial business that provides its salespersons with samples to show or demonstrate for clients. The primary exposure is from transit and the potential for theft from vehicles, hotel or motel rooms, or display areas the sales representative sets up. Substantial property values tend to accumulate at their homes over time and the company should establish guidelines that limit the maximum values that a salesperson may have at his or her home because, under this form, there is no coverage while in their homes.

The other type acts as a sales representative for one or more commercial businesses. They carry samples of merchandise or products for each company they represent to show or demonstrate to their customers. In cases like this, it is important to know the contractual relationship between the representative and the companies represented. Ownership of the samples should be established and the representative’s responsibility and legal liability for them clearly indicated. Procedures should be established to dispose of or return damaged or obsolete samples. The same issues that affect the first type of sales representative also apply to this type but the values involved may be greater because they represent more than one company.