CO 1289 –OFF-SITE SERVER COVERAGE AND INTERRUPTION OF WEB SITE

(August 2019)

INTRODUCTION

This is an endorsement and is subject to all the terms and conditions in CO 1000–Commercial Output Program–Property Coverage Part, unless specifically modified or otherwise provided for in this endorsement.

The coverage provided by this endorsement starts with the definition of Off-site server. Because that definition is part of the CO 1000, it is provided here for reference in this article.

Off-site Server must meet all of the following conditions:

• It is a computer or network
• It is used for the named insured’s website
• It is not located on the named insured's premises
• It is located at the premises of the named insured’s web host
• The web host can be either an independent contractor or the named insured’s internet service provider.

There is no coverage for an off-site server under the CO 1000 because it is listed as business personal property not covered. This means that not only is there no direct physical damage there is also no loss of earning coverage.

This endorsement provides coverage for either or both direct physical damage and loss of earnings for off-site servers.

SCHEDULE

CO 1071–Off-Site Server Schedule

There are two coverages provided and only one must be selected. This means that loss of earnings coverage can be purchased without direct damage coverage.

When Supplemental Marine Coverage is selected four different entries are required:

• Off-Site Service Limit. This is the most paid under the supplemental marine coverage in a single occurrence.
• Off-Site Service (Virus and Hacking) Limit. Two limits must be entered. The first is a per occurrence limit and the second is the maximum 12-month aggregate limit for all virus and hacking attacks.
• A separate deductible for all off-site server losses in a single occurrence must be entered.

When Supplemental Income Coverage is selected, three entries are required, and two entries are optional.

• Interruption of Web Site Limit. This is the most paid under the Supplemental Income Coverage in a single occurrence.
• Interruption of Web Site (Virus and Hacking) Limit. Two limits must be entered. The first is a per occurrence limit and the second is the maximum 12-month aggregate limit for all virus and hacking attacks.
• Waiting Period. The waiting period defaults to 12 hours. A different waiting period can be entered.
• Coverage Limitation. The maximum period of coverage is 14 days and 12 hours following the time of loss. A different number of days can be entered.
• Denial of Service Attached Excluded. If a check is entered in the box, the denial of service exclusion in this endorsement applies.

Example: Pellington, Inc. leases a server that is located off its premises. The server is housed and maintained by the leasing company. It is Pellington’s contractual responsibility to insure the leased server.

Because the server is not covered on its CO 1000, coverage is purchased for the server using CO 1289–Off-Site server Coverage and Interruption of Web Site. The schedule is completed as follows:

Both Supplemental Marine and Supplemental Income Coverages are selected with a check and limits entered as follows:

Coverage	Limits
Supplemental Marine Coverage
Off-Site Server Limits	$ 75,000
Virus and Hacking Occurrence Limit	25,000
Virus and Hacking Aggregate Limit	75,000
Deductible	1,000
Supplemental Income Coverage
Occurrence Limit	$200,000
Virus and Hacking Occurrence Limit	100,000
Virus and Hacking Aggregate Limit	300,000
Waiting Period	2 hours
Coverage Limitation	20 days
Denial of Service Attack Excluded	This is NOT selected

CO 1289–OFF-SITE SERVER COVERAGE AND INTERRUPTION OF WEB SITE

Supplemental Marine Coverage

Note: Coverage applies only if a check is placed beside Supplemental Marine Coverage on CO 1071–Off-Site Server Schedule and required limits entered.

The Off-Server Coverage is an additional Supplemental Marine Coverage. This means that the opening language for the Supplemental Marine Coverage in the CO 1000 should be reviewed in order to determine how this coverage works with other supplemental marine coverages in the CO 1000.

1. Off-Site Server

Coverage is provided when a covered peril causes a direct physical loss to either of the following:

• Off-Site server owned by the named insured
• Off-Site server leased by the named insured. This applies only if the named insured is required by contract to insure the server for the damage.

In addition to the server, there is coverage for the direct physical damage to the software when that software is actually housed on the off-site server. This is further limited because this software coverage is available only if duplicates of the software are stored at a building that is at least 100 feet away from the premises where the off-site service is hosted.

Example: A fire occurs at the location where Pellington’s server is housed. It is not damaged by the fire but there is some smoke damage. There is coverage for up to $75,000 for the smoke damage after the $1,000 deductible is paid by Pellington.

2. Virus and Hacking Coverage

Virus and hacking coverage direct damage loss to the off-site server is also covered. However, there is no coverage for loss or damage due to any of the following:

• Software on the server is copied, scanned, or altered so that their exclusivity is compromised.
• Software on the server is copied, scanned or altered resulting in a reduction in their value.
• The observation of confidential information contained in software within the covered computers, the named insured’s network or its website that results in the theft of that information is not covered if no alteration or other physical loss or damage to the software occurs.
• A denial of access to computers or from the named insured’s network or its website. This exclusion is only for direct damage. Some coverage does exist in the Supplemental Income Coverage section of this endorsement, if selected on the schedule.

Example: Despite its best efforts to prevent it, hackers accessed Pellington’s off-site server. The hackers altered the programs so that inappropriate emails were sent to major customers. They also copied proprietary program information. In addition, they deleted some key components that prevented important functions from being performed. The first two items are not covered but the last item is covered because there is direct damage to the software that must be repaired. The software can be repaired quickly because Pellington keeps duplicates of the software at its location rather than at the server location. The most that is paid in this loss is $25,000 after Pellington pays is $1,000 deductible.

3. Deductible

This coverage has its own deductible that is entered on the Off-Site Server Schedule. It applies per occurrence.

4. Applicable Limit

The maximum limit in a single occurrence is the Off-Site Server Limit or the Off-Site Server (Virus or Hacking) Limit. The policy is unclear as to how it would respond if the Off-Site Server and the Virus and Hacking Coverages were part of the same occurrence.

Supplemental Income Coverage

Note: Coverage applies only if a check is placed beside Supplemental Income Coverage on the CO 1071–Off-Site Service Schedule and required limits entered.

The Interruption of Web Site Coverage is an additional Supplemental Income Coverage. This means that the opening language for the Supplemental Income Coverage in the CO 1001–Commercial Output Program – Income Coverage Part should be reviewed in order to determine how this coverage works with other supplemental income coverages in the CO 1001.

1. Interruption of Web Site Coverage

Earnings coverage extends to earnings that are lost because the named insured’s business is interrupted due to direct physical loss to any or all of the following:

• Off-site server
• Off-site server software
• Off-site server location

The loss must be caused by a covered peril. Coverage begins with the direct physical loss and ends when the named insured resumes or could have resumed operations.

Example: The fire at the location where Pellington’s off-site server is housed resulted in the server being down for 48 hours because the fire damaged the air conditioner that cools the server. The loss of earnings sustained during the downtime is covered for up $200,000. Pellington is responsible for the first two hours of earnings loss because of its waiting period entry.

2. Virus and Hacking Coverage

Loss of earnings caused by virus and hacking direct damage loss is also covered. The following limits the coverage provided:

• When software on the server is copied, scanned, or altered, the loss because their exclusivity is compromised is not covered.
• When software on the server is copied, scanned, or altered, any reduction in their value that results is not covered.
• When confidential information is observed through software in the covered computers, the named insured’s network or its website, there is no theft coverage if there is no alteration or other physical loss or damage to the software.

Example: Pellington’s server must be down for 36 hours following the hacker attack. The decision was made to disinfect and reinstall the software because tracking down the specific damage was too time-consuming. There is coverage for up to $100,000 but Pellington is responsible for the first two hours of earnings loss because of its waiting period entry.

3. Coverage Conditions

Coverage for earnings is provided only if the following apply:

• The earnings lost by the interruption are permanent.

Example: Pellington files a claim for $50,000 loss of earnings following the fire loss. The insurance company reviews their income history and discovers that this $50,000 loss was actually made up by a significant increase in volume in the 128 hours following the downtime. Because of this unusual spike, Pellington did not actually suffer any loss of earnings at all, so the claim is denied.

• A duplicate or copy of the software used on the off-premises server is kept at least 100 feet away from the location where the off-site server resides.

4. Waiting Period

No earnings coverage applies until 12 hours following the direct physical damage to the server, the software, or the location. This period can be modified on the Schedule.

5. Coverage Limitation

The coverage is limited to no more than 14 days. If the waiting period is the default 12 hours, the coverage ends 14 days and 12 hours after the direct damage to the server, the software, or the location. If the waiting period is zero, the coverage ends 14 days after the damage and if the waiting period is any other another number the coverage is the 14 days plus that other number.

This default number of hours can be increased on the Schedule. However, it still ends once the named insured’s business resumes.

Note: The CO 1289 does not state that the Coverage Limitation of 14 days can be increased but the CO 1071 contains a space labeled “Coverage Limitation – We do not pay for loss or earnings after:” This would suggest that an entry in this area would modify the 14 days in this Limitation.

Example: A tornado roars through Roseville. It destroys the location where Pellington’s off-site server is housed and also destroys Pellington’s own location. This means that the software duplicates for the server are also destroyed. It will take a minimum of three months to reproduce the necessary proprietary programs. Pellington entered 20 days for its coverage limitation so there is a loss of earnings coverage for up to 20 days plus two hours. Any loss is also subject to the $200,000 occurrence loss.

6. Applicable Limit

The maximum limit in a single occurrence is either the Interruption of Web Site Limit or the Interruption of Web Site (Virus or Hacking) Limit. The policy is unclear as to how it would respond if Interruption of Web Site Coverage and the Virus and Hacking Coverages were part of the same occurrence.

Perils Excluded

The perils excluded section of the CO 1000 is deleted in its entirety and replaced by the following. This applies only to the coverage provided by this endorsement.

1. Broad Exclusions

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. Civil Authority

Loss or damage caused by the 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.

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.

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:

• War, undeclared war and civil war
• Warlike action by a military force. Actions taken by the government to prevent or defend against an expected or actual attack by any government or other authority using military personnel or agents are also excluded.
• Rebellion, revolution, insurrection, or unlawful seizure of power. Actions taken by the government to prevent or defend any of these are also excluded.

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.

2. Limited Exclusions

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 eight exclusions while the CO 1000 has 21 limited exclusions.

a. Contamination or Deterioration

There is no coverage when contamination or deterioration is the cause of loss or damage. Examples of contamination and deterioration are corrosion, decay, fungus, mildew, mold, rot, and rust. Contamination or deterioration is also the qualities, faults, or weaknesses that are a part of the particular off-site server that results in it damaging or even destroying itself.

There are two exceptions.

• If contamination or deterioration causes a covered peril, coverage applies to the loss or damage to the off-site server by that peril.
• If a covered peril causes direct physical damage to the air conditioning system servicing the off-site server any corrosion, decay, fungus, mildew, mold, rot or rust to that server resulting from the air conditioning not working is covered.

b. Criminal, Fraudulent, Dishonest or Illegal Acts

Loss caused by criminal, fraudulent, or dishonest acts is not covered if the act(s) is committed alone or in collusion with others by any of the following:

• The named insured
• Any party having an interest in the property
• Any party entrusted with the property
• Partners, officers, directors, trustees, joint venturers
• Employees or agents of any of the above

There are two exceptions.

• Loss due to acts of destruction by the named insured's employees is covered. However, if the act of destruction is theft, it is still not covered.
• Covered property in the custody of a carrier for hire is not subject to this exclusion.

c. Loss of Use

The following losses are not covered:

• Loss of use. This is any type of loss sustained because the named insured or its customers cannot use the property.
• Delay. This is when economic benefits are lost because a deadline was not met, or a season of sales opportunity was missed or similar type delay.
• Loss of market. This is when the loss of current customers as well as the loss of potential customers and similar types of loss of market.

The only exception is the Interruption of Web Site coverage when provided in this endorsement.

d. Pollutants

There is no coverage for loss caused by any action of pollutants. There are three exceptions.

• The pollution event is caused by a specified peril.
• If the pollution event causes a specified peril, the damages caused by that specified perils are covered.
• The pollutant event is covered under Supplemental Coverages–Pollutant Cleanup and Removal.

e. Temperature/Humidity

Loss or damage because of dryness, dampness, humidity, or extremes of temperature is not covered. There are two exceptions.

• If any of the above items cause a specified peril, then any resulting damage from that peril is covered.
• Loss or damage to off-site servers when due to direct physical loss or damage by a covered peril to the air conditioning system servicing the off-site server is covered.

f. 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, if any of the above causes a covered peril, any resulting damage from that particular peril is covered.

g. Virus or Hacking

Computer virus or hacking caused loss or damage is not covered. This applies whether the damage is direct, indirect, or resulting from loss of access, use, or functionality. The one exception is the limited coverage provided under Virus and Hacking Coverage in this endorsement.

h. Voluntary Parting

If property is voluntarily given to another party, there is no coverage. There is no coverage even if the receiving party was part of a fraudulent trick or scheme.

3. Interruption of Web Site Specific Exclusions

These exclusions apply only to the Supplemental Income Coverage part of this endorsement.

a. Bandwidth

When loss of earnings occurs because the named insured business is interrupted due to the off-site server not providing sufficient bandwidth, there is no coverage. This applies whether the interruption is limited or total. Insufficient bandwidth as used in this exclusion is when the off-site server is unable to handle the volume of data coming into it.

Example: Pellington, Inc. started a new promotion that has been receiving a lot of attention. It is graphic and video heavy. Their programmers had not anticipated the amount of traffic this promotion would generate. When the server temporarily crashes, there is no loss of earnings coverage because the reason is a lack of bandwidth.

b. Denial of Service Attack

When loss of earnings occurs because a denial of service attack is launched against the off-site server and interrupts the named insured’s business, there is no coverage. This exclusion applies no matter how many individuals participate of the attack and whether or not the individual(s) are employees of the named insured.

The definition of denial of service attack as used in this endorsement is the use of either malicious data traffic or false data traffic to intentionally slow down the off-site server or to actually totally disable it. Examples of such data traffic are email messages, any type of request that requires the use of that server’s memory and any type of messages or information requests that intentionally take up bandwidth.

This exclusion applies only when it is selected on the CO 1071–Off-Site Server Schedule.

Example: Certain radical groups are upset with the products Pellington is selling. They decide to make it impossible for legitimate customers to place orders by sending massive emails to the site and also sending many service inquiries. The system is quickly overcome, and the server is unable to provide service to its customers for over 24 hours. Pellington did not accept this exclusion, so the loss of earnings starting after the two-hour waiting period is paid.