(August 2019)
Each of these coverage parts is complete only when attached to the CO 1000– Commercial Output Program–Property Coverage Part because the following sections of the Coverage Part are referenced in the Spoilage Coverage Parts:
A schedule of coverages must be used with this coverage form. There are two options. CO 1074–Spoilage Schedule can be attached when the CO 1050–Schedule of Coverages is used. If CO 1051–Schedule of Coverages is used with the COP, then the Spoilage scheduled information is entered on it.
Related Article: Commercial Output Program Declarations and Schedules of Coverages
Two Spoilage Coverage Parts are available. CO 1004 is used when coverage is written on a scheduled basis and CO 1005 is used when coverage is written on a blanket basis. This analysis is based on CO 1005–Spoilage Coverage Part Blanket Coverage and it ends with a brief description of form differences.
This coverage part has no additional definitions, but two definitions are very important to its understanding. The definitions, taken from the CO 1000–Commercial Output Program Property Coverage Part Analysis, are provided below for reference.
21. Perishable stock (2002 addition)
Personal property that is kept under controlled conditions because it could be damaged if those conditions change.
Commonly, perishable stocks are those requiring refrigeration, but this term also includes property susceptible to changes in humidity and light.
32. Spoilage (2002 addition)
Damage caused to perishable stock by a change in its physical state. The change must be detrimental to be considered spoilage. The following are examples of such a change:
Related Article: CO 1000–Commercial Output Program Property Coverage Part Analysis
This coverage provided is very specific. It applies to direct physical loss of perishable stock only when the loss is due to spoilage caused by a peril described in this coverage part. The perishable stock must be at a covered location when the loss occurs, and the loss must occur during the policy period.
The insurance company covers risks of direct physical loss or damage if caused by one or more of the five perils listed below and is not caused by an excluded peril.
1. Breakdown
Malfunction or Failure (Equipment Breakdown)
Loss caused by changes in temperature or humidity due to an accident to covered equipment at a covered location is eligible for coverage. A refrigeration system or the machinery and equipment that control the refrigeration system are examples of covered equipment.
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Example: Morgan’s Mushroom Farm has a
humidification system attached to its boiler that maintains a constant level
of humidity. The humidification system fails as a result of an accident to
related equipment. When the location is checked a week later, the mushrooms
that had been growing there had dried out and had to be destroyed. The
mushroom loss is covered. |
2. Refrigerant
Contamination (Equipment Breakdown)
Perishable stock contaminated by the release of any refrigerant is covered but only when the release is due to an accident to covered equipment that occurs at a covered location. Refrigerants include, but are not limited to, ammonia.
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Example: The pressure in the refrigeration unit builds up, bursts
refrigeration lines, and releases ammonia into a cold storage unit. The Food
and Drug Administration (FDA) orders that all the food stored in the unit be
destroyed. The loss of product in the storage unit is covered. |
3. Refrigerant
Contamination (Other Causes of Loss)
Perishable stock contaminated by the release of any refrigerant, including ammonia, is covered if caused for any reason other than equipment breakdown as described in peril 2. above.
Note: Remember that at the beginning of this section coverage applies only if covered by one of the five perils and not caused by an excluded peril.
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Example: Refrigeration escapes and spoils perishable stock stored in the refrigerated unit.
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4. Power Disruption
(Equipment Breakdown)
Loss involving changes in temperature or humidity is covered when due to any loss or fluctuation of electrical power or current caused by an accident to covered equipment. The equipment must be owned by the utility providing electrical power.
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Example: A mechanical breakdown occurs at Citiplace Utility which
supplies electricity to Meanville Metals. While the breakdown does not force
Meanville to completely shut down its operations, the fluctuating current
causes Meanville’s equipment to malfunction and the high temperatures
required for its processes cannot be maintained. The molten metal cools,
solidifies, and must be destroyed. This loss is covered. |
5. Power Disruption
(Other Causes of Loss)
Loss involving changes in temperature or humidity is covered when due to any loss or fluctuation of electrical power or current caused for any reason other than equipment breakdown as described in peril 2. above. The condition causing the loss must have been outside of the named insured’s control.
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Example: Patty’s Floral Shop has a contract with its landlord. The landlord supplies all utilities to the building and includes the cost in Patty’s monthly rental payments. Patty arrives at work one morning to discover that the lights do not work, and the walk-in floral refrigeration unit is out of order as well. She tries to contact the landlord but discovers he has left town. When Patty contacts the power company, she is informed that the electric power was cut off because the landlord did not pay the bill. Because this situation is beyond Patty’s control and the peril is not excluded, the spoilage loss to the flowers in the refrigerator is covered. Note: This is certainly a situation where Patty’s insurer will likely subrogate against her landlord to recover damages. |
Coverage applies to the loss of earnings and extra expenses caused by one of the covered perils listed above but only when CO 1001–Commercial Output Program–Income Coverage Part is also part of this policy.
The Perils Excluded section in the property coverage part is replaced by the following but only as regards Spoilage coverage.
1. The doctrine of concurrent causation holds that coverage applies to a property loss that can be attributed to two causes, one excluded and one covered. As a result, coverage has been found for earth movement, flood, and other specifically excluded events. This set of exclusions attempts to avoid concurrent causation by stating that the event is excluded, regardless of any other causes that contribute to or aggravate the loss. With this approach, there is no coverage, even if the contributing cause of loss is normally covered.
a. Earth Movement
Damage to covered property caused by earth movement, other than sinkhole collapse, or caused by eruption, explosion, or effusion of a volcano is not covered. Examples of earth movement are earthquake, landslide, mudflow, mudslide, mine subsidence and the sinking, rising or shifting of the earth.
There are exceptions. Direct loss by fire, explosion or volcanic action caused by and resulting either from earth movement or the eruption, explosion or effusion of a volcano is covered.
Note: Identical to the CO 1000 exclusion except that the exception for computers, mobile equipment, and supplemental coverages is removed.
b. Civil Authority
Loss or damage caused by order of any civil authority is excluded. Seizure, confiscation, destruction, and quarantine of any property are examples of excluded civil authority actions. There is one exception. If the civil authority destroys the named insured’s property as a means of preventing the spread of a fire, there is coverage provided the fire itself is a covered peril.
Note: Identical to the CO 1000 exclusion.
c. Nuclear Hazard
Loss caused by nuclear reaction, nuclear radiation, or radioactive contamination is not covered. Any loss that is caused by the nuclear hazard is not considered a loss caused by fire, explosion, or smoke. There is one exception. If a direct loss by fire results from the nuclear hazard, there is coverage.
Coverage for nuclear risk is available only through nuclear coverage associations.
Note: Identical to the CO 1000 exclusion.
d. War and Military Action
This is an expanded War exclusion. There is no coverage for loss or damage caused by any of the following:
If any action involves nuclear reaction, nuclear radiation, or radioactive contamination, this exclusion applies in place of the Nuclear Hazard exclusion. There are no exceptions in this exclusion.
Note: Identical to the CO 1000 exclusion.
e. Water
There is no coverage for loss or damage caused by flood. Loss or damage caused by the backup of sewers and drains is also not covered. Damage caused by the pressure of ground water is also excluded. Examples of the types of losses that are not covered are damage caused by water pressure or the flowing, seeping or leaking of water into buildings, sidewalks, driveways, swimming pools and similar or related types of covered property. There are exceptions. There is coverage if fire, explosion, or sprinkler leakage as a result of water occurs.
Note:
2. The second group of
exclusions applies to loss or damage caused by or resulting from any of the
following loss events. Some of these exclusions have exceptions, conditions, or
limitations that should be noted and reviewed carefully.
Note: This listing has only five exclusions while the CO 1000 has 21 exclusions.
a. Disconnection
or Deactivation
When a refrigeration system is disconnected from
its electrical or other power source by a switch or other device being turned
off, there is no coverage.
Note: There is no limitation as to who or what causes the power to be disconnected or turned off. This means that a maintenance person or any other person may be the culprit and coverage still does not apply.
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Example: There was no coverage
under the spoilage coverage part because the loss was due to a flipped
switch. |
b. Glass
Breakage
When permanently installed glass in the
refrigeration system is broken there is no coverage for any resulting spoilage.
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Example: A warehouse employee doesn’t notice that he backed a
forklift into and cracked a glass door on a refrigeration unit. Another
employee discovers the breakage almost five hours later and reports it to
management. The spoiled food must be destroyed. There is no coverage because
of this exclusion. |
c. Inability
to Provide Sufficient Power
When an electric utility or power provider cannot
provide sufficient power because of either lack of fuel or due to an order by a
government entity there is no coverage for any resulting spoilage. If a covered
location generates is own fuel and that fuel is not sufficient for the demand,
there is also no spoilage coverage.
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Example: Dave’s Creamery is a retail store located on Dave’s
farm. The farm receives all its power from windmills on the farm. The
windmills produce so much power that Dave sells the excess capacity to the
local co-operative. During an unusual extended calm period, the windmills
stop producing power and Dave is forced to make the decision to provide power
to the milking machines and not to the store. The resulting spoilage loss at
the store is excluded. |
d. Neglect
Loss or damage due to failure of the named insured
to use all reasonable means to save and preserve covered property at the time
of a covered loss and afterwards is not covered. Loss or damage due to a named insured
not taking reasonable steps to save and preserve property endangered by a
covered peril is also not covered.
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Example: John has a backup
generator on hand but does not use it during a protracted power loss. His
claim for his spoilage loss may be denied because of John’s neglect. |
e. Wear
and Tear
There is no coverage for loss or damage
caused by or resulting from wear and tear, marring or scratching. These losses
are excluded because they are usually normal costs of doing business. However,
the insurance company does cover resulting losses caused by a specified peril,
breakage of building glass or an accident to covered equipment.
The valuation section of the property coverage part applies except when selling price is selected on in the spoilage section of the schedule of coverages. When selling price is selected, the value of the perishable stock is based on the selling price but with all discounts and unincurred expenses removed.
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Example: The selling price for the stock of ice cream is
$100,000. It is sold subject to a 10% discount if the purchaser pays the
invoice amount within 30 days of the invoice date. Packing, shipping and
handling costs add another 1% to the selling price but are not yet incurred
when the ice cream spoils and must be destroyed. As a result, the loss payment
is $89,000, representing the value of the ice cream reduced by 10% for the
discount and 1% for packing, shipping, and handling. |
The provisions that follow are added to the property coverage part How Much We Pay section.
1. Spoilage
Deductible
There is a deductible that applies only to spoilage losses. It is listed in the Spoilage section of the Schedule of Coverages and no payment for a spoilage loss is paid until the loss exceeds that deductible amount. The deductible is applied per occurrence.
2. Loss Settlement
Terms
The insurance company pays the smallest amount of the following:
The following condition is added to the property coverage part, Other Conditions:
Refrigeration
Maintenance or Service Agreement
The Spoilage section of the Schedule of Coverages lists Refrigeration Maintenance or Service Agreement as an Additional Condition that can be selected. When it is selected, the named insured agrees to have a maintenance or service agreement for its refrigeration system. If that agreement is discontinued, terminated, suspended or impaired, the named insured must notify the insurance company when it becomes aware that the agreement is no longer in place. If the notification is not provided on a timely basis, any spoilage loss occurring afterward will not be covered.
However, this condition does not apply if the spoilage is due to electrical problems occurring away from the covered location.
The coverage provided in this form is less encompassing than that provided in CO 1005 evaluated above. The named insured selects the perils to insure and the locations at which coverage applies. The differences between the two coverage parts are outlined below.
Coverage applies only for the perils selected on CO 1051–Schedule of Coverages–Commercial Output Program or CO 1074–Spoilage Schedule and only for perishable stock that is at a location listed on CO 1075–Scheduled Locations–Spoilage Coverage.
Note: At least one or more of the five available perils must be selected in order for coverage to apply under CO 1004–Spoilage Coverage Part Scheduled Coverage. No such requirement applies to CO 1005–Spoilage Coverage Part Blanket Coverage because all five perils are automatically included.
In this form, perils 1, 2 and 3 refer to the location or locations covered as listed on the Location Schedule instead of referring to a covered location. The same reference is not made for perils 4 and 5 but coverage is still limited to the location or locations listed on the Location Schedule because of the language used in the Coverage section outlined above.
This section is different in that it states that the limit of insurance is the limit entered on the Spoilage Schedule and the Location Schedule–Spoilage Coverage.
This schedule must be
completed when the Scheduled Spoilage Coverage is selected on CO 1051–Schedule
of Coverages–Commercial Output Program or CO 1074–Spoilage Schedule. The only
entries required are the location number, the location address, and the limit
of coverage. All other information applying to coverage is found on
CO 1051 or CO 1074.