BP 00 03–BUSINESSOWNERS COVERAGE FORM ANALYSIS

(September 2019)

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BP 00 03–BUSINESSOWNERS COVERAGE FORM

This analysis is of the 07 13 edition. Changes from the 01 10 edition are in bold print.

LEAD-IN LANGUAGE

The policy wording admonishes the reader to read the entire policy because there are restrictions. Only by reading the policy can the policyholder be aware of its duties, its rights and available coverage.

The phrase “named insured” is not used in the coverage form. Instead the terms you and your are used throughout and refer to the insured (or insureds) shown on the declarations.

The phrase “insurance company” is also not used. Instead the terms we, us, and our are used when referring to the insurance company that is providing coverage.

Under Section II – Liability – an important term is “insured.” Section C. The C. Who Is an Insured explains which persons or organizations qualify as insureds. Words and phrases that have special meanings are defined. Section H. Property Definitions at the end of Section I–Property and Section F. Liability and Medical Expenses Definitions at the end of Section II–Liability list the terms and their definitions.

SECTION I–PROPERTY

A. COVERAGE

The insurance company pays for direct physical loss or damage due to a covered cause of loss to covered property at covered locations listed on the declarations.

Note: This does not include consequential or indirect losses. 5. Additional Coverages f. Business Income and
g. Extra Expense covers some indirect losses. However, some indirect losses are not covered at all, such as losses due to a product that is recalled after a tampering scare or products that are recalled to repair defects.

1. Covered Property

In order for a type of property to be covered, there must be a limit for it on the declarations. Even when there is a limit for a class or type of property, coverage does not apply unless it is eligible and not otherwise excluded or limited.

Example: The declarations for the Businessowners Policy issued to Karen’s Krafthowse includes the following:

Property: 2013 Cadillac Escalade

Limit: $79,500

Coverage does not apply in this case because automobiles are not eligible for coverage.

a. Buildings

Buildings and structures at locations on the declarations are covered.

Note: It is not necessary to list each building at a particular location. However, a complete description of the covered premises is suggested. Street addresses may be sufficient or a clear geographical reference may also be required. Described premises means all land included in the legal description of the premises on the declarations. This is necessary so that a claims adjuster does not have any questions about whether the risk exists. A poor or inaccurate description of the location or premises involved could lead to coverage being denied.

Structures generally refer to garages, sheds, outbuildings, and other real property that are not attached to buildings.

· Completed additions are covered, whether attached to buildings or structures or not. The value of completed additions must be added to the limit for the building or structure.

· Fixtures are covered. This includes outdoor fixtures. Permanent fountains, street lighting, underground lawn sprinkler and irrigation systems, and similar property are examples of fixtures.

Note: Property in the open is not covered for loss or damage that rain, snow, ice, or sleet causes.

· Machinery and equipment is treated as building property if properly installed as a permanent part of a building or structure. Examples include non-portable heating and air-conditioning equipment, machinery that must be placed on a special base, and machinery that cannot be removed without significantly modifying the building.

· The named insured's personal property that it furnishes as a landlord in apartments, rooms, or common areas is covered.

· Property the named insured owns and uses to maintain or service a covered building, structure, or the premises is covered. Examples are fire-extinguishing equipment, and appliances used for refrigerating, ventilating, cooking, and dishwashing. Fire extinguishing equipment includes fire extinguishers and other portable fire-extinguishing devices. Outdoor furniture includes lawn and garden tractors, snow removal equipment not subject to motor vehicle registration, and water hoses.

· Coverage also applies to building additions that are under construction as well as renovations or repairs to existing buildings or structures. This coverage applies only when other insurance does not cover them. However, this seemingly advantageous coverage feature could backfire and actually be a disadvantage.

Example: Robert's Restaurant is insured under a Businessowners Coverage Form. The building's replacement cost is $1,000,000 and is insured for $850,000. During construction of an addition, the wiring in the existing building overloads and the resulting fire causes $1,000,000 in damage. The value of the nearly complete addition is $150,000. While the loss would usually be adjusted on a replacement cost basis, the adjuster informs Robert that the building replacement value at the time of loss was $1,150,000. As a result, an underinsurance penalty is applied to the loss because the $850,000 limit is less than 80% of the total replacement cost values at risk.

· Materials, equipment, supplies, and temporary structures used to construct, renovate, or repair existing buildings or structures (including additions) are covered but only if on or within 100 feet of the described premises and there is no other insurance available to cover them.

Note: Most new construction is written using builders risk coverage forms or policies.

CP 00 20–Builders Risk Coverage Form Analysis

AAIS Builders’ Risk Coverage Forms

ISO Builders Risk Coverage Form

Note: Building can include many different types of property. This is an advantage because the coverage must be flexible enough to address exposures that might otherwise be overlooked. On the other hand, the named insured must be aware of the potential impact this has on insurance-to-value requirements. The building limit must include the replacement cost of each type of property in order to properly calculate the premium. If the limit at the time of a covered loss equals at least 80% of the full replacement value, replacement cost coverage applies up to the limit. If it is less, the loss is adjusted with an underinsurance penalty that could result in adjusting the loss on an actual cash value basis.

b. Business Personal Property

Covered business personal property can be in or on buildings that are situated at the described premises.

Example: Willie’s Eatateria is insured under an ISO BOP Policy. His food stock qualifies as Business Personal Property and is covered by the policy.

It is also covered when it is within 100 feet of the buildings or structures or within 100 feet of the premises described on the declarations, whichever distance is greater, while in the open, or in or on a vehicle. (07 13 change).

Business personal property includes:

· Personal property the named insured owns and uses in its business. This includes stock, furniture, and other equipment. Stock can include animals the named insured owns that it holds for sale but only while they are inside buildings. There is no coverage for personal property that is not used in the business.

Example: A fire destroys Robert's Restaurant’s kitchen and the adjacent pantry and storage area. It also destroys a custom-built racing bicycle valued at $11,500. Robert rides the bike to and from his home and keeps it in the storage area when not in use. The bicycle is not covered as business personal property.

· Personal property of others in the named insured's care, custody, and control. Examples are a dry cleaners' bailee exposure or appliances that belong to others that the named insured has in its possession for repairs.

2. Property Not Covered

Coverage does not apply to the following:

a. Aircraft, automobiles, motor trucks, and other vehicles that are subject to motor vehicle registration laws.

Note: This means that mobile equipment used to service the existing buildings or structures on the described premises or to renovate or modify the existing buildings or structures (including additions) that is not subject to motor vehicle registration laws is covered. Stock of mobile equipment held for sale is also covered, subject to it being within 100 feet of the buildings or structures or within 100 feet of the premises described on the declarations, whichever distance is greater.

b. Money and securities, unless G. Optional Coverages 2. Money and Securities or 3. Employee Dishonesty covers them

c. Contraband and any other illegal property. This includes legal property in the course of illegal transportation or trade.

d. Land, water, growing crops, and lawns. However, coverage applies to lawns that are part of vegetated roofs (07 13 change).

Note: Eligible feed and grain stores have coverage for stock stored inside the building. Stock stored outside is not covered for physical loss or damage that sleet, hail, rain, or snow causes.

e. Outdoor fences, radio, or television antennas (including their lead-in wiring), masts, or towers, satellite dishes, signs not attached to buildings, and trees, shrubs, or plants. However, coverage applies to trees, shrubs, or plants that are part of vegetated roofs (07 13 change).

Note: 6. Coverage Extensions c. Outdoor Property and G. Optional Coverages 1. Outdoor Signs provides limited coverage for some of this property. Signs attached to buildings are covered for up to $1,000.

Note: Coverage applies to signs attached to buildings but not to signs attached to structures. Coverage for detached signs may be added by entering a separate limit for G. Optional Coverages 1. Outdoor Signs on the declarations.

f. Watercraft, its equipment, and accessories while afloat. However, watercraft on a dock, on shore, or in the named insured’s showroom as stock is covered. Coverage does not apply to loss or damage to covered property in the open that rain, sleet, snow, or hail causes.

Note: Coverage does not apply to watercraft while it is afloat. Coverage for such exposures and operations should be purchased from companies that write policies specifically for boat dealers and boat yards.

g. Accounts, bills, food stamps, other evidences of debt, accounts receivable, or valuable papers and records. However, 6. Coverage Extensions e. Valuable Papers and Records and f. Accounts Receivable provides some coverage.

h. Computers installed in aircraft, watercraft, motor trucks, or other vehicles that are subject to motor vehicle registration laws. This applies even if the computers are not installed but are designed to be installed.

Note: Computers held as stock are covered.

i. Electronic data. This exclusion does not apply to the named insured’s stock of prepackaged software. Electronic data that is an integral part of the building heating, ventilating, air conditioning, elevator, lighting, or security systems are exceptions to this exclusion and are covered. (07 13 change)

Note: 5. Additional Coverages p. Electronic Data provides some coverage.

j. Animals. However, there are two exceptions. Animals owned by others that the named insured boards are covered. Animals the named insured owns that are considered stock are covered but only while inside the building.

Note: Coverage on excepted animals is very limited. Refer to 4. Limitations b. (1).

3. Covered Causes of Loss (07 13 change)

Coverage applies to direct physical loss. This broad statement of coverage is modified but there is an accompanying statement that the loss may be excluded or limited elsewhere under Section I–Property.
(07 13 change)

This broad approach of providing coverage for everything except what is excluded or limited requires that the insurance company explain exactly what item within the Property Section excludes or limits coverage when a loss is declined or limited. There is coverage unless the insurance company can prove there is none. Direct physical loss does not include any loss of use or the perceived loss in value of goods in the marketplace after an otherwise covered cause of loss occurs.

Example: The owner of Traktor Patch Lawn Supplies recently purchased the season’s inventory of lawn tractors. The brand of tractor received a negative rating from a consumer watchdog group because of its potential for fire. A fire broke out after a salesman tried to start one, resulting in damage to the shop. The loss became a local news feature and was used as an example of that brand's quality problem. After this event, Traktor was unable to sell a single tractor, even after it offered large discounts. The damage the tractor fire caused was covered. The subsequent loss of income and perceived loss of value to the other tractors was not.

4. Limitations

a. The insurance company does not pay for loss of or damage to:

· Steam boilers, steam pipes, steam engines, or steam turbines caused by or that result from any condition or event within them. However, damage to the boiler, pipes, engines, or turbines caused by an explosion of gases or fuel within the furnace of the boiler, flues, passages, chimneys, and exhaust pipes that combustible gases pass through is covered.

Note: Examples of excluded events include breakdown, seizing up, explosions due to centrifugal force, overheating due to leaking fluids, electrical shorting, improper installation or improper maintenance or calibration that causes breakdowns, or electrical shorting. BP 00 03 provides this coverage under G. Optional Coverages 4. Equipment Breakdown Protection Coverage. Separate equipment breakdown protection coverage is also available.

Examples:

These are examples of covered explosions.

A pilot light on a boiler goes out but gas continues to fill the chamber. Sparks from the pilot light attempting to re-ignite itself cause the boiler to explode.
The boiler's adjustment is incorrect, allowing the fuel mixture to become too rich. Unburned fuel accumulates in the chimney and explodes.
The exhaust fan drive belt falls off, exhaust and fumes accumulate, and the boiler explodes. The damage the belt fan falling off caused is excluded but the damage to the boiler the explosion caused is covered.

· Hot water boilers or other hot water heating systems when the loss or damage is due to anything inside boilers or equipment that is not an explosion

Note: Breakdown coverage is available under. Optional Coverages 4. Equipment Breakdown Protection Coverage. Separate equipment breakdown protection coverage is also available.

· Inventory shortage or missing property where there is no physical evidence to explain what happened to it. This limitation does not apply to 4. Optional Coverage 2. Money and Securities.

Example: The quarterly inventory reveals 100 computer monitors missing. Rechecking sales and deliveries confirms that this number is correct. There is no evidence of a break-in, a breakout, or forged sales slips. No employee confesses or is implicated in the loss, even after a series of extensive interviews. This loss is excluded because there is no tangible or physical evidence to back up the loss.

· Property that is transferred in some way to a person or to a place that is outside the described premises based on unauthorized instructions

Example: Felix has a purchase order for 250 cartons of cigarettes to be sent to Miller General Store. The required signature is missing but it’s a busy day and Felix processes the order without checking. The delivery is made, signed for, and the invoice returned to purchasing. When payment is requested, Miller denies making any order. When the signatures are checked, the signature on the receipt does not belong to anyone who works at Miller. Miller is not obligated to pay Felix and neither is Felix’s insurance company.

· There is no coverage for damage to the interior of a building and personal property inside that rain, snow, sleet, ice, sand, or dust causes. However, there are two exceptions. Coverage applies when either:

o The roof or walls of the building are first damaged by a covered cause of loss that allows the rain, snow, sleet, ice, sand, or dust to enter

o The snow, sleet, or ice on the building thaws and then causes the loss

Note: Leaving doors and windows open limits a loss that may otherwise be covered.

Example: Millie and May were tenants and moved out of Pricey Woods Apartments. While cleaning the empty apartment, they opened all the windows to release the fumes from the cleaning products they used. They then surrendered their keys to the building manager and left. Things were hectic due to the holidays and it was a week before the maintenance crew arrived at the apartment to begin to prepare it for a new tenant. During that week, a major rainstorm drenched the carpeting. Mildew set in and ruined the wallboard and windowsills. Pricey Wood's damage was not covered because the rain entered through the window and the building’s exterior was not damaged.

Example: Sam is lying in bed one evening and a drop of water lands on his head. The drop becomes a trickle and then a stream. He discovers that the water is coming from the ceiling. His landlord inspects the damage and realizes that, even though the ice pack on the roof is still quite thick, the heat from the building has thawed a small patch of it. As a result, the water does not have anywhere to go and is forced down through the ceiling. Since this situation is due to snow and ice thawing, coverage may apply for the ceiling damage.

· Lawns, trees, shrubs, and plants that are part of vegetated roofs are covered property because they are excepted from 2. Property Not Covered. This limitation is needed because they are alive and depend on certain conditions to thrive plus they are outdoors and are not protected from the elements. There is no coverage if these lawns, trees, shrubs, or plants are damaged due to any of the following:

o The atmosphere or the soil being too damp or too dry

o The temperature changes too often or is considered extreme

o Disease

o Hail, frost, rain, snow, ice, or sleet

b. Coverage does not apply to the following property unless the loss or damage is caused by or results from a specified cause of loss or because building glass breaks:

· Animals. A further limitation is that coverage applies only if the animal is killed or must be destroyed.

· Breakage of fragile property like glassware, statuary, marble, chinaware, and porcelains. However, glass that makes up part of the exterior or interior of the building, glass containers of property held for sale, and lenses of photographic or scientific instruments are not subject to this limitation.

Example: A shelf in Sam's Sundries collapses due to the weight of business personal property and a number of items tumble to the floor. Ceramic figurines valued at $700 and glass soft drink bottles worth $1,000 are broken. Coverage does not apply to the ceramic figurines because collapse is not a specified cause of loss. The glass soft drink bottles are covered because collapse is a covered cause of loss and no special sub-limit applies to glass containers of property held for sale, other than what is limited for other personal property.

Theft coverage for the following types of property is subject to the default limits. These limits may be increased by entries on the declarations (07 13 change):

· Furs, fur garments, and garments trimmed with fur are covered for no more than $2,500.

· Jewelry, watches, watch movements, jewels, pearls, precious and semi-precious stones, bullion, gold, silver, platinum, and other precious alloys or metals are covered for no more than $2,500. Jewelry and watches valued at no more than $100 apiece are not subject to this limitation.

· Patterns, dies, molds, and forms are covered for not more than $2,500.

Example: McCarty’s Department Store was involved in a smash and grab incident that took less than a minute. The perpetrator broke the glass display case and grabbed two handfuls of watches. He escaped and eluded capture. The owners checked the inventory and location of the merchandise and determined that five watches valued at $500 each were taken for a total loss of $2,500. Ten watches valued at $75 each were missing and twelve watches valued at $50 each were also gone. That combined loss of $1,350 is also covered because the watches were all valued at less than $100.

ISO Jewelers Block Coverage Form

AAIS Jewelry Dealers Coverage

Furriers Block Policy

ISO Jewelers Block Coverage Form

5. Additional Coverages

a. Debris Removal (07 13 changes)

After a loss that involves physical loss or damage, debris remains that must be removed and coverage that applies to the costs to do so is needed. Over the years, this relatively simple concept has become a hotly debated issue under commercial property coverage forms as insurance buyers search for alternate sources for pollution coverage. Debris removal coverage was never intended to be environmental clean-up coverage. However, the language has been found to cover such losses because of the provision's simplicity. Efforts to eliminate this misunderstanding have complicated this additional coverage.

This coverage is explained as follows:

(1) Actual expenses to remove debris are paid if all of the following apply:

· The named insured actually incurs the expenses to remove the debris.

· The debris to be removed is covered property.

· The debris to be removed is not covered property but meets the other criteria in this paragraph and also paragraph (2) below.(07 13 addition)

· The debris resulted from a covered cause of loss.

· The loss occurs during the policy period.

· The expenses are reported within 180 days of the direct physical loss.

Example: A tornado destroys Sara’s Shoppe. The debris removal expense is $5,000. Because Sara must incur the cost of removal, the debris is of covered, tornadoes are covered causes of loss and the loss occurred during the policy period, coverage should apply but only if Sara reports the expense within 180 days of the date of loss.

Note: Paragraph (1) is subject to paragraphs (2), (3), and (4).

(2) This paragraph is needed because paragraph (1) is broadened to include debris of non-owned property. This paragraph establishes the boundaries for the broadened coverage.

There is no coverage for the costs to remove the following items:

· Debris that belongs to the named insured that is either not insured or is considered property not covered

· Landlord’s property when the named insured is a tenant. However, it is still covered if the named insured is contractually obligated to insure the property.

· Any property described in 2. Property Not Covered. This also applies to property that has limited coverage under 5. Coverage Extensions e. Outdoor Property.

Note: This means that tree, shrubs, plants, fences, etc. debris is not covered debris.

· Any property that belongs to others that this coverage form does not include as Covered Property

· Mud or dirt deposited on the grounds of the premises during a covered loss

· Any pollutants from land or water

· Polluted land or waters. The cost to restore or replace the polluted land or waters is also excluded.

Example: A tornado deposited paint and other toxic chemicals in a pond on Sara’s property. There is no coverage to clean the pond because of this exclusion.

(3) This paragraph explains the amount of coverage provided under the basic limits. There are two distinct limitations:

(a) The total amount paid for a direct loss PLUS the debris removal is the lesser of the following:

· The actual physical loss or damage PLUS the debris removal expense

· The limit of insurance for the damaged covered property

(b) The total amount paid for debris removal is the lesser of the following:

· The sum of the amount paid for the direct physical loss (plus any applicable deductible amount) multiplied by a factor of .25. The formula is:

(Paid Loss Amount + Deductible Amount) x .25 = Debris Removal Coverage Amount

· The actual debris removal expense

Example: Sara has a $50,000 limit and the direct physical loss amounts to $50,000. Because the total paid for debris removal and direct loss is not more than the limit of insurance, based on this paragraph, Sara does not receive the debris removal payment.

If there is no direct physical damage to covered property, the most paid to remove the other property debris is $5,000 per location, subject to other items in this additional coverage.

(4) This paragraph provides an additional amount of insurance to remove debris if limitation (a) or (b) in paragraph (3) above applies. The additional amount of coverage is $25,000, subject to the following:

(a) The total amount paid for a direct loss PLUS the debris removal is the lesser of:

· The actual physical loss or damage PLUS the debris removal expense

· The limit of insurance for the damaged covered property PLUS $25,000 Debris Removal Additional Coverage

Example: Sara has coverage for $50,000 and up to $25,000 for debris removal. This means Sara has up to $25,000 available for debris removal.

(b) The total payment for debris removal is the lesser of the following:

· The total of the amount paid for the direct physical loss plus any applicable deductible amount multiplied by a factor of .25 PLUS $25,000. The formula is [(Paid loss amount + deductible amount) x .25] + $25,000 = Debris Removal Coverage Amount.

· The actual debris removal expense

Example: Because Sara’s debris removal expense recovery is limited by the actual debris removal expense, she receives only the $5,000 of incurred debris removal expense.

The last point to make with respect to this coverage is that the maximum amount of insurance available for direct physical loss and debris removal expense does not exceed the limit of insurance for the coverage plus $25,000.

BP 00 03 includes two examples to explain the coverage in greater detail and to make it clearer, especially the deductible and the occurrence basis.

Related Article: Debris Removal Concerns

Related Court Case: Debris Removal Obligation Was Paid

b. Preservation of Property

Covered property threatened by a covered cause of loss may be removed to any other location for up to 30 days.

If it is necessary to move covered property from an insured location in order to avoid it being damaged by a covered cause of loss, the insurance company pays for any direct loss or damage that such property sustains during the move. In addition, coverage applies while the property is stored at the location for up to 30 days after the date it was moved from its covered location.

There are several important points to consider:

· The only property insured is covered property that is at a location listed on the declarations. Property eligible for coverage moved from a location that is not covered does not create coverage.

· The potential loss or damage to the covered property must be from a covered cause of loss.

· The property is covered for ANY cause of loss while it is being moved to and from the safe location as well as while it is at the safe location.

Note: The property removed must be moved back to the covered location or the temporary location must be added to the policy within 30 days from the date of the move. Otherwise, all coverage ends after 30 days.

Examples:

A hurricane will make landfall at Ronnie's Retail Outlet. Ronnie loads its trucks with merchandise and moves them to a warehouse outside the storm’s path. One of the trucks is involved in an accident in the fog and rolls over and $100,000 worth of the removed goods is damaged. This loss is covered.

A fire damages Ronnie's Retail Outlet’s roof. Desks and other furnishings are removed to a storage warehouse to protect them from damage by rain and other elements. An earthquake ten days later causes the warehouse to collapse and the desks and furnishings sustain $30,000 in damage. This loss is covered.

A tornado destroys every commercial building in town, including those that might be used as storage facilities. Ronnie moves his salvageable goods to a self-storage building 50 miles away. A fire occurs there 45 days later. This loss is excluded because the temporary removal coverage is limited to 30 days after covered property is removed.

c. Fire Department Service Charge

If assumed by a contract entered into before a loss or if required by a local ordinance, coverage is available for fire department service charges up to $2,500. This limit can be increased. The $2,500 is a premises limit that applies regardless of the number of departments that respond or the number of services provided. (07 13 change)

Note: This could be a significant reduction in coverage for certain entities. Higher limits should be recommended in such cases.

Coverage applies only if the fire department is asked to respond to the threat of or to an actual covered cause of loss that would result in damage to covered property.

Examples:

Based on a written contract between Ronnie and the city, the fire department must respond to any call to his property. The fire department charges $1,500 for each response. Coverage applies even if the property is not damaged, such as to threats of loss from a neighboring brush fire.
In Ronnie's unendorsed Businessowners Policy, the fire department is called and responds to damage that an earthquake (an excluded cause of loss) causes to his building. When the building collapses, one of the collapsed walls cuts the gas main. A spark ignites the leaking gas and the fire that results destroys the remaining undamaged property while the fire department is on its way. Because the fire department was asked to respond to the earthquake, the fire department service charge does not apply, even though the property damaged as a result of the fire that ensued was covered.

d. Collapse

The doctrine of concurrent causation holds that an all-risk policy (special causes of loss) must pay if a loss to property can be attributed to two causes, one excluded and the other covered. Applying this concept has resulted in coverage being provided for earth movement, flood, and other events that are specifically excluded. In an attempt to avoid the problems of concurrent causation, collapse is first excluded as a covered cause of loss. Coverage for collapse damage is then added back but only when collapse occurs as this Additional Coverage defines it.

This Additional Coverage applies only to abrupt collapse as described and limited in Paragraphs d. (1) through d. (7).

(1) Abrupt collapse is any sudden and unexpected falling down or caving in of a building or any part of a building. The collapse must be such that the building cannot be used as intended.

Example: Major decides to retire and sell the store he owned for 55 years. He has a realtor/appraiser come to the store to estimate the price he should charge for the business. While inspecting the property, the appraiser realizes the building is in imminent danger of collapse. He informs Major of the building's condition and that it may soon collapse. Major notifies his insurance company but it denies coverage because the building has not actually collapsed.

(2) The insurance company pays for direct physical loss or damage to covered property caused by abrupt collapse of a covered building or any part of it caused by one or more of the following:

(a) Hidden building decay an insured did not know about before the collapse

(b) Hidden vermin or insect damage an insured did know about before the collapse

(c) Use of defective material or methods during renovation, remodeling, or construction activities, if the abrupt collapse occurs during such activities

(d) Use of defective material or methods during renovation, remodeling, or construction activities, if the abrupt collapse occurs after such activities are complete but only if the collapse is caused by:

· Items (2) (a) or (2) (b) above

· Specified causes of loss

· Building glass breakage

· Weight of people, personal property, or rainfall that collects on a roof

(3) This Additional Coverage does not apply to any of the following:

(a) When a building or any part of it is considered in danger of caving in or falling down but has not yet done so

(b) To the part of a building that remains standing, even if it has separated from another part of the building

(c) To a standing building or building part that can be proved to be leaning, settling, shrinking, expanding, bulging, cracking, sagging, or bending

(4) Awnings, gutters, downspouts, yard fixtures, outdoor swimming pools, piers, wharves, docks, retaining walls, walks, roadways, paved surfaces, and beach or diving platforms or appurtenances are covered for collapse only when the abrupt loss is due to a cause in (2) (b) through (2) (d) above. However, coverage applies only if the damage to the listed property is a direct result of a covered building abruptly collapsing.

Example: An awning collapses.

Scenario 1: Rain from a torrential rainstorm caused the collapse. There is no coverage.

Scenario 2: Rain from a torrential rainstorm causes a roof to collapse. The falling roof causes an awning to buckle and collapse. This loss is covered.

(5) The insurance company pays for loss or damage to covered property if personal property abruptly caves in or falls down and that collapse is not the result of an abrupt collapse of a covered building. However, this is only if all of the following apply:

(a) The collapse of personal property was due to a cause of loss in (2) (a) through (2) (d) above

(b) The personal property that collapsed was inside a building

(c) The property that collapsed was not one of those in (4) above, regardless of whether it was treated as real or personal property

This coverage does not apply to personal property if marring and/or scratching was the only damage to it caused by the collapse.

Example: While Major ponders coverage being denied in the example above, his cat suddenly jumps off a shelf, the shelf collapses, and both it and all the property on it are destroyed. This claim is covered, after the deductible is applied, because the decay in the wall caused the shelf to separate from the wall.

(6) There is no coverage if the personal property did not abruptly cave in or fall down even if it appeared to be leaning, settling, shrinking, expanding, bulging, cracking, sagging or bending.

(7) The coverage this Additional Coverage provides is part of the limit of insurance, not in addition to it.

(8) Covered Cause of Loss includes this Additional Coverage as described and limited in everything above.

e. Water Damage, Other Liquids, Powder, or Molten Material Damage

When a covered water, liquid, powder or molten material damage loss occurs, coverage also applies to undamaged property that must be torn out to stop the flow of the water, liquid, powder, or molten material that caused the damage. It does not pay costs to repair the defect that caused the loss or damage.

There is one exception to the no repair rule in this coverage. Any costs to repair or replace the defective parts of fire extinguishing equipment are covered. This exception applies only if the property damage was directly caused by freezing or was the result of any substance that is in an automatic fire protection system being discharged.

Example: A water leak occurs on the second floor. It leaks through the ceiling to the first floor and causes extensive damage. The damage is all covered but the undamaged plaster on the second floor must be removed in order to find, stop, and repair the leak. Unfortunately, the leak is hard to find and a lot of plaster must be removed to locate and repair the leaky pipe. Coverage applies to the property damage the water caused as well as the destruction and repair of the walls.

Scenario 1: The source of the leak is a 50-year-old galvanized metal pipe which must be removed and replaced. The cost to repair and replace the pipe is not covered.

Scenario 2: The source of the leak is the water pipe that feeds the automatic extinguishing system. The cost to repair the pipe is covered.

f. Business Income (07 13 changes)

(1) Business Income

(a) A business income loss occurs if the named insured's operations at a covered premises must be suspended because a covered cause of loss causes direct physical loss or damage to covered property. The insurance company pays for the actual loss of business income sustained while operations are suspended. Payments made limited to the period of restoration. With respect to personal property in the open or in or on a vehicle, premises also includes the area within 100 feet of such premises. If the named insured occupies only part of the site where the described premises are located, premises means:

· That portion of the building occupied, rented, or leased by the named insured

· With respect to loss or damage to personal property in the open or in or on a vehicle, the area within either 100 feet of the building or 100 feet of the premises, whichever distance is greater. (07 13 addition)

· Any area inside either the building or at the described premises when that area is used to gain access to the named insured's portion of the premises or is used to provide services to that premises

Examples:

Ohio Valley Dental is located on the floor above Van’s Drugstore. A door just inside the drugstore leads up a flight of stairs to Ohio Valley's premises. A fire at Van’s does not damage Ohio Valley Dental but access to its premises is denied because of damage to Van's and the staircase. Ohio Valley’s loss of income is covered because the staircase is considered part of its premises.
Grumley’s Restaurant is located on the first floor of a five-story building. A fire starts in the basement and destroys the electrical controls. Grumley’s must suspend operations because it has no electricity even though it has not sustained any direct damage. Its loss of income is covered.

(b) The insurance company pays for only the loss of business income sustained during the restoration period for not more than 12 consecutive months after the date of the covered loss or damage. It is important to note that ordinary payroll expenses are limited to only 60 days after the date of loss. The number of days can be increased.

Note: The defined period of restoration does not begin until 72 hours after normal business operations are suspended. This approach establishes a deductible expressed in terms of time without a dollar limitation.

Example: A fire starts at Jones Hardware at 8:00 a.m., just after the first shift arrives. Work ends at 8:15 a.m. but the fire rages for more than eight hours, finally ending at 4:45 p.m. Under the suspension of operations provision, even though the fire progressively damages the building, the interruption begins at 8:15 a.m., when the fire started, not at 4:45 p.m., when it ended.

Example: The same interpretation of when a loss begins can apply to causes of loss that take longer to occur, such as floods, hurricanes, and earthquakes. This time BP 10 03–Earthquake is included. There is no loss of income if the first earthquake tremor that occurs on Tuesday does not damage the business. However, a tremor on Thursday at 8:00 a.m., which is within 72 hours of the first movement, causes the named insured's building to collapse. The business income loss begins at 8:00 a.m. on Thursday, the moment that the direct physical damage interrupted operations, not the moment when the earthquake covered cause of loss first occurred. A 72-hour waiting period after operations are interrupted applies before coverage begins.

Note: The business income deductible under this 72-hour waiting period arrangement may have a greater financial impact on the average business than other property deductibles.

Example: A business that does not have any seasonal peaks and valleys needs $500,000 of annual business income coverage. This converts to an average of $1,370 per day or a total uninsured 72-hour loss of $4,110. If a hardware store that needs the same amount of coverage derives 60% of its annual income in the spring and sustains a loss at that time of the year, its deductible is almost $10,000, based on $500,000 x .60 ÷ 90 days = $3,333 per day.

Note: A three-day deductible for a business with peak seasons that involve short-term events such as spring break, local fairs or events, auto races, or a Triple Crown horse race could lose much of its annual revenue during the 72-hour waiting period. The Businessowners Coverage Form does not have a standard endorsement that reduces the 72-hour waiting period deductible.

(c) Business income is defined as the net income that would have been earned or incurred if a physical loss or damage had not occurred. It excludes net income that could have been earned due to an increase in business volume due to favorable business conditions caused by the impact of the covered cause of loss on its customers or other businesses. It also includes continuing normal operating expenses and payroll incurred.

Net income is the net profit or loss before income taxes.

Example: Lumberyard A was located directly in the path of an oncoming tornado. Lumberyard B was located far away from it. After the tornado, Lumberyard B was able to raise its prices and have an incredibly profitable season. On the other hand, Lumberyard A was closed during the sales season which included the opportunity to supply material for the repairs faced by customers who also suffered tornado damage to their properties.

Note: Business income losses are adjusted with an eye to the future. What would Lumberyard A's earnings have been if it was open for business during the period of restoration? Let’s assume there was no tornado and Lumberyard A simply burned down. The adjuster looks at its earnings history, the state of the local and national economy during the period of restoration, and the company’s historical peaks and valleys during the same period. This evaluation results in an estimated income loss amount that the insurance company pays. When examining the local economy, the adjuster discounts the supply and demand pricing that Lumberyard B charges to generate its huge profits.

Business income coverage is intended to put a business back into the same condition it was in before the loss. This coverage philosophy ignores the strange economic twists that sometime take place with disasters.

(d) Ordinary payroll expense is the payroll for all employees except officers, executives, department managers, contract employees, and any additional exemptions listed on the declarations, such as job classifications or specific employees. In addition to payroll, it includes employee benefits directly related to payroll, FICA payments and union dues the named insured pays, and workers' compensation premiums.

Note: Remember ordinary payroll expenses are limited to only 60 days unless a different number is shown on the declarations.)

Company employee benefits that are not directly related to payroll are not considered part of ordinary payroll expense and therefore not limited to only 60 days. Instead these are considered normal expenses not related to ordinary payroll. As a result, the company could continue to pay for the health insurance premiums of ordinary payroll employees after the 60-day benefit period for ordinary payroll. This may be important for businesses that have a large ordinary payroll staff that, if the ordinary payroll "employees" were to be laid off, could cause a favorable health insurance plan to be cancelled or modified.

(2) Extended Business Income (07 13 change)

(a) This coverage begins when the period of restoration ends. It pays business income losses:

· That begin on the date property is actually repaired, rebuilt, or replaced and operations resume

Note: Property does not include finished stock.

· That end on the date operations reach or should reach the level needed to produce the business income amount that would have existed if there was no loss. The named insured must make reasonable efforts to reach its pre-loss level to receive this coverage.

· Coverage ends 60 days after the end of the period of restoration even if pre-loss levels are not reached. The named insured can purchase additional days of coverage.

Example: Smith Hardware is located downtown and experiences a devastating fire. It finds a substitute location where it resumes operations two months later. However, during the period its operations are suspended, regular customers take their business to the big box hardware operation at the edge of town. When Smith's operations resume, customer traffic is down and sales are lower than before the fire. Because of the extended business income, the insurance company pays the difference between what Smith normally earns in covered business income and what it actually earned.

Extended Business Income does not apply to loss of business income incurred due to unfavorable business conditions caused by the impact of the covered cause of loss in the area where the covered premises is located.

Examples:

Francine's Flowers is the only florist in an Arizona town devastated by monsoon rains. Francine is back in business less than two months later but sells only half the flowers she did before the loss. How much of the florist's reduced business is due to the rains? What economic factors must an adjuster consider assessing the demand for flowers? The Businessowners Coverage Form language says that simply because a common event caused economic loss to the local area, it does not hold any special significance in adjusting the loss. This wording recognizes that the covered business would still have sustained the economic loss that its community faced, regardless of the loss.
Focus again on our florist. However, eliminate the rains. Instead, the flower shop burns to the ground, while hundreds of miles away, a hurricane wipes out the season's flower crop. Flower prices skyrocket and people in the florist's community no longer purchase from the shop.

(b) Direct physical loss or damage by a covered cause of loss at the covered premises must cause the loss of business income.

(3) Under Business Income Additional Coverage, the term suspension does not require that all operations cease. Suspension can be either a partial slowing down or a complete shutdown. Suspension also occurs when all or any part of a described premises cannot be occupied by a tenant.

(4) This Additional Coverage is not subject to Section I–Property Limits of Insurance.

Note: The business income coverage provided is not subject to a dollar amount limitation but is considered actual loss sustained coverage. The concept of actual loss sustained is sometimes referred to as unlimited or no-limit business income. These terms are incorrect. While there is no set dollar limit, there is a limit to the coverage. Coverage is limited to the amount the business would have earned during the period of restoration if a covered cause of loss did not damage it. Using the term unlimited or no-limit can cause the same problems as using the term all risk. Such terms may give the insured a false impression that it has a virtually unlimited amount of money at its disposal.

g. Extra Expense (07 13 changes)

In many cases, a loss suspends operations for only a short period of time. However, even a brief interruption can result in extraordinary expenses. Necessary extra expenses are those incurred during the period of restoration as a result of a covered cause of loss that directly damages property at the described premises. It includes personal property located on the described premises or within 100 feet of that premises and either in the open or in or on a vehicle. Extra expense can involve costs incurred to avoid or minimize the suspension of business at either the described premises or at a replacement or temporary premises. These extra expenses include relocation expenses and costs to equip and operate the replacement or temporary locations. Such costs are covered even if operations are not suspended.

(1) The insurance company pays necessary extra expenses the named insured incurs during the restoration period that would not have been incurred if a covered loss had not occurred. The covered loss must be from direct physical loss or damage to covered property at the described premises. The covered loss can also be from direct loss or damage to personal property within 100 feet of the described premises, while in the open, or in or on a vehicle. These are all considered on the described premises.

If the named insured occupies only part of the building, premises means:

· That portion of the building occupied, rented, or leased by the named insured

· With respect to loss or damage to personal property in the open or in or on a vehicle, the area within either 100 feet of the building or 100 feet of the premises whichever is greater. (07 13 addition)

· Any area inside either the building or at the described premises if that area is used to gain access to the named insured's portion of the premises or is used to provide services to that premises

Example: B&G Auto Parts burns to the ground on Sunday. By Monday morning at 9:00 a.m., its parts supplier has two semi-trailer loads of stock parked at B&G’s parking lot and B&G doesn't lose even a minute's sales time. However, the extra expense to expedite delivery of two semi-trailer loads is $10,000 and the cost to rent and power these trailers is $100 per day.

(2) Extra Expense is defined to be incurred expenses that do any or all of the following:

(a) Allow the business operations to continue at the described premises, at a temporary location, or at a permanent replacement location. If a new or temporary location is secured, the costs to move the business and equip the location are also extra expenses.

(b) Shorten the amount of time the operations are suspended

(c) Repair or replace property. This also includes the cost to research and duplicate damaged valuable papers or records. This item pays only the amount of expense incurred that actually reduces the business income or extra expense loss.

Examples:

Patterson's Printing burns to the ground. It cannot operate without presses so operations are suspended. Patterson orders new presses but delivery will take six months. Patterson produces extremely high-quality goods and cannot operate with used equipment that has not been overhauled. No supplier has overhauled used equipment available sooner than six months. However, the presses can be delivered in only three months if Patterson pays a $10,000 premium to move up the waiting list and $15,000 in airfreight charges. The insurance company agrees to this because each month of suspension costs it $50,000. By reducing the period of suspension by three months, the company saves $150,000 less the $25,000 in expediting expenses. Patterson is paid for the first three months of suspension and gets back into business three months sooner. This helps it retain its customers.
Aardvark Abstracts and Title Search loses most of its records in a fire. It finds permanent new office space within two days. Because most of its time is spent in the county office reviewing deed and property records, it can continue operations without interruption. However, the fire destroyed 20 years’ worth of copies of title records made from county records. A computer tape was made of customers' records and kept off site, while back title pages had been copied. Recopying title pages costs $1 per page and many hours of research. There is little or no coverage in this situation because the period of restoration for extra expense begins only at the moment fire first interrupts the business and ends when business resumes at the permanent replacement location.

(3) Under this coverage, the term suspension does not require that all operations cease. Suspension can be either a partial slowing down or a complete shutdown. Suspension also occurs when a tenant can no longer occupy all or any part of a described premises.

(4) As with business income coverage, extra expenses must be incurred within the 12 consecutive months immediately following the date of direct physical loss or damage. There is no set limit of insurance for extra expenses. Any covered extra expense must be incurred during the period of restoration.

Note: The Businessowners Coverage Form's language gives the insurance company some say in how it interprets the restoration period.

Example: W&W Dry Cleaning sustains a lightning loss to its line of dry-cleaning machines. Business is suspended for a week until alternate facilities can be rented during the night shift. The loss of income incurred during the period of suspension is covered. Rent is paid for the alternate facilities and use of the machines and extra wages are paid for the workers to work the night shift. Both of these extra expenses are initially covered. W&W can replace its machines with one of two identical models from two manufacturers. Model A can be installed in six weeks. Model B requires eight weeks to install. W&W decides to order Model B. The insurance company determines the period of restoration to be the six weeks needed to restore operations with the perfectly functional Model A. As a result, the extra expenses W&W incurs during the additional two weeks beyond the period of restoration by using Model B are not covered.

h. Pollutant Cleanup and Removal

The insurance company pays the named insured's expenses to remove pollutants from land or water at the described premises if the pollutants were caused by or resulted from a covered cause of loss that takes place during the policy period. The company pays only if the named insured reports them to the company within 180 days of the date the covered cause of loss takes place. Coverage does not apply to costs to test for, monitor, or assess any aspect of pollutants. However, the company pays for testing done in conjunction with extracting pollutants from either land or water.

This coverage is limited to $10,000 per location. It is the most paid for the total of all such losses at the location that occur during each 12-month period, regardless of the number of claims.

i. Civil Authority

If a covered cause of loss damages to premises other than the named insured's and because of that loss a civil authority restricts access to the insured premises, coverage applies for up to four consecutive weeks with business income coverage starting 72 hours after the restriction begins. Extra expense is not subject to a waiting period and ends after four weeks or when the business income coverage under civil authority ends, whichever is later.

This is subject to both of the following:

(1) The described premises must be not more than one mile from the damaged property.

(2) The reason for the restriction must be due to damage that results from a covered cause of loss or due to the civil authorities needing to gain access to damaged property.

Note: The one-mile limitation probably had its birth with the 09/11/01 business income claims. One mile may seem to be a large area in a densely populated urban space but is a very small area in less populated suburban and rural settings. The impact could be significant for businesses located in any disaster area where civil authorities may close an area in order to maintain control even though many properties may not be damaged. Examples to consider are any of the coastline communities following a hurricane or rural communities after a tornado. Some businesses or communities may be relatively undamaged following a storm but the civil authorities prevent entry to them in order to maintain control of the larger area that is severely damaged.

This coverage is subject to the definitions in Business Income and Extra Expense. Similar to those coverages, it is not subject to a limit of insurance.

Example: A riot two blocks away from the insured begins on Tuesday at 9:00 p.m. Civil authorities shut down all access to the area the next morning at 8:00 a.m., including the streets that offer access to the insured’s 24-hour convenience store. The looting continues and the streets remain closed until Saturday morning at 6:00 a.m. During that time, the insured could not find suitable inventory or a place to conduct temporary operations outside the riot zone. The loss amount is calculated at $145.00 per hour. While the riot began at 9:00 p.m. on Tuesday, the action of civil authority did not begin until 8:00 a.m. on Wednesday. The 72-hour waiting period begins at that time and lasts until 8:00 a.m. on Friday. The insured will be paid for only the 22 hours of interrupted business between 8:00 a.m. on Friday and 6:00 a.m. on Saturday. The total paid loss is $3,190 but the total incurred loss is $13,360.

j. Money Orders and Counterfeit Money

The insurance company pays for loss that is a direct result of the named insured accepting money orders issued by any post office, express company, or bank that are not paid when presented. It also covers such loss due to counterfeit money being accepted in exchange for merchandise, money, or services. The most paid in any one loss is $1,000.

Examples:

The insured’s clerk accepts a counterfeit $50 bill that the bank discovers and destroys. The loss is less than the $500 deductible but otherwise is a covered cause of loss.
Able Pharmacy and Check Cashing cashes a counterfeit United States Postal Service money order for $1,000. The insurance company pays $500 after subtracting the $500 deductible.

There is no provision to increase this limit. Additional coverage is usually not available in other standard ISO commercial property coverage forms because the exposure created by accepting large amounts of counterfeit money usually exists only in situations where large amounts of money are exchanged, such as at banks, check cashing services, and casinos. Their employees are usually trained to spot counterfeits or have equipment to help them do so.

k. Forgery or Alteration

Coverage applies to loss due to forgery or alteration of any named insured issued check, bill of exchange, draft, promissory note, or similar written promise of payment in money. The financial instruments could be issued by the named insured, its agent, or someone who poses as them. In addition, if the named insured is sued for refusing to honor such items because they appear to be forged or altered, the insurance company pays reasonable legal expenses the named insured incurs to defend itself but only if it notifies the insurance company and receives written permission prior to pursuing a defense.

The term check includes substitute checks that meet the definition in the Check Clearing for the 21st Century Act. The most paid for any one loss is $2,500. Higher limits are available.

Note: The legal expenses this coverage provides are included in the limit. They are not in addition to the limit.

Coverage can also be obtained using CR 00 21–Forgery or Alteration.

Related Article: Commercial Crime Coverage Analysis

l. Increased Cost of Construction (07 13 changes)

This coverage is particularly beneficial to insureds subject to the Americans with Disabilities Acts (ADA) and similar local, state, and federal ordinances or laws but it is also helpful to any insured because it responds to governmental building requirements that have been grandfathered until major renovations must take place. These regulations can substantially affect the amount of a loss. They are intended for good, help many people, and their costs are relatively easily absorbed when incorporated in new construction. However, updating existing structures after a partial loss can add significant costs to the rebuilding process and the unendorsed Businessowners Coverage Form does not cover them.

Example: Mainville Church was proud that its building was over 100 years old and still in good condition, thanks to regular maintenance and repair. Unfortunately, a grease fire in the basement kitchen got out of hand and destroyed over a third of the building. Mainville was determined to rebuild but expected problems due to recent ordinances where compliance was mandatory.

(1) This Additional Coverage applies only if the building is insured “on a replacement cost basis.” If the Actual Cash Value of Building Option on the Declarations says Yes, this Additional Coverage does not apply.

Editorial Note: There is not statement as to what would occur if the building is carrying less than 80% of its replacement cost value at the time of the loss and is therefore required to be settled based on actual cash value. The ambiguity of the situation would probably result in this coverage being provided but the question could be raised.(2) This paragraph explains the coverage. It responds to additional costs that must be incurred in order to bring the building up to the existing minimum standards of the ordinances or codes. Coverage is subject to modifications in paragraphs e. (3) through (9). This coverage applies when all of the following events occur:

· A covered cause of loss damages covered property.

· The insured incurs increased costs to repair, rebuild, or replace the damaged portions of covered property.

· The increased costs result from complying with an ordinance or law.

Example: The Mainville loss was due to lightning and windstorm. Because more than a third of the building was damaged, compliance with grandfathered ordinances adds required additional construction costs. The sanctuary was located on the main floor with a handicapped ramp but Sunday school classes were held in the basement that did not have handicapped access. Providing such access added $42,000 to the $210,000 direct damage loss.

(3) This paragraph states that the law or code in (2) above must meet two requirements before increased costs are covered:

· It must regulate construction or repair of buildings or establish a zoning or land use requirement at the described premises.

· It must be in force at the time of loss.

Example: The village of Mainville had considered an additional ordinance at the time of the Mainville Church loss and enacted it just before it issued the building permit to the church. The new ordinance changed the grade on the handicapped ramp resulting in the current Mainville ramp no longer meeting code. The insurance company did not cover this additional cost, because the ordinance became effective after the loss occurred.

(4) The insurance company does not pay for costs due to an ordinance or law the insured should have complied with before the loss occurred but did not.

Example: The village of Mainville and Mainville Church had disagreed about the gutters on the building and the flow of rainwater into the sewer system for many years. The church refused to comply with the rules and the village would not shut down a church over such a minor issue. However, the village now refused to issue a building permit until the gutters were changed. This additional cost is not covered.

(5) The insurance company does not pay either of the following:

· Costs to enforce or comply with any ordinance or law that requires demolishing, repairing, replacing, reconstructing, remodeling, or remediating any property because the property is contaminated by pollutants or because there is fungi, wet rot, or dry rot

· Costs associated with enforcing or complying with an ordinance or law that requires that any insured or others respond to in any way or assess the effects of pollutants, fungi, wet rot, or dry rot

Note: This additional coverage is not intended to be back door pollution coverage.

(6) The most the insurance company pays for one described and damaged building is $10,000. This is an additional amount of insurance and does not affect any other limits. If the limit of insurance is is a blanket limit, the most paid for each damaged building is $10,000.

(7) The insurance company does not pay the increased cost of construction until the property is repaired or replaced. This is not open ended. It must be repaired or replaced within two years unless the insurance company provides written permission for an extension.

The insurance company pays no more than the cost to satisfy the increased costs of construction at the existing premises even if rebuilding takes place at a new location. The only exception is when the ordinance requires that the building be relocated at which time the increase due to the new location requirement is paid.

Example: The Mainville Church congregation was outgrowing its existing location and the trustees decided to start a building fund and rebuild at a new location instead of incurring the costs and expenses to meet current codes. The insurance company pays the amount of loss and the increased cost of construction, even at a new location.

(8) This paragraph states that this Additional Coverage is not subject to the ordinance or law exclusion. This is because of the possibility of confusing this Additional Coverage with the Ordinance or Law exclusion.

(9) This paragraph states that increased costs of construction due to the enforcing or complying with ordinances or laws are not covered except under this Additional Coverage. As stated in (6), the amount this Additional Coverage pays is not subject to the limitations in Section I–Loss Payment Property Loss Condition.

Note: This paragraph eliminates any perception that any other coverage applies to losses that involve increased costs of construction.

m. Business Income from Dependent Properties (07 13 changes)

Businesses do not operate in a vacuum. If a supplier or a customer sustains a loss, the insured may also sustain a loss of income until the supplier or customer either resumes operations or the insured replaces it. This coverage responds to situations like this. The $5,000 limit can be increased. Coverage applies if the following events occur:

(1) The loss the dependent property or secondary dependent property sustains must be from a covered cause of loss. This Additional Coverage does not apply if the only loss at the dependent property or secondary dependent property is to electronic data. When both electronic data and other covered property at the dependent property or secondary dependent property is damaged, this coverage ends when the other property damage is restored even though the electronic data has not been.

Example: Myrtle’s fabric shop receives most of its fabric from Berline Textiles. Berline sustains flood damage, ending Myrtle's fabric supply. Myrtle’s policy does not cover flood but she submits a claim because of her loss due to the loss at Berline. The claim is denied because Myrtle's policy does not cover flood.

(2) The named insured must resume some or all operations by using other sources or outlets if it can do so.

(3) If operations are not resumed as quickly as possible, any loss payment is adjusted to the amount that reflects what it would have been if operations had resumed.

Example: Let's change the example above. Berline’s has a fire instead of a flood. In this case, coverage is available. Because Myrtle anticipates a downtime of three weeks, she plans a vacation. She then learns that Berline’s can resume shipments after just one week but her plans are set. Myrtle is paid for only one week, not three.

(4) There are four types of dependent properties:

· Ones that provide services or material to the named insured, such as the exclusive supplier to a restaurant

Note: This does not include communication, water, power, or wastewater removal services suppliers.

· Ones that purchase the named insured’s services or products

Note: An example is a just-in-time supplier to an automobile manufacturing plant.

· Ones that manufacture products on the named insured’s behalf

Note: This might be a manufacturing plant that provides a toy brand specifically for a major retail chain.

· Ones that help attract customers to the named insured

Note: This might be a major department store next to the named insured's novelty shop.

(5) This sub-paragraph states what secondary dependent property means. It is an entity that a dependent property does not own or operate. It has the following characteristics:

It delivers materials or services to a dependent property that the dependent property then uses to provide materials or services to the named insured.
It accepts materials or services from a dependent property that then accepts the named insured’s materials or services.

Secondary dependent properties do not include tunnels, bridges, roads, pipelines, airfields, waterways, or other similar facilities.

Secondary dependent properties do not include any of the following supply services:

· Water

· Communications

· Power

· Wastewater removal

(6) The coverage period begins 72 hours after the covered loss occurs and ends when the dependent property or secondary dependent property is or should be back in operation.

(7) The Business Income coverage period does not apply to any increased time period required due to enforcing or complying with ordinances that regulate construction, use, repair, or demolition of any property or that require that any insured or others respond in any way to or assess the effects of pollutants.

Note: The policy’s expiration date does not affect the Business Income coverage period.

(8) Business Income as defined in 5. Additional Coverage f. Business Income also applies to this Additional Coverage.

n. Glass Expenses

The insurance company pays expenses incurred to:

Temporarily board-up openings or install temporary plates in case of delay in repairing or replacing damaged glass
Remove or replace obstructions in order to repair and/or replace building glass, except for removing or replacing window displays.

o. Fire Extinguisher Systems Recharge Expense

This coverage provides an additional $5,000 for each occurrence to pay the costs to recharge fire extinguishers and fire-extinguishing systems and for damage that occurs due to the system accidentally discharging. However, coverage does not apply if the discharge occurs during installation or testing.

Example: The manual discharge for the automatic extinguishing system is located next to the telephone at Angie's snack and grill. Angie is talking on the telephone to her boyfriend when she becomes distracted and inadvertently pulls the system's handle, setting off the automatic extinguishing system over the deep fryers. Coverage applies for the recharge and the cleanup necessary to return the system to normal.

p. Electronic Data (07 13 change)

(1) The insurance company pays the costs to restore or replace destroyed or corrupted electronic data due to a covered cause of loss. Data that is not restored or replaced is valued at the cost to replace the media the data was stored on with similar blank media.

Note: This Additional Coverage was added when coverage for electronic data under valuable papers and records coverage was deleted. As a result, any coverage for electronic data is limited to only this Additional Coverage.

(2) Computer virus is added to the other covered causes of loss. It includes harmful codes or other types of instruction introduced into the computer or connected network with the intent to damage or destroy information or to disrupt the computer or network’s normal operations. There is no coverage if an employee or another individual the named insured hires to work on the computer or network causes the damage.

(3) The most the insurance company pays in any policy year is $10,000. This is regardless of the number of premises, locations, or computer systems involved or the number of occurrences of loss or damage. This annual aggregate limit can be increased. If a loss begins in one policy year and continues into another, all loss is treated as having occurred in the first year.

Note: The limit is not location specific. It is the total annual aggregate limit, regardless of the number of locations or number of computers.

(4) (07 13 addition) This Additional Coverage does not apply to the following:

· Electronic data that is an integral part of a building’s elevator, lighting, heating, ventilating, air conditioning, or security systems

· The named insured’s stock of pre-packaged software

The items above are excepted because they are also listed as exceptions to electronic data as property not covered. This removes the possibly of ambiguity of coverage provided in one area and then limited in another.

Note: This is extremely limited coverage. Larger computer exposures should be insured under electronic data processing coverage forms or policies.

AAIS Electronic Data Processing Equipment and Business Computer Coverage Forms

ISO Computer Systems Coverage Form

q. Interruption of Computer Operations

(1) This Additional Coverage extends Business Income and Extra Expense insurance to apply to a suspension of operations. The suspension must be due to an interruption in computer operations caused by a covered cause of loss destroying or corrupting electronic data. The named insured has the option to except this extension which is subject to the other provisions of this Additional Coverage.

(2) Loss or damage must be caused by a Specified Causes of Loss or by Collapse. Any other covered causes of loss (such as earthquake or flood) endorsed to this coverage form do not apply to this Additional Coverage.

Computer virus is an additional covered cause of loss. The computer virus cause of loss includes harmful codes or other types of instruction introduced into the computer or connected network on order to damage or destroy information or to disrupt the computer or network’s normal operations. There is no coverage if an employee or an individual the named insured hires to work on the computer or network causes the damage.

(3) The most the insurance company pays in any policy year is $10,000. This is an annual aggregate limit that can be increased.

Note: The limit is not location specific. It is the total annual aggregate limit, regardless of the number of locations or number of computers.

If a loss begins in one policy year and continues into another, all loss is treated as having occurred in the first year.

(4) This Additional Coverage does not apply to losses sustained or expenses incurred after the period of restoration.

(5) Business income loss due to damaged electronic data is covered only as described in (1), (2), (3), and (4) above.

(6) Extra Expense loss due to damaged electronic data is covered only as described in (1), (2), (3,) and (4) above.

(7) (07 13 addition) This Additional Coverage does not apply to the following:

· Electronic data that is an integral part of a building’s elevator, lighting, heating, ventilating, air conditioning, or security systems

· The named insured’s stock of pre-packaged software

Note: This is extremely limited coverage. Electronic data processing coverage forms or policies should be used to insure larger electronic data processing exposures.

AAIS Electronic Data Processing Equipment and Business Computer Coverage Forms

ISO Computer Systems Coverage Form

r. Limited Coverage for Fungi, Wet Rot, or Dry Rot (07 13 change)

(1) The coverage described in (2) and (6) below applies only if the fungi, wet rot, or dry rot results from specified causes of loss, excluding fire or lightning, that takes place during the policy period. In addition, all reasonable means must be used at the time of loss to protect the property from further damage.

Note: Fire and lightning are excluded because the fungi, wet rot, or dry rot exclusion does not apply to the fire and lightning causes of loss.

The terms of this Additional Coverage do not apply to trees, shrubs, plants, and lawns on vegetated roofs. (07 13 addition)

Note: This limitation for vegetated roofs is needed because trees, shrubs, plants, and lawns are considered covered property and insuring them against such common outdoor damage is unrealistic and costly.

(2) The insurance company pays for loss or damage due to fungi, wet rot, or dry rot. This means:

· Direct physical damage or loss that fungi, wet rot, or dry rot causes. This also includes the costs to remove them.

· The costs to tear out and replace any part of property to the extent necessary to gain access to the fungi, wet rot, or dry rot. This includes the building.

· If it is reasonable to assume that fungi, wet rot, or dry rot is present, the cost of tests done after the damaged property is removed, repaired, replaced, or restored

(3) The most the insurance company pays in any policy year for all covered loss or damage is $15,000, regardless of the number of claims. This is even if a specific loss remains active or present or recurs in a subsequent policy period.

Note: There is no coverage if an occurrence continues into the next 12-month period because all damage from the occurrence is restricted to the time period when it was first discovered.

(4) The $15,000 limit is a sub-limit. It is not an additional amount of insurance. If there is a covered loss under this Additional Coverage and another coverage, the limit is not more than the covered property’s limit of insurance. If there is a partial loss that involves covered property that this Additional Coverage also insures, the amount paid increases by not more than the $15,000 limit.

(5) This Additional Coverage does not increase or decrease 5. Additional Coverages d. Collapse and e. Water Damage, Other Liquids, Powder, or Molten Material Damage.

(6) If Business Income and/or Extra Expense coverage applies to the described premises and the operations suspended meet the terms and conditions of the applicable coverage, the following applies:

· If the loss that resulted in fungi, wet rot, or dry rot did not, by and of itself, require that operations be suspended, but the suspension was required because of the fungi, wet rot, or dry rot loss or damage to property, the insurance company's payment is limited to the amount of loss or damage sustained for up to 30 days.

Note: The days do not have to be consecutive.

· If the suspended operations were due to loss or damage other than by fungi, wet rot, or dry rot, but their remediation extends the period of restoration, the insurance company pays for loss and/or expense sustained any time during the restoration period for up to 30 days.

Note: The days do not have to be consecutive.

Special Note: Pay close attention to and carefully review 5. Additional Coverages p. Electronic Data, q. Interruption of Computer Operations, and r. Limited Coverage for Fungi, Wet Rot, or Dry Rot. They are very limiting and operate along with certain exclusions considered to be restrictions of coverage.

6. Coverage Extensions

These coverages provide additions to the limits of insurance on the declarations. They apply to property in or on the building described on the declarations or within 100 feet of the described premises either in the open or in or on a vehicle.

a. Newly Acquired or Constructed Property (07 13 change)

(1) Building coverage may be extended to apply to newly constructed buildings on the described premises while they are being built. It may also be extended to newly acquired buildings that are located off premises as long as they are used for the same or a similar purpose as other buildings listed on the declarations or as warehouses. The most paid for loss or damage to each such building is $250,000.

Example: Moe’s Sandwich Shop has the opportunity to purchase the dry-cleaning operation across the street. Although the businesses are quite different, Moe’s son convinces him that he can handle it. The purchase is handled as a contract sale. As Moe and his son visit the dry-cleaning operation a few days later, a fire breaks out and results in a substantial loss. The previous owner no longer has coverage and Moe discovers that he doesn't either, because the businesses are not similar.

(2) Business Personal Property

Business personal property coverage may be extended to apply to both newly acquired and existing business personal property at a newly acquired location or at a newly constructed or acquired building at a described premises. The most paid for loss or damage at each such building is $100,000.

The 07 13 edition does not include the provision that was in the 01 10 edition that extends this Coverage Extension to newly acquired personal property at a described premises. This change is a reduction in coverage.

Example: Sheila decides to totally renovate the interior of her newly acquired office building. The new personal property is purchased and delivered but a tornado damages the building before they are installed. Because of this coverage, her new items are covered as well as any personal property that was acquired with the building.

Note: This coverage does not apply to personal property the named insured temporarily acquires while performing installation or other work on the property or its wholesale activities.

(3) Period of Coverage

These coverage extensions apply only until the policy expires, the named insured reports the values, or for 30 days, whichever is less. However, the named insured pays premium beginning on the date of acquisition or the date that construction begins.

Note: This is important "peace of mind" coverage even though additional premium must be paid. Businesspeople occasionally purchase property without immediately informing their insurance agent. This period of coverage provides sufficient time to report newly acquired property.

b. Personal Property off Premises

The named insured can extend insurance to covered property while in transit or at a location it does not own, operate, or lease. However, covered property does not include money, securities, valuable papers and records, or accounts receivable. The most paid for loss or damage to such property is $10,000.

Note: In transit can be between any owned, leased, or operated location. It can also be a location the named insured does not own, lease or operate. Transportation is not limited to only ground transportation. It can include air and water transportation. However, coverage is limited to the United States of America, its territories and possessions, Puerto Rico, and Canada, and while in transit between points in the coverage territory. Air or sea transit to Hawaii is covered.

For most small retailers, $10,000 may be an adequate limit of insurance.

Unless there is a value or limit declared for the shipped items, transportation companies may limit the amount recoverable after a covered loss. Even small retailers may have extraordinarily large shipments prior to their peak seasons. If a limit larger than $10,000 is required for goods that others transport, increased limits from the shipping company or an Inland Marine transportation policy should be purchased.

AAIS Transportation Coverage Forms

ISO Motor Truck Cargo Carriers Coverage Form

c. Outdoor Property (07 13 change)

The named insured can extend the coverage provided to its outdoor fences, radio and television antennas, satellite dishes, and detached signs. Coverage includes debris removal expense. However, coverage applies only to loss or damage caused by or that results from fire, lightning, riot, civil commotion, or aircraft. The most paid for loss or damage is $2,500. Owned trees, shrubs, and plants are limited to not more than $1,000 on any one tree, shrub, or plant. The $2,500 limit can be increased.

This Coverage Extension does not cover trees, shrubs, and plants that are part of vegetated roofs. This is because they have full coverage as business personal property and coverage here would duplicate that coverage and be confusing.

This Coverage Extension includes the expense to remove the debris of trees, shrubs, and plants that belong to others from the described premises. There is an exception in cases where the named insured is a tenant and the landlord owns such property at the described premises. This provision is subject to the terms and limitations of coverage stated above. (07 13 addition)

Note: This coverage extension applies to only outdoor trees, shrubs and plants. Trees, shrubs, and plants inside buildings that are not considered growing crops or lawns are covered against direct physical loss or damage and are included in the business personal property limits. This means that office buildings with large indoor landscaped atriums have full coverage but an office building built around a large garden is subject to the outdoor property exclusion and this limited coverage.

d. Personal Effects (07 13 change)

The named insured may extend Business Personal Property insurance to personal effects it owns or to those owned by its officers, partners, members, managers or employees (including leased or temporary employees). This Coverage Extension does not apply to tools or equipment used in the business and excludes loss or damage due to theft. The most paid for loss or damage to such property at each described premises is $2,500.

Example: Robert’s office was quite a sight to behold. His golf and sports memorabilia seemed to take up the entire space. A fire that seriously damaged the building also destroyed most of his memorabilia. Coverage applied, subject to the other insurance clause, his homeowners' policy, and the valuation clause in this coverage form. Robert’s coverage is not guaranteed. First the named insured must ask for coverage to be extended. A decision must then be made as to how to distribute the $2,500 among all of the employees, officers, partners, members, managers, and employees who also sustained a loss.

e. Valuable Papers and Records

(1) Business personal property coverage extends to direct physical loss or damage to valuable papers and records the named insured owns or that it has in its care, custody, or control. The damage must be caused by or result from a covered cause of loss. This coverage includes the cost to research lost information when there are no duplicates.

(2) Coverage does not apply to samples or for property already sold that is held for delivery or to property in storage at locations away from the covered premises.

(3) The most paid for loss or damage in any one occurrence at a covered location is $10,000. Higher limits are available. $5,000 is the most paid if a covered loss occurs at a location not covered or described on the declarations.

(4) Loss or damage is based on the cost to replace the damaged or lost information. However, loss settlement is based on the replacement cost of only the blank material if the content of the valuable papers is not restored.

(5) None of B. Exclusions apply to this Coverage Extension except for the following:

· 1. c. Governmental Action

· 1. d. Nuclear Hazard

· 1. f. War and Military Action

· 2. f. Dishonesty

· 2. g. False Pretense

· 2. m. Errors or Omissions (when copying or processing valuable papers)

· 3. a. Weather Conditions

· 3. b. Acts or Decisions

· 3. c. Negligent Work

f. Accounts Receivable

(1) Business personal property coverage may be extended to include accounts receivable. Coverage applies to any of the following situations but must involve direct physical loss or damage by a covered cause of loss to the named insured’s records of accounts receivable:

Amounts that customers owe to the named insured that cannot be collected
Interest on loans taken out to offset amounts that cannot be collected until this coverage pays
Any unusual collection expenses incurred because of the covered loss
Any other reasonable expenses or costs incurred while re-establishing records of accounts receivable after a covered loss

(2) The most paid in a single occurrence at a covered location is $10,000. Higher limits are available. $5,000 is the most paid if a loss occurs at a location not covered or described on the declarations.

(3) None of the exclusions in B. Exclusions apply to this Coverage Extension except for the following:

· 1. c. Governmental Action

· 1. d. Nuclear Hazard

· 1. f. War And Military Action

· 2. f. Dishonesty

· 2. g. False Pretense

· 3. a. Weather Conditions

· 3. b. Acts or Decisions

· 3. c. Negligent Work

· 6. Accounts Receivable Exclusion.

g. Business Personal Property Temporarily in Portable Storage Units (07 13 addition)

(1) Business personal property that is stored in a portable storage unit is covered. Storage units include detached trailers. The unit must be located either within 100 feet of the building or within 100 feet of the premises, whichever distance is greater.

(2) The coverage limitation with respect to sand, dust, sleet, snow, ice, or rain within a structure applies to any property within the storage unit.

3) This coverage extension ends 90 days after the business personal property is placed inside the storage unit. However, it can end earlier. Coverage ends after the storage unit has been on the premises for more than 90 days. This means that even if the business personal property has been in the storage unit for two days, if the storage unit has been there for 90 days, all coverage for the business property in the unit ends.

Example: Shelly’s Shoes receives an exceptional buy but she does not have any room in her store for the extra merchandise. She rents a temporary storage unit to store the shoes. She leases the unit for 90 days. She sells the shoes in the unit and comes across another exceptional buy. She extends the lease for another 90 days. The second batch of shoes arrives and a fire occurs the next day. The new shoes are excluded because the storage unit was on premises more than 90 days.

Note: This loss would have been covered if the unit was removed for one day and returned the next day.

(4) This coverage is subject to a $10,000 sub-limit. It does not increase the amount of business personal property coverage. This sub-limit can be increased.

(5) Coverage also does not apply to loss or damage covered elsewhere in the coverage form. In addition, there is no coverage for the storage unit itself.

B. EXCLUSIONS

1. Primary Exclusions

The doctrine of concurrent causation holds that a coverage form or policy must pay if a loss to insured property can be attributed to two causes, one excluded and the other covered. By applying this concept, coverage has been found for earth movement, flood, and other events that are specifically excluded.

To eliminate this problem, this paragraph makes three very specific statements:

The insurance company does not pay for loss or damage caused directly or indirectly by any of the listed causes of loss.
Loss or damage is excluded, regardless of any other cause, sequence, or events that contribute to the loss or damage.
Loss or damage is excluded even if a large area sustains widespread damage.

This language applies to these nine exclusions.

a. Ordinance or Law (07 13 change)

Loss due to the enforcing of or the complying with any ordinance or law that regulates construction, use, or repair of any property, or that requires tearing down any property is excluded. This exclusion also applies to the cost to remove of debris due to such enforcement or compliance regardless of whether or not the property has been damaged.

Example: Millie’s Fine Furniture has been in the heart of downtown for as long as anyone can remember. Its frame structure is quite noticeable and distinct from the concrete and brick buildings that surround it. During a night of looting, a Molotov cocktail thrown into the display window ignites both the building and the upholstered furniture in it. Because the fire department cannot respond quickly, the building is 60% damaged. Millie’s family wants to rebuild so the building appears the same as before but a local ordinance requires that all buildings be of concrete or better construction. Because of this exclusion, the family collects only the amount of money needed to restore the building to the original frame construction. It must pay the additional cost of the construction upgrade from its own funds.

Note: BP 04 46–Ordinance or Law Coverage can be written to cover the claim described above.

Related Article: CP 04 05–Ordinance or Law Coverage

b. Earth Movement (07 13 changes)

Five separate categories of earth movement events are excluded.

(1) Earthquake and any sinking, rising, or shifting of the earth that occurs with the earthquake. The 07 13 edition adds tremors and aftershocks to this list.

(2) Landslide and any sinking, rising, or shifting of the earth that occurs with the landslide

(3) Mine subsidence of man-made mines, whether the mine is operating or not

Note: This is a common problem in some mid-western states. Separate mine subsidence coverage is available in some states and must be offered in certain counties. Legislation enacted in those states details the coverage that must be offered, the price that may be charged, and the way coverage is written. The state laws with respect to mine subsidence coverage on property in Illinois, Indiana, Kentucky, Pennsylvania or West Virginia should be reviewed carefully.

(4) Sinking of the earth and any rising, shifting, erosion, contraction, or expansion of the ground as well as water below the surface of the ground and poor soil conditions. Sinkhole collapse is an exception to this exclusion.

Note: An important exception to the exclusions described above is that coverage applies if fire or explosion occurs due to any of them but for only the loss or damage the fire or explosion causes.

Example: Natural gas lines run beneath Prairie Town's main street. A slight earthquake occurs and causes comparatively little damage to the primarily frame structures. Unfortunately, the gas lines are not built to withstand such an incident and they crack, resulting in an explosion followed by a fire. The fire destroys the local drugstore, florist, hardware store, and bank. The loss due to the ensuing fire and explosion is covered.

(5) Volcanic eruption, unless it results in fire, breakage of building glass, or volcanic action. Volcanic action is defined as follows:

(a) Airborne volcanic blast or airborne shock waves

(b) Various types of dust, ash, and particulate material emitted

(c) Lava flow

All volcanic activity in (a), (b), and (c) above that takes place within any 168-hour period is considered a single occurrence. (07 13 change)

The costs to remove ash, dust, or particulate matter is excluded unless covered property sustains direct physical loss or damage.

Note: Volcanoes are unpredictable and the damage they cause varies considerably from one to another. Eruptions usually occur over a number of days. All activity within 168 consecutive hours is treated as one occurrence. This is very important to the insured with respect to the deductible. Instead of multiple deductibles due to multiple events, only one deductible applies for any 168-hour period. Volcanic eruption can be covered using BP 10 03–Earthquake.

All aspects of this exclusion apply regardless of whether nature or any other force causes the event. (07 13 addition)

Example: Mountaintop Shopping is a strip mall built on the side of a mountain to serve the resort community. A number of unusual rain events cause the land beneath the strip mall to give way. The landslide eventually destroys two stores. Mountaintop Shopping claims that the loss is due to faulty construction and land preparation, not landslide. This important clarifying language makes it explicit that this loss is excluded.

c. Governmental Action

Coverage does not apply to property a government authority seizes or destroys. Customs seizures, zero tolerance Drug Enforcement Agency (DEA) drug confiscation, or property seized as evidence in a trial that loses value because of the amount of time it is confiscated are examples of this exclusion. However, property the governmental authority damages at the time of a hostile fire to prevent it from spreading is covered.

Example: The Treetop Resort is nestled in a grove of trees near a national park. A fire begins in the park and heads towards town. To create a firebreak, the fire department clears a path that includes the Treetop property. This loss is covered because the fire and its threat are imminent and a civil authority takes the action.

d. Nuclear Hazard

All nuclear hazards are excluded. This includes nuclear reaction, radiation, or radioactive contamination. However, the damage to covered property caused by fire that was the result of nuclear hazard is covered.

e. Utility Services

There is no coverage for loss or damage caused by or that results from failure of power, communication, water, or other utility service to the described premises if the failure originates away from such premises. There is also no coverage if the loss or damage is due to failure of equipment the off premises utility service owns that is on the described premises. Utility service failure includes reduction in supply and insufficient capacity.

Any loss or damage caused by a power surge that would not have occurred except for an event that causes power failure is excluded.

There is a very broad exception to this exclusion. A covered cause of loss may result from power surge or power failure or the failure of any of these utility services may result in a covered cause of loss that causes loss of damage. In that case, coverage applies for only the loss or damage that results. Another exception states that this exclusion does not apply to loss or damage to computers or electronic data.

Communication services also include Internet access service or access to any electronic, cellular, or satellite network. However, it is not limited to just these.

Note: Off-premises power failure coverage can be added using BP 04 56–Utility Services–Direct Damage and BP 04 57–Utility Services–Time Element. Spoilage coverage can be added using BP 04 15–Spoilage Coverage.

f. War and Military Action

This exclusion lists three specific warlike activities.

· War. This can be a declared, an undeclared, or a civil war.

· Military force of a warlike nature. These activities must utilize military personnel or agents of a government or other type of authority. Governmental action taken to prevent any of these activities is also considered war.

· Insurrection, rebellion, revolution, and attempts to usurp power. Any government action taken to respond to such actions is also considered war.

Note: This exclusion does not apply to acts of terrorism. Separate terrorism endorsements must be added to exclude such actions.

g. Water

(1) Flood is excluded. Flood is surface water, tides, tidal water, and waves. Waves include tidal waves and tsunami. Overflow of any body of water is also excluded. A body of water is a natural or man-made river, creek, ocean, or lake. Spray from any of the above, wind-driven water, and storm surge are also excluded.

(2) Mudslide and mudflow occurs when a sudden large volume of water mixes with unstable soil conditions and is excluded.

(3) Coverage does not apply to loss or damage from water that backs up, flows from, or is otherwise discharged from sewers, drains, sumps, or equipment such as sump pumps.

(4) Water saturated ground can create hydrostatic pressure against a building's surface or subsurface portions. Loss or damage caused by or that results from such water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows, and other building openings is excluded.

(5) Loss or damage due to waterborne material carried by waters described in (1), (3), and (4) above is excluded. Such material moved or carried by mudslides or mudflow described in (2) above is also excluded.

Example: The river was moving fast and picked up trees, docks, and other material. Mavis was thrilled that the flood did not enter her warehouse but was upset because a tree had been pushed against and into her storage building. Because of this exclusion, the damage to the storage barn and also to the items inside the barn is excluded.

ISO adds a paragraph that explains that this entire exclusion applies whether any of the events are caused by an act of nature or otherwise. In order to clarify the term "otherwise," ISO provides an example that uses the terms “dam,” “seawall," "levee," "boundary" or "containment system" and states that any of them failing to contain the water is an "otherwise" type situation. However, it is important to note that using this example format does not limit the exclusion to failure of only those specific items. The goal is to define the term "otherwise" as broadly as possible.

Much like other exclusions, if fire or explosion occurs because of any action of water, coverage applies to the loss or damage the fire or explosion causes. In addition, if a sprinkler leakage loss occurs due to these actions of water, coverage applies to the loss or damage the sprinkler leakage causes.

Note: There is no standard Businessowners Program endorsement that covers flood and related causes of loss. Some insurance company endorsements cover loss or damage caused by backup of sewers and drains and failure of sump pumps to operate correctly. The federally administered National Flood Insurance Program (NFIP) provides limited coverage for eligible property.

National Flood Insurance Program Standard Policy Coverage Analysis

AAIS Difference in Conditions Form–Property Coverage Part

ISO Difference in Conditions Coverage Form

h. Certain Computer-Related Losses

The Year 2000 computer scare was followed by exclusions being introduced for similar software problems caused by difficulty with handling dates and time. Under this exclusion, there is no coverage for the failure, malfunction, or inadequacy of any computer, computer application, computer operation system, computer network, microprocessor, or any other computerized part or any other product that depends on computers when caused by an inability to process dates or time. Coverage also does not apply to anything any insured does to correct any of these problems. If a computer’s failure to accept time or date results in a loss due to a specified cause of loss, coverage is available for the resulting damage from that loss.

Example: The computer program that controls the sprinkler system at the Food Warehouse does not recognize the date 02/29. The system automatically activates on 02/29/20 due to the failsafe device inside the program. Because the activation took place at 12:01 a.m., the building’s contents are completely waterlogged when employees arrive for work. This loss is covered because loss or damage caused by or resulting from sprinkler leakage is covered.

i. Fungi, Wet Rot, or Dry Rot

The presence, growth, spread, or any other activity of fungi, wet rot, or dry rot is excluded. However, if a specified cause of loss results from any such activity, the loss or damage the specified cause of loss causes is covered.

This exclusion does not apply when such activity results from either fire or lightning or to the extent that coverage applies under 5. Additional Coverage r. Limited Coverage for Fungi, Wet Rot, or Dry Rot.

Example: A tornado blows the roof off George’s Hardware Store. The top floor is destroyed but damage to the first floor initially appears to be minimal. However, mold is discovered in the interior walls on the first floor two weeks later. The mold damage is not covered because of this exclusion. Coverage is available under 5. Additional Coverage r. Limited Coverage for Fungi, Wet Rot, or Dry Rot, but is limited to $15,000 for each 12-month policy period

j. Virus or Bacteria

Loss or damage from any type of microorganism that causes or is capable of causing physical illness, distress, or disease is excluded.

Examples of excluded microorganisms are virus or bacterium but they are only examples. This means that this is a far-reaching exclusion because microorganisms are everywhere.

This exclusion does not apply to any of the items described in exclusion i. Fungi, Wet Rot, or Dry Rot above. This is important because those items have some limited coverage under 5. Additional Coverages r. Limited Coverage for Fungi, Wet Rot, or Dry Rot while these microorganisms do not.

This exclusion takes precedence if a microorganism could be excluded under this exclusion or under the pollution exclusion. This means that 5. Additional Coverages h. Pollutant Clean-up and Removal does not apply to damage such an organism causes.

2. Secondary Exclusions

The lead in language for this group of exclusions is less restrictive than the lead in language in 1. Primary Exclusions. For example, if the proximate cause of loss is a covered cause of loss, the subsequent and companion excluded causes of loss do not have any bearing on the claim. If fire causes a machine to break down, coverage applies because the proximate cause of loss is fire and the breakdown results from the fire damage. The same approach applies with rust that develops after an accidental sprinkler leakage incident.

The insurance company does not pay for loss or damage caused by or that results from the following:

a. Electrical Apparatus

There is no coverage for damage, disturbance, disruption, or any type of interference with any electrical or electronic wire, device, appliance, system or network or device, appliance, system, or network that utilizes cellular or satellite technology caused by or that results from artificially generated energy.

There is a wide range of the types of artificially generated energy. It can be electrical, magnet, or electromagnetic. Examples of such energy are electrical currents (including arcing), magnetic, or electromagnetic field produced electrical charge, electromagnetic energy pulses, or waves or microwaves from an electromagnet.

There are exceptions.

· Loss or damage due to a fire that results from the above excluded items is covered.

· Loss or damage to computers that is due to artificially generated energy is covered but only if caused by either of the following:

o An occurrence that takes place within 100 feet of the described premises

o A blackout or brownout caused by an occurrence that takes place within 100 feet of the described premises.

Note: EB 00 20-Equipment Breakdown Protection Coverage can be used to provide this coverage.

b. Consequential Losses

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

Note: These are indirect losses that follow direct loss or damage. Business income is an example of a consequential loss but that is specifically covered elsewhere in the form. The other types are not covered and there is no standard Businessowners Program endorsement available to provide it.

Related Court Case: Market Value and Loss of Market Distinguished

c. Smoke, Vapor, Gas

Loss or damage caused by or that results from smoke, vapor, or gas from agricultural smudging or industrial operations is excluded.

Note: There is no standard Businessowners Program endorsement that provides this coverage. Industrial firms and incinerators frequently release harsh acids and chemicals into the air. These can bleach or chip paint or damage plastic and rubber products. Agricultural smudging operations used to control insects or keep crops from freezing can release greasy smoke that can discolor paint and cause other damage to nearby buildings.

d. Steam Apparatus

Explosions that involve steam boilers, steam pipes, steam turbines, or steam engines the named insured owns or leases or has under its control are excluded unless an explosion of gas or fuel in a firebox, combustion chamber, or flue causes the explosion.

When an excluded explosion in the steam boiler, steam pipe, steam turbine, or steam engine causes a fire or combustion explosion, coverage applies to the loss or damage that results from that fire and combustion explosion.

Examples:

A boiler explodes because an improper fuel mixture causes gas to accumulate beyond the boiler's ability to contain the combustion. This damage is covered.
A boiler cracks, overheats, explodes, and bursts into flames. Damage to the cracked boiler is excluded but damage the ensuing fire causes is covered.
A steam pipe bursts and ruins a large amount of inventory. This damage is excluded.
The boiler runs out of water, cracks, explodes, and damages the boiler room walls. This damage is excluded.

Note: G. Optional Coverages 4. Equipment Breakdown Protection Coverage insures most incidents of sudden and accidental breakdown of boilers and similar objects. Equipment breakdown coverage forms also cover boiler explosion.

e. Frozen Plumbing

Loss or damage from water, liquids, powders, and molten materials caused by frozen plumbing, heating, air conditioning, and other appliances is excluded. There are three exceptions.

Coverage for loss due to frozen plumbing applies if any of the following apply:

· The named insured maintains heat in a building or structure.

· The equipment is drained and the supply of water, liquids, powders, or molten material is turned off.

· Fire protective systems

Note: There is no standard Businessowners Program endorsement that provides this coverage.

f. Dishonesty (07 13 changes)

Criminal or dishonest acts by any of the following persons are excluded:

· The named insured

· Others who have an interest in the insured property

· The named insured’s authorized representatives

· The named insured's partners, officers, managers, directors, or trustees,

· The named insured’s employees. This exclusion includes leased and temporary employees in the definition of employees. (07 13 change)

Dishonest or criminal acts are excluded, regardless of whether the person acts alone or colludes with others.

In addition, there is no coverage for acts of theft by any person entrusted with the property for any reason, whether that person acts alone or colludes with others. (07 13 change)

This exclusion applies 24-hours a day. This means that acts committed during business hours are excluded as well as acts committed after hours.

There are three exceptions.

· Loss or damage due to acts of destruction by the named insured’s employees or authorized representatives is covered. However, this exception does not apply to acts of theft. (07 13 change)

Examples:

Mike's Machine Shop employs union workers. The machinists go on strike and several disgruntled strikers break windows at Mike's building. This loss is covered.
Two employees of Stamps-n-Stuf Collector’s Bin break in and remove money, securities, and other property from the safe. The damage caused by the break-in is covered but the theft of money, securities, and other property is not.

· Dishonest acts of carriers for hire are not excluded. However, this exception applies only to accounts receivable and valuable papers and records coverage.

· Coverage provided by G. Optional Coverages 3. Employee Dishonesty is not excluded.

g. False Pretense

Coverage does not apply when the named insured voluntarily parts with or gives away title to any property because of a fraudulent scheme, trick, or device. It also does not apply if someone the named insured entrusts with the property does so.

The ISO Crime Insuring Agreements includes one for Fraudulent Impersonation that could be purchased to coverage this gap.

Related Article: CR 04 17–Fraudulent Impersonation

h. Exposed Property

Damage to personal property in the open is not covered when the damage is caused by rain, snow, ice, or sleet.

Note: There is no standard Businessowners Program endorsement that provides this coverage and few insurance companies write it.

i. Collapse

(1) Collapse is excluded.

The following property conditions are also excluded:

· Any type of sudden caving in or falling down

· The building’s structural integrity is lost or compromised. The evidence of this could be parts of the property simply separating from the rest of the building or the building appearing to be in danger of caving in or simply falling down.

· Any condition of sagging, bulging, cracking, settling, leaning, expanding, or shrinking as it relates to any of the above.

However, if collapse causes a covered cause of loss to occur at the described premises, the loss or damage from the covered cause of loss is covered.

(2) This exclusion does not apply with respect to coverage under 5. Additional Coverages d. Collapse.

It also does not apply to collapse due to one or more of the following causes:

· Specified causes of loss

· Building glass breaking

· Weight of accumulated rain on a roof

· Weight of personal property or people

Refer to Additional Coverages 4., Collapse described earlier in this form that provides very specific Collapse coverage.

j. Pollution

Loss caused by or that results from any release of pollutants is excluded.

There are two exceptions:

· A specified cause of loss causes the release

· When the pollution causes a specified cause of loss, the loss or damage from that specified cause of loss causes is covered.

Examples:

A sprinkler opens over an acid tank, causes it to overflow, and results in damage to floors and equipment. The direct damage the sprinkler leakage caused is covered as well as the damage the pollutant caused.
An oil spill causes a fire in the building. The damage the oil spill causes is excluded but coverage applies to the damage the subsequent fire causes.

Note: 5. Additional Coverages h. Pollutant Clean-up and Removal provides a $10,000 limit at each location during each separate 12-month policy period. It applies to costs incurred to extract pollutants from land or water at only the described premises and only if a covered cause of loss that occurs during the policy period causes the escape. There is no standard Businessowners Program endorsement that broadens or improves on this coverage.

k. Neglect

There is no coverage if an insured does not use all reasonable means available to it to keep property from further damage at the time of loss and afterwards.

Note: E. Property Loss Conditions 3. Duties in the Event of Loss or Damage states that the named insured must protect covered property from further loss. This exclusion reinforces that condition.

Example: Fred is home watching game seven of the NBA finals. A neighbor calls to tell him that he sees smoke coming from Fred’s furniture store next door to the neighbor's business. Fred ignores the situation and continues to watch the game. When the neighbor doesn’t see Fred or hear emergency vehicles, he calls the fire department in order to protect his own property. Fred hears the sirens but the game is going down to the wire and he can’t pull himself away from it. Since Fred doesn’t arrive with the keys, the fire department breaks down the door to fight the fire. After the game ends, Fred goes to the store and notifies his insurance company of the loss. However, based on information the company obtains from the fire marshal, the insurance company denies much of Fred's claim because he did not protect his property.

l. Other Types of Loss

Loss or damage by the following is excluded. However, if a specified cause of loss or glass breakage occurs, the ensuing loss or damage the specified cause of loss or glass breakage causes is covered.

(1) Wear and tear.

This is a risk of doing business that insurance does not cover.

(2) Rust, corrosion, decay, deterioration, hidden or latent defect, or any other quality, fault, or weakness in covered property that causes it to damage or destroy itself

Example: Paint in cans hardens over time, some goods fade when exposed to sunlight, and iron objects rust when exposed to moisture.

(3) Smog

This is fog that has become mixed with and polluted with smoke.

Example: Smog corrodes the building’s exterior. This is part of routine maintenance in areas where smog is a problem and is not a covered event.

(4) Loss or damage caused by or that results from settling, cracking, shrinking, or expanding

(5) Animal, bird, insect or rodent damage caused by or that results from their nesting or infestation, or by release or discharge of their secretions or waste products

Example: A deer crashes through a glass window, damaging both the window and property inside. Coverage applies in this case. If the deer decides to reside in the building, the resulting damage from it doing so is excluded.

(6) Mechanical breakdown

An example of mechanical breakdown is a rupture that centrifugal force causes but this is not the only type of mechanical breakdown excluded.

The one exception is that this exclusion does not apply to computers that break down.

Note: G. Optional Coverages 4. Equipment Breakdown Protection Coverage covers mechanical breakdown of boilers, similar objects, and production machinery. In addition, Equipment Protection Coverage Forms or policies provide broader coverage.

Examples: These losses are excluded:

A punch press that requires 440 electrical current loses 25% of its electrical phase and releases the cycle prematurely on a customer’s die, damaging it and also warping the punch press.
Lack of lubrication causes an engine to seize up.
The governor on a machine malfunctions, the engine over-revs, and the flywheel shatters. This damages both the machine and surrounding walls and windows.

(7) With respect to personal property:

· Loss or damage caused by or that results from atmospheric dampness or dryness

· Marring or scratching

Note: There is no standard Businessowners Program endorsement that covers these losses. Normal activity that causes scratches to tables is excluded but coverage would apply when a light fixture falls on a table and scratches it.

· Changes in or extremes of temperature that cause loss or damage

Note: Coverage for certain spoilage losses can be added using BP 04 15–Spoilage Coverage.

Example: Coverage does not apply if all the milk and juice spoils after a grocery store employee accidentally shuts off the freezer electrical circuit.

If a loss excluded in (1)-(7) above is the proximate cause of a specified cause of loss or damage or building glass breaking, coverage will apply to the loss or damage from that resulting specified cause of loss or glass breakage.

m. Errors or Omissions

Coverage does not apply to errors or omissions in any computer operations. Errors and omissions in storing of data, processing, or programming as described in the definition of electronic data are also excluded. There is also no coverage when errors or omissions occur while processing or copying valuable papers and records.

Coverage does apply to direct physical loss or damage due to any fire or explosion that results from any of the excluded errors or omissions. The only requirement is that the resulting fire and explosion be considered a covered fire or explosion under this policy.

n. Installation, Testing, Repair

There is no coverage for errors or deficiencies with respect to any aspect of the named insured’s computer system, including its electronic data.

Coverage does apply to direct physical loss or damage due to any fire or explosion that results from any of the excluded installation, testing or repair. The only requirement is that the resulting fire and explosion be considered a covered fire or explosion under this policy.

o. Electrical Disturbance

Magnetic injury, electrical injury, disturbance, or erasure of electronic data is excluded.

There are two exceptions:

· Direct damage due to lightening is covered.

· The coverage provided under Additional Coverages p. Electronic Data.

p. Continuous or Repeated Seepage or Leakage of Water

Loss or damage due to repeated or continual seepage or leakage of water that takes place for 14 days or more is excluded. The presence of humidity, moisture, or vapor for 14 days or more is also excluded.

Example: A crack appears in the shower wall at General Testing and dripping water accumulates on the floor beneath the shower area. An investigation reveals that water had been accumulating for many weeks and was finally forced down through the ceiling. The repairs needed are not covered.

3. Other Exclusions

Loss or damage due to any of the following is excluded. However, if the excluded cause of loss triggers a loss that involves a covered cause of loss, the ensuing loss or damage is covered.

a. Weather Conditions

A weather condition may contribute to a cause of loss otherwise excluded under the following exclusions in
B. Exclusions 1. Primary Exclusions:

· a. Ordinance or Law

· b. Earth Movement

· c. Governmental Action

· d. Nuclear Hazard

· e. Utility Services

· f. War and Military Action

· g. Water

· h. Certain Computer-related Losses

· i. Fungi, Wet Rot, or Dry Rot

· j. Virus or Bacteria

In that case, the damage the weather condition causes is also excluded.

Weather is not defined but its common usage would include wind, rain, hail, snow, and temperature but it is not limited to just these.

Note: The purpose of this exclusion is to eliminate coverage under concurrent causation. There is no standard Businessowners Program endorsement that provides this coverage.

Example: Heavy late-winter rains start a flood that undermines the building’s foundation and causes a wall to bulge. The rain turns to ice and the weight of the ice collapses the building. The flood damage is excluded but the damage the weight of ice causes is covered. This is subject to the insurance company agreeing that the roof would have collapsed even if the flood had not weakened the walls.

b. Acts or Decisions

Acts or decisions by any person, group, organization, or governmental body are excluded. Failing to act and decide is also excluded.

Example: The Corps of Engineers urged the city council to designate several sections of the city’s border as “no building” areas. The council ignored the advice and embraced a chance to gain additional tax revenue from new building projects in those areas. A serious flood occurs there a few years later and federal disaster relief is denied because of the council’s decision to ignore the Corps of Engineers’ recommendations.

c. Negligent Work

Loss caused by damage to property located on or off the described premises is excluded if caused by any of the following being faulty, inadequate, or defective:

· Development, zoning, planning, surveying, or siting

· Workmanship, grading, compaction, repair, specifications, remodeling, or repair

· Materials used to repair, construct, or remodel

· Maintenance

Examples: The following are excluded:

Property mistakenly built on wetlands that must be torn down
Inadequate roof supports that cause the roof to sag
A weak weld in the conveyor system that cracks and sends 20 newly manufactured computers crashing to the floor
A poorly built municipal dam that collapses and causes insured property to be damaged in a flood

4. Additional Exclusion

Loss or Damage to Products

There is no coverage for loss or damage to merchandise, goods, or other products caused by any of the following types of errors or omissions:

Planning
Testing
Processing
Packaging
Installation
Maintenance
Repair
Any other stage in production, use, or development

These are errors and omissions on the part of anyone. They are excluded even if a party the items have been outsourced to performs them.

This exclusion applies to any compromising of the product in form, substance, or quality.

The one exception is if such an error or omission results in a covered cause of loss occurring. In that case, coverage applies to only the loss or damage from the covered cause of loss.

Note: This exclusion applies to only merchandise, goods, or other products. It is added to exclude loss or damage to such property because of a production error or omission.

Example: Lindsey designs toys and contracts with a Nigerian manufacturer to produce toys based on her designs and manufacturing specifications. The first shipment that arrives is tested and the results indicate an unacceptable amount of lead. Lindsey cannot sell the product in the United States and the Nigerian manufacturer does not return telephone calls. Lindsey presents a claim to the insurance company because the items are useless. The claim is denied because of this and other exclusions.

5. Business Income and Extra Expense Exclusions

a. The insurance company does not pay for any increase in business income loss or extra expense caused by or that results from any of the following:

· Any delay in resuming operations or repairing, rebuilding, or replacing property because of strikers or other persons interfering at the affected location

Examples:

Teamsters across the country strike and shut down deliveries of wood construction materials. This causes a three-week increase in the period of restoration. Coverage applies.
Construction workers employed by the contractor the named insured hired to rebuild go on strike and picket the premises and delay rebuilding by four weeks. Coverage does not apply.
The named insured's second shift employees working in an undamaged portion of the building being repaired strike. Coverage does not apply.

· Licenses, leases, or contracts that lapse, are suspended, or are cancelled. However, if any of these are caused directly by operations that are suspended due to a covered cause of loss, the resulting loss that affects the named insured’s business income during the period of restoration is covered. This includes any extension of the restoration period according to the terms of Additional Coverages f. Business Income (2) Extended Business Income.

Examples:

A supplier penalizes the named insured $300 a day for each day it goes beyond the deadline date to complete a contract. Coverage does not apply.
The named insured’s liquor license is suspended until the building is rebuilt. The license cannot be used at any substitute location and the named insured’s operations are completely suspended until the period of restoration ends. Coverage applies.
The named insured’s favorable lease may be cancelled if it takes more than two months to rebuild the building. It finds a substitute location at $400 per month more than the favorable lease. Both this provision and the extra expense provision cover the additional $400 for the period of restoration. However, the period of restoration ends in six months and the favorable lease would have lasted another two years. The two years of an extra $400 per month lease payments are not covered. CP 00 60–Leasehold Interest Coverage under the ISO Commercial Property Program (CPP) is used to arrange coverage for favorable leases.

Related Article: Time Element Coverage Forms Analysis

· Consequential losses other than business income or extra expense.

b. When used within this exclusion, the term suspension means either partially slowing down or completely stopping the named insured's business operations. The term also means that all or part of a building cannot be occupied by a tenant when business income coverage applies to leased property.

Example: The Golden Age Apartments building has six units. A fire that involves two units occurs and is confined to them because of firewalls. The four remaining units remain occupied. Business income coverage pays for the loss of income for the two damaged units even though the others remain occupied.

6. Accounts Receivable Exclusion

This additional exclusion applies to only Coverage Extensions f. Accounts Receivable. The insurance company does not pay for loss or damage:

That occurs because records are altered, falsified, concealed, or destroyed in order to conceal that money, securities, or other property was wrongfully given, taken, or withheld. This exclusion applies to only accounts receivable that are part of the wrongful behaviors.

Example: Mandy set a fire at her employer’s office to conceal her false entries. Coverage does not apply to the accounts receivables falsely entered but other legitimate entries are covered.

That occur because of errors or omissions in bookkeeping, accounting, or billing
That require an audit of records or an inventory calculation to prove that it occurred

C. LIMITS OF INSURANCE

The limits of insurance on the declarations do not stand alone. This section explains exactly how they and any special restrictions and extensions apply. The limits on the declarations may not necessarily be exactly what they seem. It is very important to review this section in order to understand exactly how the limits apply.

1. Occurrence

The limits of insurance for Section I–Property on the declarations are the most paid for loss or damage in a single occurrence.

Note: Occurrence is not defined. It usually means an event or a continuous and uninterrupted series of events that causes a loss.

2. Outdoor Signs

The most paid for loss or damage to outdoor signs attached to the building in a single occurrence is $1,000 per sign.

Note: Detached outdoor signs are excluded unless a limit of insurance is added for G. Optional Coverages
1. Outdoor Signs. This optional coverage can also be used to increase the $1,000 limit for outdoor attached signs. Indoor signs attached to the building are subject to the building limit. Indoor signs not attached to the building are subject to the business personal property limit.

3. Other Coverages

The insurance amounts in Coverage Extensions and Additional Coverages listed below are in addition to limits of insurance in Section I–Property Limits of Insurance. This means that the limit for any Additional Coverage that is not listed is part of and not in addition to those limits. The terms of the Coverage Extension and Additional Coverage must be examined when applying any limit.

The following Additional Coverages with Limits of Insurance are in addition to the Section I–Property Limits of Insurance:

Fire Department Service Charge
Pollutant Clean-up and Removal
Increased Cost of Construction
Business Income from Dependent Properties
Electronic Data
Interruption of Computer Operations

4. Building Limit–Automatic Increase

a. The building limit is automatically increased by 8% annually unless there is a different percentage on the declarations. Applying the increase is subject to item b. below.

b. The amount of increase is determined by multiplying the current limit by the percentage of annual increase that applies, expressed as a decimal. This is .08 if there is no percentage of annual increase on the declarations. Multiply this number by the number of days from the date of the most recent building limit change and divide by 365.

Note: This is how the increase is pro-rated over the course of the policy year.

Example: The insurance limit is $300,000; the automatic annual increase percentage is 4% and it is the 100th day of the policy year. The formula is: $300,000 x .04 x 100 divided by 365 = $3,287. The limit of insurance is $303,287 on the 100th day of the policy period.

5. Business Personal Property Limit–Seasonal Increase

a. Paragraph 5.b. Business Personal Property Limit of Insurance is automatically increased by 25% unless there is a different percentage on the declarations.

b. The increase described in 5.a. above is not automatic. It applies only if the Business Personal Property Limit of Insurance is at least 100% of the named insured's average monthly values during the 12 months immediately before the date of loss or damage. If the named insured has been in business less than 12 months, it is based on the length of time the named insured has been in business as of the date of loss or damage.

Note: This benefit encourages insuring the property for its full value. Nearly every business has seasonal variations and it is natural to insure assuming that the loss will occur when stock values are low. By offering this automatic peak season increase, the named insured is encouraged to insure properly, knowing there is an additional limit for that peak time period. The advantage that this seasonal increase coverage has over the peak season endorsement is that the peak season is not defined. As a result, if sales are higher than expected and additional inventory must be ordered after the traditional selling season, the additional inventory is covered. The flexibility of the seasonal increase is also a limitation, because the named insured triggers coverage only by maintaining an adequate amount of insurance.

Example: Perry’s Business Personal Property limit of insurance is $125,000. A fire loss occurs that amounts to $130,000. A review of the values for the previous 12 months results in an average monthly value of $110,000. Because the average monthly value is less than the limit, Perry gets the 25% seasonal increase. His limit is calculated as $125,000 X 1.25 = $156,250. This means his $130,000 is totally covered after the deductible is applied.

Note: To be eligible for this additional coverage, the named insured may have to over-insure at the beginning of the year or increase coverage during the year to comply with this condition. Unfortunately, there is no personal property automatic increase endorsement available to eliminate this problem. The automatic increase provision should never be sold as a guarantee or as a way to decrease the amount of insurance simply because an automatic additional 25% amount is available. This coverage cushion is available only to businesses properly insured to value.

D. DEDUCTIBLES

1. Application

Property insurance deductibles are simple. The named insured first pays a specified amount of the loss and the insurance company pays the rest, up to the limit of insurance. There are three possible scenarios:

The amount of loss is less than the deductible. The named insured pays the entire amount and the insurance company does not pay anything.

Example: The limit is $50,000, the deductible is $1,000, and the loss is $250. The named insured pays $250. The insurance company does not pay anything.

The loss is more than the deductible but less than the limit of insurance. The named insured first pays the deductible that applies and the insurance company pays the difference.

Example: The limit is $50,000, the deductible is $1,000, and the loss is $10,000. The named insured pays $1,000. The insurance company pays $9,000.

The loss exceeds the limit of insurance. The named insured is still responsible for the deductible and the company pays the limit of insurance. The insured then pays the remaining loss that exceeds the limit of insurance.

Example: The limit is $50,000, the deductible is $1,000, and the loss is $55,000. The named insured pays the $1,000 deductible and $4,000, the amount underinsured. The insurance company pays $50,000.

2. Optional Coverages

The most deducted for any loss or damage in any one occurrence for each of the following Optional Coverages is the Optional Coverage Deductible on the declarations:

Money and Securities
Employee Dishonesty
Outdoor Signs
Forgery or Alteration

3. Additional Coverages

These Additional Coverages are not subject to a deductible:

Fire Department Service Charge
Business Income
Extra Expense
Civil Authority
Fire Extinguisher Systems Recharge Expense

E. PROPERTY LOSS CONDITIONS

1. Abandonment

The named insured cannot abandon damaged property to the insurance company without its consent.

Example: The building burns down. The Environmental Protection Agency (EPA) investigates and the named insured just wants to get rid of the problem and headaches and attempts to sign the title to the insurance company. He is not pleased to discover that he does not have the option to simply give the property to the insurance company.

2. Appraisal

The appraisal process is one of several alternative dispute resolution methods and is fairly simple. If the named insured and the insurance company do not agree on the amount of a covered loss, either can make a written demand for an appraisal. Each then hires its own independent and competent appraiser. In turn, the two appraisers hire an umpire. The appraisers then determine the value of the property and the amount of loss. If they cannot agree on the amount of loss within a reasonable period of time, they submit their differences to the umpire. A decision that any two parties agrees to is binding. Each party pays its own appraiser. The named insured and insurance company each pays half of the umpire’s expenses.

The insurance company maintains its right to deny the claim even after going through the appraisal process.

3. Duties in the Event of Loss or Damage

a. The named insured has several important duties to perform and obligations to meet in case of loss or damage:

· Notify the police if a law may have been broken and the insured is aware of it.

Note: An insured may not want to involve the police with minor neighborhood vandalism or similar problems but notifying them is required if coverage for the loss or damage is desired. When Employee Dishonesty coverage is provided and a loss occurs, an employer may be reluctant to notify police if the employee is particularly valuable or the loss is small. . However, many dishonesty claims are small at first but grow as they are investigated. The insurance company can deny a claim if the employer tries to protect the employee by not notifying the police.

This is a significant difference from the Commercial Crime Coverage Form in which the named insured is not required to notify the police for any employee dishonesty loss.

· Promptly give the insurance company notice of the claim and describe the property involved.

Note: Prompt notification is not defined but unreasonable delays could be grounds to deny the claim for lack of cooperation.

· Give the insurance company details of how, when, and where the loss or damage occurred as soon as possible.

Note: This information does not have to be in writing but a signed proof of loss that includes this information will be required at a later date.

· During and after a covered loss, take steps to protect covered property from any further damage. The insurance company pays for reasonable repairs and emergency measures taken to protect covered property against further damage by covered causes of loss. The named insured must keep accurate records of the costs of these repairs, keeping in mind that they do not increase the limit of insurance. However, the company does not pay for repairs or emergency measures to property that a covered cause of loss has not yet damaged. It also does not pay for subsequent loss to the repairs unless damage is due to a covered cause of loss.

Examples:

The costs of materials and labor to board up windows in advance of a hurricane are not covered.
Repairs to plywood coverings made during the eye of the hurricane to replace pieces the initial phase of the storm blew off are covered.
The cost of sandbags purchased to protect the property from flood damage is not covered unless flood is a covered cause of loss.
The cost of plastic sheeting applied to prevent rain from entering the roof after hail damage is covered.
Earthquake damage to repairs done because of prior tornado damage is not covered.

If possible, damaged property must be separated from undamaged property and set aside. It must be kept in good order and be available for the insurance company to examine.

Note: Examining the property is crucial to determine the cause and origin of the loss and missing evidence may cause investigators to consider that arson or some other cause is involved. If an arson investigation suggests that the named insured may be involved, law enforcement is called in and newspapers report the case. The higher costs of counter-investigation and court defense are not covered.

· Provide a complete inventory of damaged and undamaged property, including quantities, costs, values, and the amount of loss claimed when the insurance company requests this information.

Note: The costs to produce this information can be high, especially if the loss destroyed the records needed. These costs are not covered.

· Permit the insurance company to examine the damaged property to prove that the loss or damage actually happened, along with letting it also examine the named insured's books and records. In addition, give the company samples of both damaged and undamaged property to inspect, test, and analyze and let it make copies of such books and records.

Note: Records include property inventories, values, and loss, including tax records, bank records, computer records, and other related documents but are not limited to just these. Samples are important to determine the extent of loss to certain property where the amount of loss may not be obvious.

· Send a signed and sworn proof of loss to the insurance company within 60 days of its request to do so using the forms it provides.

Note: A proof of loss is much more detailed than the initial loss notification. The named insured discloses exactly what happened and when, identifies the property damaged, substantiates the reason why the loss is covered, and suggests how much should be paid. All decisions the insurance company makes are based on this very important document.

· Cooperate with the insurance company as it investigates and settles the claim.

Note: Failing to do so may constitute lack of cooperation that can be grounds to deny the claim.

· Resume as much of the operation that can be resumed as soon as possible.

Note: Failing to do so could be grounds to deny further consequential loss payments, such as business income and extra expense. If operations will not be resumed, the insurance company must be notified as soon as possible so that loss payments are made according to property loss conditions. Even if operations are not resumed, business income pays for the loss of income that results from operations being suspended after a covered cause of loss during the period of restoration both parties agreed to. The appraisal process can also be used to resolve and settle business income losses.

b. If the insurance company requests, any insured must agree to be examined under oath as often as reasonably required and to sign for its answers. The company may require that the individuals involved be questioned separately and not in the presence of other employees. This serves to prevent collusion and all parties telling the same story.

4. Legal Action Against Us

Legal proceedings against the insurance company cannot begin until the named insured is in compliance with all terms of the insurance. In addition, any legal action must commence within two years after the date of the direct physical loss or damage.

Note: Both parts of this condition can cause problems. The named insured may have a case against the insurance company for unreasonable requests for information or for its delays. At times, the only way to get action is to ask a judge to determine if the insurance company has complied with policy provisions and has made reasonable requests. The courts may impose punitive damage awards against an insurance company for unreasonable delays. In addition, state law may override the two-year limitation on filing suits. In those cases, individual state endorsements adjust the time limits.

5. Loss Payment (07 13 changes)

a. The insurance company has four options to pay a covered loss. It can pay the value of the property lost or damaged; pay the cost to repair or replace it; take all or part of it at an agreed or appraised value; or repair, rebuild, or replace it with property of similar kind and quality. When the fourth option is selected, Paragraph d. (1) (e) below that specifically excludes costs to meet ordinances or laws must be followed.

Example: It will take an additional six months to replace the XYZ printing press with another XYZ printing press but an equivalent FGH press is available immediately. The insurance company may pay for only the FGH press. Further loss or expense due to the named insured insisting on the XYZ printing press may not be covered.

b. The insurance company must give the insured notice of how it intends to pay within 30 days after it receives a properly prepared sworn proof of loss.

c. The insurance company does not pay for more than the named insured's financial interest in the damaged covered property.

Examples:

Paul is remodeling his office and agrees to sell his desk to Peter for $5,000. A fire destroys Paul’s office and the desk before Peter arrives. Because Paul no longer has a financial interest in the desk, he cannot collect proceeds for it.
Jay and Maisy are insureds on a policy for a commercial building they own. When they file for divorce, the property settlement stipulates that Jay gets the building and Maisy gets their house. A fire damages the building. Jay collects since he is the only one who has an insurable interest in the building at the time of loss.

d. The value of covered property is determined as follows. It is important to consider each of these items because not all are valued at replacement cost.

(1) At replacement cost without a deduction for depreciation. However, there are several stipulations:

(a) The limit of insurance at the time of loss must be 80% or more of the property's full replacement cost. The insurance company then pays the cost to repair or replace, without a deduction for depreciation but only after applying the deductible. However, this is limited to the least of the following:

· The Section I–Property Limit of Insurance that applies

· The cost to replace the lost or damaged property on the same premises with property of similar quality and used for the same purpose

· The amount actually spent to repair or replace the lost or damaged property

Note: If the decision is to build at other than the described premises, the payment is limited to the expense of rebuilding at the described premises.

Examples:

The policy for Marv’s Hunting Shop was written ten years ago with a building limit of $150,000. That amount increased a modest 4% at each renewal and the current limit is $222,000. A fire destroys the building and the appraiser determines the replacement cost to be $225,000. The loss is paid at replacement cost because the limit is more than 80% of the property’s replacement cost valuation.
Marv notices that the ZIP codes of most of his customers are about five miles away from his current location. This is why he decides to rebuild at a location closer to his customer base. This increases the building costs by about $10,000. The insurance company does not cover these additional building costs.
Marv rebuilds and the cost is $225,000 plus the $10,000 increase due to the new location. The insurance company pays only the $222,000 limit.

(b) If the limit of insurance at the time of loss is insufficient for replacement cost coverage, the most paid is the larger of the following:

· The property’s actual cash value

· The proportion of the limit of insurance to 80% of the replacement cost of the property multiplied by the cost to repair or replace. The 07 13 edition adds an example to explain this concept.

Payment is capped at the limit of insurance for the property.

Example: The Sergio Office Building is insured for a limit of $150,000. A windstorm causes $20,000 in damage to it. An appraisal determines that the replacement value of the building is $250,000. Because $250,000 X .80 = $200,000, Sergio is not covered for full replacement cost.

The actual cash value depreciation factor is .50 because of the building's age. This means the actual cash value of the loss is $20,000 X .50 = $10,000.

The replacement cost proportional factor is $150,000/$200,000 = .75. This means the replacement cost proportional loss value is $20,000 X .75 = 15,000.

Because $15,000 is the larger of the two and is less than the $150,000 limit of insurance, Sergio’s loss is valued at $15,000.

(c) The named insured can decide to delay rebuilding immediately and simply accept an actual cash value settlement. It can decide to rebuild at a later date but only if it notifies the insurance company of its intent to do so within 180 days after the date of loss.

(d) The insurance company does not pay for any loss or damage on a replacement cost basis until the affected property is actually repaired or replaced and unless repair or replacement is done as soon as possible after the loss or damage. However, if the cost to repair or replace is $2,500 or less, the loss is settled according to paragraphs d. (1) (a) and d. (1) (b) above, regardless of whether the repair or replacement is actually done.

(e) Costs to repair, rebuild, or replace do not include any increased amounts required by enforcing or complying with an ordinance or law that regulates construction, use, or repair of the damaged property.

(2) The named insured has the option to insure the building for its actual cash value if the Actual Cash Value–Buildings option is entered on the declarations. In that case, the provisions of paragraph (1) above do not apply.

(3) Actual cash value always applies to the following property:

· Used or second-hand merchandise for sale or held in storage

· Property of others, unless a contract specifies the amount for which the named insured is liable. When a contract specification exists, valuation is based on the contract terms but not for more than the lesser of the replacement cost or the limit of insurance.

· Household contents. An exception is that personal property in apartments or rooms the named insured furnishes as a landlord is valued at replacement cost.

· Manuscripts

· Works of art, antiques, or rare articles. Examples provided are etchings, pictures, statuary, marbles, bronzes, porcelains, and bric-a-brac but is not meant to be limiting.

(4) Glass is valued at the cost to replace it with safety glazing material but only when laws require that the named insured use safety glazing material.

Note: This is the only standard ordinance or law coverage in the Businessowners Coverage Form.

(5) Tenant’s improvements are valued at replacement cost if repaired promptly and at the named insured’s expense.

Tenant’s improvements that are not replaced after a loss are valued as a pro rata portion of the original installation cost as it relates to the named insured’s current lease. The formula involves dividing the number of days between the date of loss and the end of the lease by the number of days from the installation date to the lease expiration date, multiplied by the original cost of the tenant’s improvements. If the lease has a renewal option, the last date in the option is used as the new expiration date. No payment is made if repairs are made at the expense of others.

Example: A loss occurs on the 200th day of a one-year lease. $5,000 of improvements was installed on the first day of the lease. The lease does not have a renewal option. 365 days minus 200 days equals 165 days remaining in the lease. There are 365 days between the installation date and the end of the lease. 165 days divided by 365 days equals .452 x $5,000 equals $2,260. This is the amount of loss payment before applying any deductible.

(6) Optional Coverages are subject to separate specific valuation methods. Money is valued at its face value. Numismatic property, such as old coins or gold coins traded based on gold content instead of face value, is still adjusted based on only the face value.

There is no standard Businessowners Program endorsement that covers collections or gold coins. Extensive gold holdings require special coverage arrangements on other coverage forms and policies.

Note: If gold or silver coins are in a bank safe deposit box, check with the bank for their coverage and limits. If a gold or silver broker holds them, check with the broker on available coverage. Few insurance companies insure gold or silver investment coins.

The value of securities is their closing price at the close of business on the day the loss is discovered.

Examples:

The bearer bond is valued at $100 on the date of loss. When the loss is actually paid, the class of bonds trades at $65 per bond. The loss payment is based on the $100 per bond value on the date of loss.
The bearer bond is valued at $100 on the date of loss. When the loss is actually paid, the class of bonds trades at $125 per bond. The loss payment is based on the $100 per bond value on the date of loss.

(7) Accounts Receivable only:

· When the amount of accounts receivable outstanding at the time of loss cannot be determined accurately, the insurance company determines the total of the average monthly amounts for the last 12 months immediately before the month when the loss occurred. It also adjusts that total for any normal fluctuations that usually occur based on any demonstrated variance from the average for that month.

· Certain amounts are deducted from this total. Deductions include any amount that did not have loss or damage; amounts of accounts the named insured re-establishes or collects; amounts for probable bad debts that are not usually collectible; and any unearned interest and service charges.

e. Payment for loss or damage to personal property of others is for only the property owner’s account. The insurance company adjusts the loss with the owner. Paying the property’s owner satisfies the named insured’s claim against the insurance company for property of others.

Payment is not for more than the property owner’s financial interest in the property.

f. If the property owner sues the named insured, the insurance company can choose to defend the named insured. In that case, any defense costs are at the insurance company’s expense.

Example: The customer’s riding lawn mower is in for repairs when a fire destroys the named insured’s building. The insurance company offers and pays the mower’s $1,000 actual cash value, the amount it is required to pay. The customer is unhappy, demands an additional $1,000, and then sues the named insured. The insurance company will probably not pay the additional $1,000 but it can defend the insured at its own expense if it chooses to do so. The insured cannot seek more money from the company and must pay the difference from its own funds.

Note: Bailees coverage on property of others is usually broader.

Property of Others

AAIS Bailee Customer Floater Coverage–Dry Cleaners and Laundry Form

ISO Bailees Customers Coverage Form

g. The insurance company has 30 days to pay the loss after it receives the named insured's sworn proof of loss. This time period does not begin until all policy terms are complied with, the parties agree on the amount to be paid, or an appraisal award is made.

h. Party Walls

Buildings that abut one another often share a party wall. This wall separates the two buildings but is also part of each building. Loss settlements are not affected if the same insured owns both buildings. However, loss settlements may be more difficult if different insureds own the shared party wall.

When both building owners plan to repair and rebuild, each insurance company pays its insured’s proportional share of the damage to the party wall. However, if the named insured wants to rebuild but the other building owner does not, the insurance company for its rebuilding owner pays the full value of the party wall. That paying insurance company then has the right to subrogate against the adjoining building owner.

Example: Titanic Tim's Toys and Jungle Jim's Jazzercise occupy adjoining buildings with a common party wall. A fire that smoldering cleaning rags in an unapproved container on Jim's premises causes seriously damages both businesses. Tim decides to proceed with the needed repairs but Jim throws in the towel and decides to go out of business. Tim's insurance company pays for the full value of the party wall and then weighs its options as it decides whether or not to pursue its subrogation rights against Jim.

6. Recovered Property

Either the named insured or the insurance company may recover property. The party that recovers must notify the other promptly. Recovered property can be property the police take from burglars or property whose salvage was paid to either the named insured or the company. The named insured has the option to take the recovered property and return the insurance settlement to the insurance company or keep the insurance settlement and let the insurance company keep the recovered property as salvage.

7. Resumption of Operations

If the named insured can resume normal operations using salvaged undamaged property or even damaged property at either its premises or elsewhere, the business income loss is reduced to the extent that operations can be continued. The wording implies that if operations can be resumed using such goods, the insurance company pays only the business income loss as if operations had been resumed, whether the named insured wants to or not.

Note: Questions periodically arise as to what is considered reasonable to resume operations. Asking the named insured to use dented or unsightly back-office machines that are safe to operate and that produce adequate results is a situation where the company may not pay if the named insured refuses to resume operations. On the other hand, if the company believes that the named insured can resume retail operations by holding a fire or salvage sale, but the named insured believes it may affect the integrity of its label and reputation, the named insured may have a case to demand that the business income because the operations cannot be reasonably resumed.

Extra expense coverage ends when the named insured is able to resume normal operations. There is no explanation for how this is accomplished.

8. Vacancy

a. Terms

(1) With respect to the terms building and vacant used in this condition:

· If the named insured is a tenant, building is the part of the building it rents or leases. This means that the part of the building the named insured rents or leases is not vacant unless it does not contain the amount of business personal property the named insured needs to engage in normal business operations.

Example: Friendly Deli occupies 25% of the McMillan Building. Felix the Cat Groomers occupied the other 75% but moved out. The building owner is currently in the ninth month of searching for a tenant to replace Felix. A small fire occurs in the vacant portion of the building and the smoke causes a significant loss to Friendly’s space. Friendly Deli’s loss settlement is not affected by the vacancy in the other part of the building, even though the building itself is considered vacant.

· If the named insured owns the building or is a general lessee, building is the entire building. It is considered vacant unless the building owner uses 31% or more of its total square foot area for its customary operations or a lessee or sub-lessee uses it for its customary operations.

Note: The key word is customary. If the building owner, lessee, or sub-lessee is a retail business (and that is the customary operation), trying to say the building is being used for storage is not a way to circumvent the definition of vacancy.

(2) Buildings being constructed or renovated are not treated as vacant.

Note: Buildings under construction or being renovated are not treated as vacant. Just as the insured might try to stretch the non-vacancy a little to gain coverage, the insurance company may attempt to treat a building under construction or being repaired as vacant in order to reduce or deny coverage. The building is not vacant if it is temporarily vacated for major renovation work and the tenant intends to return and occupy it as soon as the work is completed.

Example: The Jones Office Complex consists of four separate buildings and has problems retaining its tenants. Building 1 is fully occupied by one tenant. Building 2 is only 20% occupied by a retail shop. The rest of the building has been vacant more than six months. Building 3 has multiple tenants but is still 15% vacant. Building 4 has just been rented out subject to completing major renovation work. A contract has been signed and renovation is under way.

A major storm damages all four buildings. Based on the definition of vacancy, Buildings 1 and 3 are not vacant and are fully covered. Building 2 is vacant and subject to a vacancy penalty. Building 4 is being renovated, is not considered vacant at the time of loss, and is not subject to a vacancy penalty.

b. Vacancy Provisions

If the building that sustains loss or damage was vacant more than 60 consecutive days before the date of loss:

(1) The insurance company does not pay for loss or damage from vandalism, sprinkler leakage from a system that was not protected against freezing, building glass breakage, water damage, theft, or attempted theft, even if they are covered causes of loss.

(2) Losses due to covered causes of loss other than those listed in (1) above are reduced by 15%.

Example: Continuing the example above, the loss or damage to building 2 in the Jones Office Complex Center is penalized 15% because a storm caused the damage, not one of the listed excluded causes of loss.

Note: Insurance companies are interested in insuring only successful, ongoing businesses and their pricing contemplates an active occupancy. For this reason, vacant properties are subject to a significant rating surcharge. Because vacancy is frequently not discovered until after a loss occurs, the Loss Conditions restrict coverage if the vacancy is not disclosed in advance.

F. PROPERTY GENERAL CONDITIONS

1. Control of Property

Acts or negligence of others who are not the named insured or under its direction or control do not affect the insurance coverage.

Example: A disgruntled former employee burns down the named insured’s building. Rioters break windows in the building and steal goods that belong to others. These losses are covered.

In addition, if the named insured breaches one or more policy conditions at one location, coverage at other locations is not affected if the breach condition does not exist there.

Example: The named insured's partner burns down the named insured’s headquarters building. Coverage does not apply. In an unrelated incident on the same day, a car skids off the road, slams into the wall of the named insured’s second location, and damages it. The damage to the second location is covered.

2. Mortgageholders

a. Trustees are included as mortgageholders.

Note: Mortgageholders and trustees have certain rights. They have the right to be reimbursed for losses the insured voided through misrepresentation, fraud, or criminal activity, such as arson.

b. Payments for loss or damage to covered buildings to involved mortgageholders are made in order of precedence, as their interests may appear.

Note: Mortgageholders must be listed on the declarations and loss payments are made in the order listed. Mortgageholder precedence in property law is based on the mortgage filed first as a deed amendment. In order to prevent legal problems, it is suggested that the named insured confirm the mortgageholders listing order. The first mortgageholder expects to be paid first and the second and subsequent mortgageholders are paid after the first mortgageholder is indemnified.

c. Mortgageholders have the right to receive loss payments even if they have initiated foreclosure or similar proceedings on the building or structure involved.

d. If the insurance company denies the named insured's claim because of its actions or because it failed to comply with policy terms, the mortgageholder still has the right to receive loss payments. To do so it must:

· Pay any overdue premium that the named insured did not pay when the insurance company requested

· Submit a properly executed proof of loss within 60 days after the insurance company notifies it that the named insured failed to do so

· Notify the insurance company of any change in ownership, occupancy, or risk that it knows about

e. The insurance company may pay a mortgageholder for a loss and not pay the named insured because of its acts or failure to comply with policy terms. In that case, the mortgageholder's rights transfer to the company to the extent of its payment. However, the mortgageholder's right to recover the full amount of its claim is not affected.

On the other hand, the insurance company has the option to pay the mortgageholder its entire principal plus accrued interest in exchange for transferring the mortgage and note to the company and the named insured paying its remaining mortgage debt to the company.

f. The insurance company gives the mortgageholder at least ten days written notice of the effective date of cancellation if the named insured does not pay the premium and at least 30 days written notice for any other reason.

g. The insurance company gives the mortgageholder at least 10 days written notice before the expiration date of its intent to not renew the policy.

Note: Laws in most states may require longer notification periods than 10 days for non-renewal and 30 days for most other reasons. However, most approve the 10-day notice for non-payment of premium.

3. No Benefit to Bailee

This insurance does not benefit any party that has custody of any covered property, other than the named insured.

4. Policy Period, Coverage Territory

The insurance company pays loss or damage under Section I–Property that occurs:

a. During the policy period on the declarations. It begins at 12:01 a.m. standard time at the named insured's mailing address on the declarations.

Note: The policy period is usually one year or three years.

b. Within the coverage territory

The coverage territory is the United States of America, its possessions and territories, Puerto Rico, and Canada. Property is covered when in transit between points in the coverage territory.

Note: Transit can include air, land, or water and includes transit to Hawaii, Guam, Puerto Rico, and Alaska that involves travel over international waters. The limit of insurance is $10,000 for Coverage Extensions b. Personal Property Off-premises. As a result, motor truck cargo or another form of transportation coverage may be necessary when higher limits are needed.

AAIS Transportation Coverage Forms

ISO Annual Transit Coverage Form

ISO Motor Truck Cargo Owners Coverage Form

ISO Trip Transit Coverage Form

G. OPTIONAL COVERAGES

If one or more of the following Optional Coverages are to apply, a limit must be entered on the declarations for the applicable coverage.. Each selected coverage is subject to the property coverage terms and conditions within this policy, except for and/or as stated below.

1. Outdoor Signs

a. The insurance company pays for direct physical loss or damage to outdoor signs at the described premises. They can be owned by the named insured or be owned by others and be in the named insured’s care, custody, or control.

Note: Wooden signs not at the described premises can be covered by insuring them as separate structures and describing them on the declarations. Inland Marine Coverage Forms should be used to cover neon and electric signs on or off premises.

ISO Signs Coverage Form

AAIS Sign Coverage

ISO Signs Coverage Form

b. Signs are not subject to A.3. Covered Causes of Loss or B. Exclusions. The cause of loss, as stated in a. above is “direct physical loss or damage. “The only exclusions that apply are the following:

· B. 1. c. Governmental Action

· B .1. d. Nuclear Hazard

· B. 1. f. War and Military Action do apply.

Note: Governmental action is an important exclusion because most municipalities have ordinances that regulate how signs are placed and used. Many require sign bonds for signs that overhang public thoroughfares, sidewalks, and rights of way or for signs that exceed a certain size or height. The sign could be forcibly removed by the governmental authority if it did not meet the ordinances.

c. Coverage also does not apply to loss or damage due to wear and tear, hidden or latent defect, rust, corrosion, or mechanical breakdown.

d. The most paid in a single occurrence for loss or damage is the Outdoor Signs Limit of Insurance on the declarations.

Note: Signs are covered for the limit on the declarations. Outdoor sign coverage that Coverage Extensions
c. Outdoor Property otherwise provides does not apply when this optional coverage is added.

e. These provisions supersede and replace all other references to outdoor signs in the coverage form.

Example: If the value of a sign is $5,000, do not subtract the $2,500 limit the coverage extension provides and enter a $2,500 limit on the declarations. The limit on the declarations should be $5,000.

Note: There is no limitation with respect to the sign's construction.

2. Money and Securities (07 13 change)

a. Coverage applies to loss of only the named insured's money and securities used in its business while at any of the following:

· Banks or savings institutions

· Inside the named insured's living quarters

· Inside the living quarters of a partner, employee, leased employee, or temporary employee while that person has custody and use of the money and securities

· At the described premises

· In transit between the places listed above

Direct loss caused by theft is covered. In addition, direct loss because money and securities disappear or are destroyed is also covered.

Note: Crime Coverage Forms provide coverage only within the interior of a bank or savings institution. BP 00 03 covers only money and securities while at a bank or a savings institution. As a result, this can be broadly interpreted to mean while in the bank, at the drive-through, at the outside night deposit drop, or at the outside Automated Teller Machine (ATM). An ATM at a location away from the actual bank building might even be construed to be an extension of the bank or savings institution. In other words, an ATM may be treated as a branch of the financial institution. Coverage within the living quarters of the insured’s employee, leased employee, or temporary employee must also be interpreted broadly, especially when determining what it means that such a person must have use and custody of the property. A final concern is what the coverage means when it states that it covers money and securities in transit between the locations. There is no statement as to who actually must have control or custody of the money and securities while it is in transit or how long it can be in transit.

Example: The employee takes the night deposit to the bank and finds that the drop is out of order. She decides to visit a friend and leaves the money in her car during the visit. The car is broken into and the money is taken.

In addition, employees who make stops for reasons other than to properly deliver money or securities could create questions as to whether the money was in transit to the financial institution or was in their living quarters. There is no requirement to take a direct route but a significant deviation could be grounds to deny a claim. A significant deviation could also lead to an investigation into whether the claim was actually an employee dishonesty claim that this Optional Coverage does not insure.

b. In addition to the Section I–Property Limitations and Exclusions, coverage does not apply to losses caused by or that result from accounting or arithmetical errors or omissions, giving or surrendering property in any exchange or purchase, or property contained in money operated devices that do not have continuous recording devices.

Note: Property in vending machines, arcade machines, and other money-operated mechanical or electronic devices is excluded unless the device continuously records the transactions and amounts.

Examples:

The $600 amount on the cash register tape does not match the $400 in the cash register drawer. In addition, the cash register drawer does not balance with the tape amount and the opening balance. The clerk admits leaving the register briefly while customers were present. There is no actual evidence or proof that a theft occurred but theft is presumed. Coverage applies.
The books do not balance and nobody can figure out why. Coverage does not apply.
The named insured sells a large flat screen television for $1,400 and delivers it to the customer. Two days later, the check bounces but the customer is gone and cannot be located. Coverage does not apply.

c. The most paid for a single loss that occurs inside the named insured’s described premises or inside a bank or savings institution is the limit on the declarations for money and securities inside the premises. The most paid for a single loss that occurs at any other location or while in transit is the outside the premises limit on the declarations.

d. All losses are considered one occurrence, regardless of the number of people involved in the claim or whether the act is a single act or a series of acts.

e. The named insured must keep accurate records of all money and securities to verify loss amounts.

Note: This includes cash register tapes, computer reports, logs, and sales slips to verify a loss. Information that identifies a security’s issuer, serial number, date, and complete description should be at a different location than where the security is kept. All securities, especially negotiable securities, should be stored in a safe deposit box or other secure place.

3. Employee Dishonesty (07 13 change)

a. The insurance company pays for direct loss of business personal property and money and securities due to dishonest acts its employees commit, whether they act alone or collude with others to do so. However, it does not include actions by the named insured or a partner. In order for coverage to apply, the act must intend to cause the named insured to sustain a loss and also to benefit the employee, other persons, or other organizations.

Note: The term employee as used in this optional coverage is broad. It is not defined within the Definition section but is defined later in this optional coverage.

b. There is no coverage for loss or damage:

· Due to dishonest acts by the named insured, its partners, or members, whether they act alone or collude to do so

· For dishonest acts by managers or directors who act alone or who collude with others. Such acts are excluded while they are providing a service for the named insured or are performing a service for others.

· For dishonest acts of employees, except as a. above provides, while in collusion, acting alone, or while they are performing for the named insured or performing services for others.

· If the only proof that a loss occurred is an inventory or a profit and loss calculation

· (07 13 addition) Losses an employee causes if both of the following apply:

o The employee committed a dishonest act or theft prior to the inception date of this policy

o Any of the named insured’s partners, members, managers, officers, directors, or trustees knew about that employee’s prior dishonest act or theft. This item does not apply if the individual who knew about the incident was in collusion with the employee.

c. The most paid in a single occurrence is the Employee Dishonesty Limit of Insurance on the declarations.

d. Loss or damage caused by one or more persons or that involves a single act or a series of acts is considered a single occurrence.

e. If the current policy and a previously terminated or cancelled policy that the same or an affiliated insurance company issued to the named insured both cover a loss, the amount paid is limited to the largest amount that any policy provided, regardless of the number of years it was in effect. Limits are not cumulative from year to year.

Note: This provision eliminates stacking limits from two or more policies due to a series of acts.

Example: Floyd’s Meat Market has the best steaks in town. Ernie is the head butcher and takes steaks home with him at least once a week for over ten years but never tells Floyd. Ernie finally recognizes the error of his ways and confesses to Floyd. Floyd suddenly realizes that Ernie has stolen $6,000 worth of steaks in each of the past ten years. His claim is for $60,000 since he has been with the same company the whole time. The loss is capped at $10,000 because the Employee Dishonesty Limit of Insurance is $10,000.

f. This coverage is cancelled with respect to a specific employee as soon as the named insured or one or more of its partners, members, managers, officers, or directors who are not in collusion with the employee become aware of dishonest acts the employee committed before or after he or she was hired.

Example: Floyd at Floyd’s Meat Market really likes Ernie and wants to keep him as an employee. The policy permits this but coverage does not apply to Ernie if he commits any other dishonest acts. Even if Floyd did not report Ernie’s actions, Ernie is not covered in the future because Floyd knew about the situation.

g. Loss must be sustained during the policy period and discovered not later than one year after the end of the policy period.

h. If the named insured had a covered loss in a previous policy period but did not discover it until after its discovery period expired, the current policy covers the loss as long as there was no break in coverage from the previous policy and the current policy would have covered the loss or damage if it was in effect at the time of loss.

Example: The policy for John’s Pizza and Deli has been in force continuously since the business started ten years ago. The policy dates are 01/01 to 01/01 of each year and it has always included employee dishonesty coverage. John hired Joanne as a cook two years ago. During the time she was employed, from 01/14/18 to 07/13/18, John noticed a strange pattern in the inventory. He couldn’t prove anything but suspected that Joanne was taking inventory. She ended her employment and was arrested in connection with theft at another pizza place in June 2019. She was a first-time offender and confessed to all previous crimes, including her thefts at John’s. John reported the crime as a claim to the company that provided coverage for the 01/01/18 to 01/01/18 policy period. The company denied the claim. He then forwarded the claim to the current carrier and its coverage paid the claim submitted.

i. The insurance in paragraph h. above is limited to the lesser of the limits on the current policy or the limits on the policy in effect when the loss occurred.

j. This Optional Coverage defines employee. When used in employee dishonesty, an employee is any natural person:

· In the named insured's service or for up to 30 days following termination) that the named insured compensates and controls

· Who acts as a temporary substitute for a regular employee or one hired for certain short-term situations

· Leased under a written agreement with a labor leasing business to perform certain duties. This does not include temporary employees.

· Who is a former employee, director, partner, representative, trustee, member, or manager who the named insured retains as a consultant to perform services for the named insured

· Who is a guest student or intern while working on the premises but not while working away from them

Independent contractors are not employees. Managers, directors, or trustees also are not employees unless they are carrying out the duties of employees.

ISO uses the term “natural person” in the definition above. A natural person means a living, breathing individual. Unnatural persons are entities, such as corporations, that have rights and obligations as defined by law.

Note: This definition of employee matches the same definition in the ISO crime coverage forms.

4. Equipment Breakdown Protection Coverage

a. The insurance company pays for loss or damage directly caused by or that results from electrical failure or mechanical breakdown to covered property. Covered property is electrical, mechanical, or pressure machinery and equipment. This coverage does not include:

· Adjustments, alignments, calibration, modifying, cleaning, and other types of malfunctions

· Any leakage from valves, fittings, shaft seals, gland packing, joints, or connections

· Damage to vacuum or gas tubes or brushes

· Operations of protective or safety devices

b. A. Coverage 4. Limitations a. (1) and (2) do not apply to this Optional Coverage. This is because both relate to limitations to boilers and water heaters that do not apply because of this optional coverage.

c. B. Exclusions B. 2. a. Electrical Apparatus, B. 2. d. Steam Apparatus, and B. 2. l. (6) Mechanical Breakdown do not apply with respect to this Optional Coverage.

d. G. Optional Coverages 1. c. (5) that excludes coverage for mechanical breakdown of signs in G. Optional Coverages 1. Outdoor Signs does not apply with respect to this Optional Coverage.

e. Any dollar amount of deductible for this Optional Coverage on the declarations is subtracted from the amount of loss otherwise payable before the insurance company pays the remaining amount of loss, up to the limit of insurance. The property deductible applies if there is no separate deductible.

f. The 72-hour time deductible in the definition of period of restoration that applies to business income can be changed for this coverage. This is done by entering a different time period on the declarations for business income and/or extra expense mechanical breakdown.

Note: Time deductibles expressed in a number of days means that a day consists of 24 consecutive hours.

With respect to this Optional Coverage, any time deductible on the declarations replaces any other time deductible that otherwise applies to business income coverage.

g. With respect to this Optional Coverage, the definition of computer is broadened to include computers that operate production equipment and machinery.

h. Any representative of the insurance company may suspend this Optional Coverage as it applies to any covered property found to be in or exposed to a dangerous condition. The suspension can be lifted and coverage reinstated when the reason for the suspension is resolved and no longer exists.

The insurance company suspends or reinstates this Optional Coverage by mailing or delivering written notice of the fact to either the named insured's last known address or the address where the affected equipment is located. The notice must include the date that coverage is either suspended or reinstated. The insurance company refunds premium on a pro rata basis if coverage is not reinstated. However, the suspension is effective even if there is a delay in offering or making the refund.

H. PROPERTY DEFINITIONS

Defined words are used throughout the coverage form. These are not mere dictionary definitions. Instead they are often used to broaden or to restrict coverage. This means that they are very important to review when analyzing coverage. Fourteen terms are defined.

1. Computer

This is any electronic equipment that can be programmed to store, retrieve, and process data, including all equipment needed to support the function. It does not include computers used to operate production machinery and equipment.

2. Counterfeit money

This is a copy made to imitate the genuine article with the intent to defraud and to be taken as real money.

3. Electronic Data

This is an all-encompassing term. It means information, facts, or programs on computer software. It also includes media, data, programs, and software wherever and however stored. There is no requirement that the named insured must own it or that it must be on the premises.

4. Fungi

This is any and every type of fungus, including any of the by-products that fungi produce or release. This includes mold, mildew, spores, scents, and by-products but is not limited to just these.

5. Manager

This is a director of a limited liability company.

6. Member

This is an owner of a limited liability company. Members may also be managers.

7. Money

This is currency, coins, and bank notes in current use that have a face value. It also includes travelers' checks, register checks, and money orders held for sale to the public.

8. Operations

These are the named insured’s business activities that take place at the described premises.

9. Period of restoration (07 13 change)

This begins 72 hours after an occurrence of direct physical loss or damage for business income coverage but immediately for extra expense coverage. It ends on the date that property should be repaired with reasonable speed and similar quality or the date when business resumes at a new, permanent location. It does not include any increased period due to enforcing or complying with any law or pollution assessment, testing, cleanup, or removal. It also does not apply to increases due to enforcing or complying with ordinances that regulate construction or that require that pollutants be monitored, tested, or neutralized. It is not affected by the policy expiration date.

10. Pollutants

These are any solid, liquid, gaseous, or thermal irritant or contaminant. They include smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes products to be recycled, reconditioned, or reclaimed.

11. Securities

These are negotiable and non-negotiable instruments or contracts that represent money or other property. This includes tokens, tickets, revenue, and other stamps, or unused postage in a meter. It also includes evidences of debt such as charge slips used in charge cards the named insured did not issue. It does not include money itself.

12. Specified causes of loss (07 13 change)

This means only the following causes of loss: Fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, volcanic action, and weight of snow, ice, or sleet. The following are also considered specified causes of loss:

a. Sinkhole collapse is the sudden sinking or collapse of land into spaces created by water acting on dolomite or limestone. The coverage provided does not include the cost to fill sinkholes or any sinking or collapse into man-made underground spaces.

b. Damage that falling objects causes is covered. However, coverage does not apply to loss or damage to personal property left in the open. It also does not apply to loss or damage to the interior of a building or to personal property inside the building unless the falling object first damages the building’s roof or an outer wall.

Example: The bookshelf at Maury’s Book Store falls and lands on top of the reading chairs. There is no coverage for the bookshelf, the books on the bookshelf, or the reading chair.

c. Water damage is accidental discharge or leakage of either of the following:

Note: The prior definition was only the first bullet in this definition. The second bullet and the examples are added with the 07 13 definition.

· Water or steam but only when caused by the plumbing, the heating, ventilating, or air conditioning system, or an appliance on the described premises cracking or breaking apart. The system must contain water or steam. However, this coverage does not apply to sump systems.

· Water or waterborne material but only when caused by a water or sewer pipe located off premises that cracks or breaks apart. The water or sewer pipe must be part of a municipal water supply system or municipal sanitary sewer system. Wear and tear must cause the pipe to crack or break.

This definition is limited by conditions in the Water Exclusion. Any situation the Water Exclusion excludes is not considered water damage. Two examples are provided as to when situations may appear to be water damage but are not because the Water Exclusion excludes them.

ISO Example 1: Weather induced flooding causes a pipe to break apart, causing water damage. There is no coverage even if wear and tear contributed to the pipe breaking because flooding caused the pipe to break.

Example: The water on the Wabash River crests at 15 feet above flood stage. Krimp’s Crumpets’ basement is flooded. The impact of the flood breaks 75-year-old pipes and results in water damage to the upper areas that the flood did not reach. There is no coverage because the flood caused the pipes to break.

ISO Example 2: A pipe breaks because of wear and tear. Damage that occurs following that break because of weather-induced flooding or that becomes worse because of it is excluded.

Example: The water on the Wabash River crests at 10 feet above flood stage. Liz noticed a leak in her bathroom earlier in the day and contacted a plumber to correct it. As a vigilant store owner, she turned off water to the pipe in order to prevent damage. The flood entered her basement and the impact of the water sheared off the cut off valve. The water damage that occurred when the water restarted in the bathroom is excluded because the weather-induced flood aggravated it.

13. Stock

This is goods held in storage or for sale, raw material, goods-in-process, or finished goods. It also includes their packing and shipping supplies.

14. Valuable papers and records

These are inscribed, printed, or written documents, manuscripts, and records. It also includes abstracts, books, deeds, drawings, films, maps, or mortgages. It does not include money and securities.

SECTION II–LIABILITY

Highlights of the differences between the ISO Commercial General Liability Coverage Form and the Businessowners Coverage Form Liability Coverage

This section of the ISO Businessowners Coverage Form is similar to the ISO Commercial General Liability (CGL) Coverage Form. However, there are some important differences.

The Businessowners Coverage Form's business liability coverage is written on only an occurrence basis. Claims-made coverage is not currently available. If claims-made coverage is needed, CG 00 02–Commercial General Liability Coverage Form (Claims-Made Version) should be used.
IL 00 21–Nuclear Energy Liability Exclusion Endorsement (Broad Form) is attached to the CGL Coverage Form. This endorsement is not needed with the Businessowners Coverage Form because its language is incorporated into it.
The CGL Coverage Form is arranged in three distinct coverage parts. Coverage A is for Bodily Injury and Property Damage. Coverage B is for Personal and Advertising Injury, and Coverage C is for Medical Expenses. The Businessowners Coverage Form includes these coverages in Section II–Liability.
Each coverage section in the CGL Coverage Form has its own set of exclusions. The Businessowners Coverage Form has one comprehensive set of exclusions that apply to the entire business liability section.
The Businessowners Coverage Form's liability section specifically excludes professional liability. The CGL Coverage Form does not have a similar exclusion but any of a number of professional liability exclusions may be attached.
The Businessowners Coverage Form does not have the CGL provision for newly formed or acquired organizations.
The Businessowners Coverage Form has a condition with respect to financial responsibility laws that apply to automobile financial responsibility. The CGL Coverage Form does not have a similar or corresponding condition.

A. COVERAGES

1. Business Liability

a. The insurance company pays damages to third parties due to covered occurrences of bodily injury, property damage, and personal and advertising injury. This is subject to the limits of insurance and the named insured's legal obligation to pay. The amount the insurance company pays for damages is limited as described in Section II–Liability D. Liability and Medical Expenses Limits of Insurance.

The insurance company has the right and duty to defend against all suits brought against the named insured that the insurance covers. The insurance company controls all decisions on the occurrence and offenses claims or suits it investigates, defends, and/or settles. Its responsibility to defend ends when claims payments or settlements use up the limit of insurance that applies to a given loss.

Note: Defense coverage is for the insured's benefit. There is no duty to defend it for any suit that seeks damages that the insurance does not cover. This wording clarifies the intent to defend only claims or suits that the insurance covers and should eliminate any confusion or ambiguity with respect to when defense is available.

Example: The Businessowners Coverage Form provides liability coverage on Anton's Army-Navy Store with a $1,000,000 limit of insurance. Anton's negligence causes an explosion that injures a number of people and damages several other premises. Each injured person and property owner files a separate claim for injury or damage. The insurance company settles with the injured persons. Once the $1,000,000 limit is completely exhausted, it is no longer obligated to defend the remaining lawsuits.

The insurance company is not obligated to provide or perform any other acts or services, or to pay any other expenses or sums except for those under Coverage Extension–Supplementary Payments.

b. Insurance applies:

(1) To only bodily injury and property damage:

(a) Caused by an occurrence that takes place in the coverage territory

Example: Fred's Finer Foreign Frillery has an operation in Hong Kong and its products are both manufactured and distributed from there. These products are excluded based on the definition of coverage territory. On the other hand, products manufactured in the United States but sold in Hong Kong fits the definition of coverage territory, as do products manufactured in Hong Kong and sold in the United States.

(b) That takes place during the policy period

Note: The occurrence that results in the bodily injury or property damage may occur at any time. It is only the bodily injury or property damage that must take place during the policy period.

Example: A truck ran over a shallow water pipe on Melvin’s premises. That water pipe leaked for over a year and no one noticed until Sally, a four-year-old girl, was on premises and fell into a hole that leak had caused on Melvin’s property. After Sally was rescued, her parents sued Melvin for her injuries. Coverage applied under the policy for the policy period in which Sally was injured. Coverage did not apply for the policy for policy period in which the initial pipe break took place because no bodily injury or property damage took place at that time.

(c) If the named insured or anyone who becomes an insured because of the type of business entity knows about bodily injury or property damage taking place in whole or in part before the current policy period, the current coverage does not apply to that event. In addition, any continuation, change, or resumption of that prior bodily injury or property damage into the current policy period is considered known prior to the policy period. This paragraph also applies if an employee the named insured authorized to give notice of claims knows about bodily injury or property damage that took place during the prior policy period.

(2) Insurance applies to personal and advertising injury caused by offenses related to the business committed in the coverage territory during the policy period.

Note: The word committed replaces the words occurred or occurrence. This means that this coverage is much different than bodily injury and property damage coverage. Occurrence has a long controversial history while committed is much clearer. Rather than defining the term, the Businessowners Coverage Form relies on its plain meaning.

Related Court Cases:

Personal Injury Liability Coverages Held Applicable to Claim for Damage to Reputation

Advertising and Personal Injury Coverages Held Not Applicable to Recording of Employee Telephone Conversations

c. Bodily injury and property damage taking place during the current policy period is covered. In addition, coverage applies to bodily injury and property damage that took place in prior policy periods that were unknown to the named insured, anyone who become an insured because of the type of business entity, or an employee authorized to provide notice. The Businessowners Coverage Form also covers any continuation, change, or resumption of the bodily injury or property damage after the end of the policy period.

d. The date of knowledge of bodily injury or property damage is the earliest that the named insured, anyone who become an insured because of the type of business entity, or an employee authorized to provide notice did any of the following:

· Reports any part of the occurrence or claim to the insurance company

· Receives a written or verbal demand or claim for damages

· Becomes aware in any other way that bodily injury or property damage has begun or is beginning to occur

e. Bodily injury damages include damages claimed for care, loss of services, or death. All must result from the bodily injury but they can occur at any time.

Example: Prather was injured when he fell over a display on a sidewalk in front of Robinson’s Books. He was hospitalized and suffered respiratory failure during surgery. He survived but entered rehabilitation and then a nursing home before dying five years after the initial fall. The care, loss of services, and death are all considered bodily injury damages from the fall.

f. Coverage Extension–Supplementary Payments

(1) These payments apply to any claim or suit the insurance company defends, investigates, or settles. They do not reduce the limit of insurance.

(a) All expenses the insurance company incurs

(b) Costs of bail bonds required because of accidents or violations of traffic laws that result from use of any vehicle that bodily injury liability covers. Payment is limited to $250. The insurance company is not required to furnish these bonds.

(c) Costs of bonds required in order to release attachments. Payment is limited to the amount of the bond within the limit of insurance. The insured is responsible for costs of the amount of the bond in excess of the limit of insurance. The insurance company is not required to provide these bonds.

(d) Reasonable expenses the insured incurs to assist the insurance company investigate or defend claims or suits. However, they are paid only when the insurance company requests the insured’s assistance. This includes actual loss of earnings up to $250 a day for time away from work.

(e) A suit's court costs that are the insured's responsibility. This does not include attorney fees or expenses that are the insured's responsibility.

Note: This restriction can be very costly to the insured, especially when a court assesses a proceeding’s costs and expenses against the negligent party.

(f) Prejudgment interest awarded against the insured for the part of the judgment the insurance company pays. However, once the insurance company offers to pay the limit of insurance, no further prejudgment interest will be paid.

(g) Interest on the full amount of a judgment that accrues after it is entered but before the part within the limit of insurance is paid

None of the payments described above reduce the limits of insurance.

(2) An insured may agree to reimburse another party (indemnitee) for damages when both are sued. One example is when the insured asks that an entity be added as an additional insured because of a contractual relationship. When a suit is presented and the insurance company defends the insured, it also defends the indemnitee but only when all of the following apply:

(a) The damages the suit seeks is for liability that has been assumed in the contract between the insured and the indemnitee.

(b) The insurance this coverage form provides applies to that assumed liability.

(c) In the same contract under which the insured agreed to assume liability, it also assumed the obligation to defend the indemnitee.

(d) There is no apparent conflict of interest between the insured's or the indemnitee's interests based on the allegations made in the suit and other information the insurance company obtains.

(e) Both parties ask the insurance company to conduct and control the indemnitee's defense. Both parties agree to the mutual defense and that the same counsel will conduct both defenses.

(f) The indemnitee agrees in writing to:

· Cooperate with the insurance company as it investigates, defends, or settles the suit

· Immediately send the insurance company copies of any and all demands, notices, summonses, or legal papers it receives related to the suit

· Notify any other insurance company that may be available to provide coverage for indemnitee

· Work with the insurance company to coordinate any other available insurance coverage

The indemnitee is also required to provide written authorization for the insurance company to obtain relevant records and information and to conduct and control the indemnitee's defense in the suit.

Note: These indemnitee obligations are similar to the conditions that apply to the named insured. However, the indemnitee must separately agree to them because the indemnitee is not a party to the policy.

(3) Attorney fees and all litigation expenses are paid without reducing the limits of insurance when all of the above requirements are met.

The insurance company does not have an obligation to defend after the limit of insurance that applies is used up paying judgments or settlements.

In addition, the insurance company is not obligated to defend the indemnitee if it fails to meet the conditions in (f) above.

Note: This last sentence goes beyond just Supplementary Payments. All defense ends when the indemnitee does not cooperate. This is logical because the insurance company cannot defend any party that does not cooperate.

2. Medical Expenses

a. The insurance company pays medical expenses related to a covered bodily injury accident that occurs on owned or rented premises or on ways adjacent to them. It also pays if an injury results from the named insured’s operations. The accident must occur during the policy period and in the coverage territory. The expenses must be incurred and then reported to the insurance company within one year from the date of loss. The injured party must submit to examinations by physicians the insurance company selects as often as reasonably necessary. The insurance company pays the physicians’ costs.

b. Payments are made without regard to fault but all expenses must be reasonable. Medical expenses include first aid administered at the time of the accident; necessary medical, surgical, x-ray, and dental services, including prosthetic devices; and ambulance, hospital, and professional nursing services. Funeral expenses are also covered.

B. EXCLUSIONS

1. Exclusions that apply to Business Liability Coverage

a. Expected or Intended Injury

Bodily injury and property damage that the insured expects or intends is excluded. However, coverage applies to bodily injury that results from using reasonable force to protect persons or property.

Note: This exclusion protects insurance companies from paying damages for injury or damage the insured causes deliberately. It is in the public interest and ensures that the insured does not use the coverage for personal gain, such as theft, to injure competitors, for revenge, or for any other intentional harm. However, this wording is constantly challenged and clarified in court cases across the country. The challenges typically seek coverage for intentional acts that result in unintended consequences. In other words, the insured's action causes an unexpected and unintended result.

Example: Paula’s Pancake Heaven is insured under the Businessowners Coverage Form. Paula has had it with a homeless man who hangs around the front of her store and frightens her customers. Paula asks the man to leave, then shoves him, and is shocked to see him lose his balance, fall, strike his headfirst on a mailbox and then against the concrete curb. The man sustains serious injuries and sues Paula. Paula's insurance company denies coverage. While she never meant to hurt the man, the injuries he sustained were the result of her little (but intentional) shove.

b. Contractual Liability

Coverage does not apply to bodily injury or property damage that the insured is obligated to pay because of liability it assumed in a contract or agreement. However, this exclusion does not apply to:

(1) Liability for damages that would exist even without a contract or agreement

(2) Liability for damages that are assumed in a contract or agreement that qualifies as an insured contract but only if the injury or damage occurred after the contract or agreement was executed. With respect to liability the insured assumes in an insured contract, reasonable attorney fees and necessary litigation expenses of parties other than an insured are treated as damages because of bodily injury or property damage as long as:

(a) The same insured contract providing liability to the party also applies to its defense or for the cost of its defense.

(b) The attorney fees and litigation expenses are to defend the involved party against alternative resolution or civil proceedings for damages that this insurance allegedly covers.

Note: This exclusion both provides coverage and excludes coverage and must be reviewed carefully to completely understand it. One important point is that all reasonable expenses to defend a suit filed because of this contractual obligation are considered damages. This means that these defense costs are included in the limit of insurance, not outside as the supplementary payments provides and every dollar spent on defense reduces the amount available to pay for the actual injuries or damages. The cost to defend can be part of the supplementary payments if the terms of the indemnitee section of Supplementary Payments are met.

Example: Mary and Bob entered into a lease agreement. In one part of it, Bob agreed to assume Mary’s liability but it does not address assuming defense costs in case of litigation. During the lease period, the furnace exploded and seriously injured two persons. Mary owned the furnace but, because of the contract, Bob’s insurance responded up to its limit of insurance. Once the defense costs and the injury claims used up the limit of insurance, Mary (or her insurance company) became responsible for the remainder. If the contract had been written to include defense costs, they could have been paid under f. Coverage Extension–Supplementary Payments.

c. Liquor Liability (07 13 changes)

There is no coverage if an insured is liable for bodily injury or property because of any of the following:

(1) Causing or contributing to any person's intoxication

(2) Furnishing alcoholic beverages to a person who was already under the influence or to a person who was under the legal drinking age

(3) Statutes, laws, ordinances, or regulations that address selling, distributing, using, or giving alcoholic beverages

The 07 13 edition adds the following significant changes:

Any of the actions described above may result in an occurrence. In that case, there is also no coverage if any of the following claims related to that occurrence are brought against the insured:

(a) Supervising, hiring, employing, monitoring, or training others

Example: Tina applies for a bartending position at Tom’s Tall Ones and tells Tom that she has already taken TIPS training. Tom immediately hires her and does not schedule TIPS training. Tina serves Terry beers even though he is visibly intoxicated. Terry leaves, starts his car, drives off, and strikes a pedestrian. The pedestrian sues him and Tom’s Tall Ones. The argument is that Tom is negligent because he did not properly hire and train Tina and her lack of TIPS trainings is proof of the negligence. Such negligence is excluded because of this addition to the liquor exclusion.

(b) Noting that a person is intoxicated and either providing transportation to that person or failing to provide such transportation

Example: Tom’s Tall Ones uses a local taxi service to provide rides home for intoxicated customers. Tanya takes advantage of this service but is injured when the driver turns the wrong way on a one-way street and strikes an oncoming vehicle. Tanya sues Tom’s Tall Ones because it hired a cut-rate taxi service that did not verify licenses or prior violation.

This exclusion does not apply if the named insured is not in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.

Examples:

The insured is a medical supplies distributor. It holds a company-sponsored Christmas party and serves alcoholic beverages at no charge.
The owner of a printing business takes a client to lunch that includes a bottle of wine.

Coverage applies in both examples if the client or guest is injured as a result of consuming alcohol.

On the other hand, consider this:

Example: The insured sponsored a fund-raiser by holding a Casino Night, including betting and gambling devices. Food and alcoholic beverages were served for a charge. The insured did not obtain the necessary permits and licenses. A patron who was served alcohol was injured on his way home. Coverage applied if the patron sued, as long as the insured was not in the liquor business.

The named insured may not serve alcoholic beverages but may allow others to bring such beverages onto its premises. In such a case, this exclusion does not apply even if a license is required to operate in this manner. It is not considered a liquor-related business, even if it charges a fee to consume the beverages on the premises.

Example: Bub’s Bodacious Bar-B-Q is a ribs joint and pool parlor. Bub cannot obtain a liquor license because of past indiscretions but its patrons demand the right to drink while on premises. Bub reaches a compromise. He will sell “set-ups” and his patrons can bring any alcohol they like to add. There is also a refrigerator on premises where regulars keep their beer. Bub’s Bodacious Bar-B-Q is not subject to the liquor exclusion because of this new language.

Note: The Businessowners Coverage Form can use three different endorsements to provide liquor liability coverage.

· BP 04 88–Liquor Liability completely deletes this exclusion.

· BP 04 89–Liquor Liability Coverage is similar to the liquor liability policy and has its own common cause limit.

· BP 04 19–Amendment–Liquor Liability Exclusion–Exception for Scheduled Activities provides coverage for scheduled activities.

Another way to cover an insured's liquor liability exposure is through separate Liquor Liability Coverage. The two ISO Liquor Liability Coverage Forms are CG 00 33–Liquor Liability Coverage Form (Occurrence Basis) and CG 00 34–Liquor Liability Coverage Form (Claims-Made Basis).

Related Court Cases:

Liquor Liability Exclusion Held Applicable to Nonprofit VFW

Liquor Liability Suit Based on Failure to Restrain Patron Did Not Circumvent Exclusion

CGL Policy's Liquor Exclusion Inapplicable to Sales during Festival

Can Insurer Duck Liability for Drunk-driving Deaths?

d. Workers Compensation and Similar Laws

This insurance does not apply to any requirement or obligation that the insured must assume due to any workers compensation, disability benefits, unemployment compensation, or similar law.

Note: This exclusion and the next one are intended to prevent double indemnification for injury that only workers compensation and/or employers liability policies should cover.

e. Employers Liability

Bodily injury an employee of the insured sustains in the course of his or her employment or while performing duties related to the insured's business is excluded. This exclusion applies regardless of the insured’s liability as an employer or in any other capacity, or its obligation to repay others who must pay damages because of the injury. This exclusion applies to both the employee’s claims as well as claims from the employee’s spouse, children, parents, and siblings as a consequence of the bodily injury.

This exclusion does not apply to liability the insured assumes under an insured contract.

Notes: This clarification is especially important because of the widespread practice of outsourcing work to a variety of contractors, subcontractors, independent contractors, and leased employees and because it can be difficult to determine who is responsible.

It is important to be aware of monopolistic states that provide or require workers compensation coverage but that do not require employers' liability coverage or make it available. This can create a significant gap in coverage. In the past, many insurance companies in these states developed their own endorsements and programs to add employers' liability coverage to the Businessowners Coverage Form. ISO has also developed endorsements that address this issue.

f. Pollution

Note: This is ISO's attempt to make this exclusion as comprehensive as possible by excluding virtually every potential pollution occurrence. There is no reference to pollution being accidental or gradual. Simply stated, all pollution events are excluded. However, there are some exceptions even as comprehensive as it is.

(1) Coverage does not apply to bodily injury or property damage that arises from the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, or escape of pollutants:

(a) At or from any premises, site, or location now or at any time that any insured ever owned, occupied, rented, or had loaned to it except:

· Bodily injury that is sustained due to fumes, vapor, smoke, or soot from building heating, cooling, or humidifying equipment or non-industrial hot water heaters. This exception applies only if the injury is sustained inside a building.

· Bodily injury or property damage for which a contractor may be liable but only if the liability results from a contractual relationship between the premises’ owner and the contractor. Neither the contractor nor any other insured on the policy, other than the premises owner additional insured, can have ever owned, rented, or occupied the premises. The owner must be named as an additional insured on the contractor’s policy for the contractor’s ongoing operations on the owner’s premises.

· Bodily injury or property damage due to heat, smoke, or fumes from a hostile fire

(b) At or from any premises, site, or location that any insured or others now or at any time ever used to handle, store, dispose of, process, or treat waste

(c) That were transported, handled, stored, treated, disposed of, or processed as waste at any time by or for any insured or any other party for whom the insured is or may be legally responsible

(d) At any place where any insured or a contractor working on its behalf performs operations but only if the pollutants are brought on site in connection with them. However, coverage does apply if:

· The release of pollutants is due to fuel, lubricants, or fluids that are needed to operate mobile equipment escaping, as long as the escape is from the part of the vehicle intended to hold, store, or receive them. The escape, release, or discharge must be unintentional.

Example: A bobcat carrying a barrel of oil flips. Oil from the bobcat leaks out and the barrel also ruptures and discharges its contents. Bodily injury or property damage from oil that was part of the bobcat is covered. Bodily injury or property damage from the oil discharging from the barrel is not covered.

· The release of pollutants is due to gases, fumes, or vapors from materials the insured or its contractors brought into a building. The materials must be in connection with operations the insured or its contractors are to perform on or in the building.

Example: Perfection Painting is hired to paint a hotel. The paint fumes in a room trigger the smoke alarm. A hotel guest trips going down the fire escape and is injured. She sues the hotel and Perfection for her injuries. Coverage applies because of this exception to the exclusion.

· The release of pollutants is due to a hostile fire

(e) Anywhere the insured or contractors working on its behalf are performing operations, if they involve anything to determine or treat the effects of pollutants

(2) Any judgments, suits, awards, fines, or penalties that result from Environmental Protection Act (EPA) enforcement or on its behalf are also excluded. To clarify this intent, it states that insurance does not apply to any loss, cost, or expense that results from any request, demand, or order that requires the insured or any other party to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of pollutants. It further states that insurance does not apply to any claim or suit brought by a governmental authority or on its behalf for damages because of any of these circumstances. However, this paragraph does not apply to any property damage liability the insured has except for the governmental request.

Note: There are five pollution-related endorsements that can be used with the Businessowners Coverage Form:

· BP 04 90–Pollution Exclusion–Limited Exception for a Short-Term Pollution Event

· BP 04 91–Pollution Exclusion–Limited Exception for Designated Pollutant(s)

· BP 04 92–Total Pollution Exclusion

· BP 04 93–Total Pollution Exclusion with a Building Heating Equipment Exception and a Hostile Fire Exception

· BP 04 94–Limited Pollution Liability Extension

An insured may have a pollution liability exposure because it owns, operates, uses, or maintains underground storage tanks, such as a retail gasoline station. A separate Underground Storage Tank policy may be issued to cover these exposures.

CG 00 42–Underground Storage Tank Policy Analysis

Pollution Exclusion and Limited Coverage

Pollution in the Courts

g. Aircraft, Auto, or Watercraft

There is no coverage for bodily injury or property damage that arises from owning, maintaining, using, or entrusting to others any aircraft, auto, or watercraft. This applies to any aircraft, auto, or watercraft that an insured owns, operates, rents, or leases. It includes loading and unloading.

Note: Airplanes, drones, hang gliders, hot air balloons, ultra-lights, or helicopters are all types of aircraft that are excluded.

Example: The owner of Mike’s Marine & Sauna also owns a sailboat he uses to promote the store. It has the store’s logo, telephone number, and Web site prominently displayed on the main sail. Mike rents it to some of his friends to use but it is not maintained properly and his friends are injured when it sinks. This loss is excluded.

This exclusion applies even if claims allege negligence or other wrongdoing in supervising, hiring, employing, training, or monitoring others if the occurrence involves owning, maintaining, using, or entrusting aircraft, auto, or watercraft to others.

This exclusion has a number of exceptions. It does not apply to:

(1) Watercraft on shore at the named insured's owned or rented premises

Example: Teenagers use a boat stored behind a warehouse to meet at night. One is injured trying to jump from the boat and the parents sue the warehouse owner for having an attractive nuisance exposure. Coverage applies.

(2) Non-owned watercraft less than 51 feet long as long as it is not used to carry persons or property for a charge

(3) Any parking of a non-owned auto on or next to premises the named insured owns or rents. The auto must not be owned, rented, or loaned by the named insured or the insured.

Example: Harriett has five parking spaces next to her dress shop. When she has a fashion show on premises, she has an employee act as a valet and park vehicles in her lot, on the street, and in the school parking lot on the next block. Injuries and damages due to the street parking next to her shop and in her parking lot are covered but those at the school are not. In addition, there is no coverage if the employee parks Harriet’s car and causes injury and damage.

(4) Liability assumed under an insured contract that relates to owning, maintaining, or using aircraft or watercraft

Example: An employee is injured during a trip out of town. Lionel charters a plane to bring him back to a local hospital. The charter operator requires a hold harmless agreement before he takes off to bring the employee back. Coverage applies if a covered loss occurs.

(5) Bodily injury or property damage from:

· Operating machinery or equipment attached to or that is part of a land vehicle that qualifies as mobile equipment except that it is subject to a compulsory, financial responsibility, or other motor vehicle insurance law where it is licensed or principally garaged.

· Operating cherry pickers or similar devices mounted on automobile or truck chasses and used to raise or lower workers or equipment. This also includes operating property such as air compressors, pumps, and generators, including spraying, welding, building-cleaning, geophysical-exploration, lighting, and well-servicing equipment.

Example: A pickup truck is modified to carry well-drilling equipment. The equipment accidentally strikes and damages the side of a building while being maneuvered into position over a well. Coverage applies to the damage to the building.

Note: There are many different liability policies available to cover the exposures of insureds that own, rent, lease, charter, or operate aircraft, autos, or watercraft. BP 04 04–Hired Auto and Non-Owned Auto Liability is available to modify the auto portion of this exclusion. BP 15 11–Exclusion – Unmanned Aircraft and BP 15 12–Limited Coverage for Designated Unmanned Aircraft should be reviewed to determine if they are needed for insureds using drones.

CG 24 12–Boats is used with the ISO CGL coverage form to insure boats. There is no corresponding Businessowners Program endorsement at this time. Consider writing the exposure under the ISO CGL Coverage Form if liability coverage on boats is desired.

CA 00 01–Business Auto Coverage Form Analysis

Aircraft Insurance Coverage Analysis

h. Mobile Equipment

This insurance does not apply to bodily injury or property damage that results from the transporting of mobile equipment by an auto that any insured owns, operates, rents, or has loaned to it.

Note: This would mean that damage caused by mobile equipment that is being transported by an auto that owned, operated, rented by or loaned to another party could be covered.

Bodily injury or property damage caused by mobile equipment that is used in, while practicing for, or being prepared for any pre-arranged racing, speed, demolition, or stunt activity is also excluded.

Example: A plumbing contractor hauls a backhoe to a job site on a trailer attached to an owned truck. The trailer hitch snaps, the trailer overturns, and the vehicles following behind the trailer are damaged. The damage to those vehicles is excluded.

Note: The auto liability coverage form or policy that insures the towing vehicle should respond to any liability for a trailer being towed or for mobile equipment that vehicle transports.

i. War

There is no coverage for bodily injury, property damage, or personal or advertising injury that results from war, undeclared civil war, or warlike action by a military force. This includes any actions by a government or sovereign that uses military personnel or other agents. Insurrection, rebellion, revolution, usurped power, or actions a government takes to defend against or hinder any of these are also excluded.

Example: Arnie's Air Works manufactures guided missiles. Country X purchases them and requires a purchase agreement from Arnie that guarantees the missile's accuracy within one meter. When Country X invades Country Y, the missiles completely miss their targets and cause extensive damage to Country Z. Coverage does not apply to this situation.

Note: Various terrorism endorsements affect this exclusion. Any coverage impact of this provision is substantially affected by either a full or limited exclusion of terrorism losses.

Related Article: Terrorism and Insurance.

j. Professional Services

Bodily injury, property damage, or personal and advertising injury due to professional services that are provided or intentionally withheld are excluded. Nine specific professional services are listed but the exclusion is not limited to just them.

(1) Any legal, accounting, or advertising service

(2) Any preparation or approval, or failure to prepare or approve, maps, drawings, opinions, reports, surveys, change orders, designs, or specifications

(3) Any supervisory, inspection, or engineering service

(4) Any service, treatment, advice, or instruction of a medical, surgical, dental, x-ray, or nursing nature

(5) Any health or therapeutic service, treatment, advice, or instruction

(6) Any service, advice, or instruction to enhance skin appearance, to remove or replace hair, or for personal grooming

(7) Any optometric, optical, or hearing-aid service. This includes related prescribing, preparing, fitting, demonstrating, or distributing ophthalmic lenses, similar products, or hearing-aid devices.

(8) Any body-piercing service

(9) Any pharmacy practice service

This exclusion applies if the occurrence that caused the bodily injury or property damage, or the offense that caused the personal and advertising injury, involved performing or failing to perform any professional service. This includes claims that alleged an insured's negligence or incorrectly supervising, hiring, employing, training, or monitoring others.

Example: The Bishop family sues The Best Drug Store. They contend that their father’s death was due to the interaction of two different drugs and the death would not have occurred if Best Drug had used best practices to monitor its pharmacists and discover the interaction. There is no coverage because of this exclusion.

Note: Certain insurance companies offer professional liability supplements or coverage endorsements to their separate individual Businessowners Coverage Forms to insure various professional liability exposures. Each should be contacted to determine the coverages provided. This analysis does not cover insurance company-specific endorsements and coverage forms.

k. Damage to Property

Note: This exclusion combines all property damage-specific exclusions into a single exclusion. The goal is to clarify that this coverage is not first-party coverage for the named insured's benefit. In addition, this coverage is not intended to be a substitute for good quality workmanship.

This insurance does not apply to property damage to:

(1) Property that the named insured owns, occupies, or rents. This exclusion includes the costs or expenses the named insured or others incur to repair, replace, enhance, restore, or maintain such property for any reason. The costs and expenses are excluded even if their goal is to prevent injury and/or damage.

(2) Premises that the named insured sells, gives away, or abandons, but only when the property damage arises out of any part of such premises

(3) Property that is loaned to the named insured

(4) Personal property in the insured’s care, custody, or control

(5) That part of real property where the named insured or contractors or subcontractors working on its behalf perform operations. However, this is only if the property damage arises out of those operations.

(6) That part of any property that must be restored, repaired, or replaced because the named insured’s work was done incorrectly

There are four important exceptions to these exclusions:

· Exclusions (1), (3), and (4) do not apply to property damage (other than by fire) to a premises and its contents that the named insured rents for seven days or less. A separate Limit of Insurance applies to Section II–Liability D. Liability and Medical Expenses Limit of Insurance 3. Damage to Premises Rented to You.

· Exclusion (2) does not apply if the premises is the named insured’s work and the named insured never occupied or rented it or held it for rental.

Note: This is specifically and critically important to homebuilders. Because they build and sell homes, if this exclusion would stand, there would be no property damage coverage once the home was sold. However, this exclusion does apply to any home that the named insured used as a model home or office.

· Exclusions (3), (4), (5), and (6) do not apply to sidetrack agreements.

Note: A sidetrack agreement is between a premises or location's owner and a railroad and involves a railroad transfer or access track located on the named insured's premises. The railroad allows the property owner to use the sidetrack as long as the railroad is guaranteed access to the sidetrack and there are certain agreed-on conditions of property maintenance. It may also contain specific hold-harmless agreements and conditions between the railroad and the property owner.

Example: Adolph's Appliances distributes large appliances. A railroad track is adjacent to its premises. Adolph believes sales would increase, expenses would drop, and overall growth would occur if the railroad constructed a sidetrack into his warehousing area. This would allow him to load and unload directly into rail cars and save shipping costs and truck transportation time. The railroad agrees to the arrangement, subject to it having 24-hour access to the sidetrack and Adolph's guarantee that the track will be protected from vehicle damage, vehicle access will be limited, and Adolph will hold the railroad harmless for any collision or injury that occurs during loading and unloading.

Note: The Businessowners Coverage Form includes railroad sidetrack agreements as covered contracts.

· Exclusion (6) does not apply to property damage that the products/completed operations hazard includes.

l. Damage to Your Product

Coverage does not apply to property damage to the named insured’s product because of damage it or any part of it causes.

Example: Frankie prepares elaborate wedding cakes. His team works on one for five days. The cake is delivered to the wedding reception area and is set up. The lights and fountain built into the cake are switched on. The cake is beautiful then sparks begin to fly, destroying the cake and setting the tablecloth on fire. The fire spreads to five tables and causes considerable smoke damage that ruins most of the food. All of the fire and smoke damage is covered. However, the damage to the cake is excluded because it is Frankie’s product.

m. Damage to Your Work

Property damage to the named insured’s work or any part of it that the products/completed operations hazard insures is excluded. An exception applies for work that subcontractors perform on the named insured's behalf.

Example: Elvira repairs electrical wiring in a building. The wiring is done incorrectly and shorts out. There is no coverage for the cost to replace the damaged wiring. However, if Steve's Subcontracting works on Elvira's behalf and incorrectly installed that wiring that shorted out. Elvira’s insurance would pay the loss and then subrogates against Steve’s Subcontracting.

Related Court Cases:

Work Product Exclusion in Contractor's Liability Insurance Held Applicable to Claim for Negligent Location of House

Work Project Exclusion Held Applicable to Control of Project by Construction Manager

n. Damage to Impaired Property or Property Not Physically Injured

There is no coverage for property damage when there is no physical damage to it but the property is impaired because of a defect, inadequacy, or dangerous condition in the named insured’s product or work. There is also no coverage if a delay or failure by the named insured or its representative to perform the terms of its contract or agreement causes such property damage. This exclusion does not apply when other property cannot be used because a sudden or accidental injury to either the named insured’s product or work occurs after the work or product is put to its intended purpose.

Examples:

Eli's Electrical manufactures switches for a variety of products that turn them on and off. Eli sells a batch of defective switches to other manufacturers to incorporate into their products. However, they do not operate correctly after the defective switches are installed in them. As a result, they are impaired because of Eli's defective product, but were otherwise undamaged. This loss is excluded.
Artie agrees to complete the artwork for Charlie's brochure by a specific date. The date comes and goes and the artwork is not done. There is no physical injury to any property but Charlie loses potential income because the brochure could not be distributed. This loss is also excluded.

Note: There is no standard ISO endorsement currently available to buy back this coverage or delete this exclusion.

o. Recall of Products, Work, or Impaired Property

Damages claimed for loss, costs, or expenses the named insured or others incur when its product, work, or impaired property is withdrawn or recalled are excluded. This includes loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal, or disposal. This exclusion applies when the recall is due to a known or suspected dangerous defect, deficiency, inadequacy, or condition in the product.

Note: There is no established criteria or protocol that addresses the party that orders the recall or withdrawal and there is no standard ISO endorsement currently available to buy back this coverage or delete this exclusion.

p. Personal and Advertising Injury

There is no coverage for personal and advertising injury:

(1) That the insured causes or directs knowing that it will violate the rights of another and inflict personal and advertising injury

(2) That arises from any oral or written publication the insured does or has done at its direction knowing it is false

(3) That arises from any oral or written publication first published before the policy period began

Example: An incorrect story was first published on December 29. The policy period began on January 1. There is no coverage.

(4) That the insured assumed in a contract or agreement, unless that liability existed without a contract or agreement

Example: A major male sports figure agrees to an interview with Ted's Tabloid that will be published. The sports figure insists on a written agreement where Ted promises not to slander or libel him. This liability exists without a contract or agreement.

(5) That arises from a breach of contract, other than misappropriating advertising ideas of others under an implied contract

Example: Riley's Camera, Video, & One Hour Photo contracts with Retail World Magazine to run an advertisement in its publication the month before Riley's special sale. Riley sues for breach of contract when Retail World runs the advertisement the month after the sale. There is no coverage for this breach of contract.

(6) That arises from any goods, products, or services failing to comply with their advertised quality or performance

Example: Big Wally gains even more weight after using a diet supplement that guaranteed he would lose at least ten pounds. Wally sues Rapid Weight Loss, the supplement’s manufacturer. There is no coverage in this case.

(7) That arises from incorrect descriptions of prices of advertised goods, products, or services

Example: Morticia's Microwaves sues for lost revenue when Just The Facts Newspapers makes an error in printing the price of a microwave in her advertisement. Coverage does not apply.

(8) Committed by an insured engaged in the advertising, broadcasting, publishing, or telecasting business, designing, or assisting with the content of Web sites for others, or providing Internet search, access, service, or content. This exclusion does not apply to false arrest, detention, or imprisonment, wrongful eviction, entry, or invasion by a landlord, or malicious prosecution as described in F. Liability and Medical Expenses Definitions 14. Personal and Advertising Injury, items a, b, and c.

Note: Placing frames, links, or advertising on the Internet is not considered the advertising, broadcasting, publishing, or telecasting business.

(9) That arises from the actual or alleged release or escape of pollutants at any time

(10) Concerning loss, expenses, or costs that arise from requests, demands, or orders to clean up, or any claims by a governmental body to clean up, test for, or assess pollutants

(11) Due to an offense that the insured's hosted, owned, or controlled electronic bulletin board or chat room allegedly causes

(12) That arises from infringing on copyright, patent, trademark, trade secret, or intellectual property rights. However, these other intellectual property rights do not include using advertising ideas of others in the named insured's advertisement. In addition, this exclusion does not apply to infringing on copyright, trade dress, or slogan in the named insured's advertisement.

(13) That arises from unauthorized use of another party's name or product in the named insured's email address, domain name, or similar initiatives designed to mislead potential customers of another

q. Electronic Data (07 13 change)

There is no coverage for any damages due to loss of, loss of use of, damage to, corruption of, and inability to access or manipulate electronic data. This exclusion does not apply to liability for damages because of bodily injury. This exclusion defines electronic data. It is similar to the definition in H. Property Definitions and means most media, data, programs, software, and repositories of computer software wherever and however stored. Computer programs is defined as a set of related electronic instructions that direct operations and functions of the computer or electronic device it is connected to that enable the computer or device to receive, process, store, retrieve, or send data.

r. Criminal Acts

Coverage does not apply to personal and advertising injury that arises from criminal acts the insured commits or directs.

s. Recording and Distribution of Material or Information in Violation of Law

There is no coverage for bodily injury, property damage, or personal and advertising injury that arises from violations or alleged violations of the following:

· Telephone Consumer Protection Act (TCPA)

· CAN-SPAM Act of 2003

· The Fair Credit Reporting Act (FCRA), including its amendments or additions. This also includes the Fair and Accurate Credit Transaction Act (FACTA).

· Other federal, state, or local statute, ordinance, or regulation other than the above that address, prohibit, or limit printing, distributing, disposing, collecting, recording, sending, transmitting, communicating, or distributing information or material

The exclusions below do not apply to fire damage to premises the named insured rents or temporarily occupies with the owner's permission.

· c. Liquor Liability

· d. Workers Compensation and Similar Laws

· e. Employers Liability

· f. Pollution

· g. Aircraft, Auto, or Watercraft

· h. Mobile Equipment

· i. War

· k. Damage to Property

· l. Damage to Your Product

· m. Damage to Your Work

· n. Damage to Impaired Property or Property Not Physically Injured

· o. Recall of Products, Work, or Impaired Property

Section II–Liability D. Liability and Medical Expenses Limits of Insurance has a separate Damage to Premises Rented to You Limit of Insurance that applies to this coverage provided by the above exclusion exception.

2. Exclusions that apply to Medical Expenses Coverage

There is no payment for expenses related to bodily injury:

a. Of any insured. However medical expenses of volunteer workers are covered.

Example: Patty, one of the Penelope's Partnership partners, is the first named insured. She slips and falls on ice on the building's steps and needs x-rays to determine if anything is broken. This expense is not covered.

b. Of any person hired to work for or on behalf of any insured or an insured’s tenant

Example: Harry’s Habitat hires Paul to paint its building and rental dwelling. Paul falls from a ladder and breaks his wrist. The medical expenses due to the fall are not covered.

c. Of any person who is injured on the part of the named insured's owned or rented premises that the person normally occupies

Example: Mona Moneybags is a tenant and occupies one of the units in the apartment building that Leonard Landlord owns. Mona falls down the stairs in her apartment and is injured. This coverage does not apply to Mona's medical expenses due to the fall.

d. Of any person (employee or non-employee) who is entitled to benefits for bodily injury under a workers compensation, disability benefits, or similar law

Example: Wilbur sustains burns on his hands as a result of a small fire while he is on the job. This coverage does not apply to this loss because it should be covered under his states workers compensation statute.

e. Of a person injured while involved in games, sports, athletic contests, or physical exercise. There is no coverage while that person practices for, instructs, or participates in any of these activities.

Example: Lyle’s Linguini-To-Go sponsors a Little League team. Moses breaks his leg when sliding into home plate. This coverage does not apply to the expenses due to the injury.

f. Included in the products-completed operations hazard

Example: Micah repaired an appliance. Stacey’s fingers were burned when that appliance caught fire because he used the wrong grade of wire. Stacey asked Micah to pay her medical bills and he might but this coverage will not pay anything.

g. That this business liability coverage excludes

Example: One of Oscar's employees becomes angry, strikes a customer, and breaks his nose. This coverage does not apply to this loss because it is an intentional act that is excluded under the exclusions in item 1. above.

3. Exclusion that applies to both Business Liability Coverage and Medical Expenses Coverage–Nuclear Energy Liability Exclusion

a. Business Liability Coverage excludes bodily injury or property damage liability:

(1) For losses of an insured who is also an insured under a nuclear energy liability policy issued by the Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters, or Nuclear Association of Canada, including their successors. This exclusion is not affected by the termination or exhaustion of limits of such policies.

(2) Of any loss resulting from the hazardous properties of nuclear material including:

(a) The obligation of any entity to maintain financial protection to comply with the Atomic Energy Act of 1954 and its amendments

(b) The insured is or would be entitled to indemnification from the United States of America or any of its agencies under any agreement it enters with the United States of America or any of its agencies with any person or organization, if this policy had not been issued

b. Concerning Medical Expenses Coverage, there is no coverage for bodily injury resulting from the hazardous properties of nuclear material and arising from a nuclear facility operated by any person or organization.

c. There is no coverage under Business Liability Coverage for any bodily injury or property damage resulting from the hazardous properties of nuclear material if any of the following applies:

(1) The nuclear material is at a nuclear facility an insured owns or that is operated on an insured's behalf or has been released from such facility

(2) The nuclear material is contained in waste or spent fuel was possessed, handled, used, processed, stored, transported or disposed of at any time by an insured or on its behalf

(3) The bodily injury or property damage arises from an insured furnishing services, materials, parts, or equipment in conjunction with planning, building, maintaining, using, or operating a nuclear facility. However, this exclusion applies only to property damage to a nuclear facility and its property situated in the United States of America, its territories or possessions, and Canada.

d. These special terms are defined:

(1) By-product material

This material has the meaning given to it in the Atomic Energy Act of 1954 or any related amendatory law.

Note: This exclusion does not provide that meaning. It has multiple meanings in different sections of the act.

(2) Hazardous properties

This includes radioactive, toxic, or explosive properties.

(3) Nuclear facility

This is a nuclear reactor and equipment designed or used to separate uranium or plutonium isotopes, or for spent fuel processing, utilizing, waste handling, processing, or packaging. It also includes equipment or devices used in special nuclear material processing, fabricating, or alloying, if the total amount of such material at any time consists of or contains more than 25 grams of plutonium or uranium-233, or any combination thereof, or more than 250 grams of uranium-235. Any structure, basin, excavation, premises, or place prepared or used to store or dispose of waste is also included, along with the site on which all such operations are conducted and all premises used for such operations.

(4) Nuclear material

This is source material, special nuclear material, or by-product material. Each of these properties is defined by the Atomic Energy Act of 1954 or any amendments to it and is not repeated in this exclusion.

(5) Nuclear reactor

This is any device designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material. The size of the reactor and the amount or type of material that must be present is not defined.

(6) Property damage

This is all forms of radioactive contamination of property.

(7) Source material

This material has the meaning given in the Atomic Energy Act of 1954 or as amended.

Note: This exclusion does not provide that meaning. However, it is generally either the element thorium or the element uranium that has not been enriched in the isotope uranium-235. It also includes any combination of thorium and uranium, in any physical or chemical form, or ores that contain by weight one-twentieth of one percent (0.05 percent) or more of uranium, thorium, or any combination of these. Depleted uranium left over from uranium enrichment is considered source material.

(8) Special nuclear material

This material has the meaning given in the Atomic Energy Act of 1954 or as amended.

Note: This exclusion does not provide that meaning. However, it is generally plutonium, uranium-233, or uranium enriched in the isotopes uranium-233 or uranium-235. The definition also includes any other material that the Nuclear Regulatory Commission (NRC) determines to be special nuclear material. It does not include source material.

(9) Spent fuel

This is any solid or liquid fuel element or component that was used or exposed to radiation in a nuclear reactor.

(10) Waste

This is waste material that contains by-product material. By-product material does not include tailings or waste produced by extracting or concentrating uranium or thorium from any ore processed primarily for its source material content. Waste also includes any waste materials that result when any person or organization operates any nuclear facility included under the first two paragraphs of the definition of nuclear facility.

C. WHO IS AN INSURED

1. Insureds based on form of business

The declarations has spaces to check and describe the named insured's form of business. Each form has a different group of parties that are considered insureds and conditions under which they are insureds.

a. If the named insured is an individual, the individual is an insured. It addition the named insured's spouse is an insured. However, their status as insureds is limited to only the named insured’s solely owned business operation(s).

Example: Mr. John, a sole proprietor, sells farm produce. Both he and Mrs. John are insureds. In addition, Mr. John is the sole proprietor in a separate wood kitchen cabinet manufacturing business. In both cases, he and Mrs. John are insureds. However, if he and his brother owned the carpentry business as a partnership, the partnership would not be covered.

b. If the named insured is a partnership or joint venture, the partnership or joint venture is an insured. Members and partners of the named insured and their spouses are insureds. However, the members, partners, and their spouses are insureds only while conducting the named insured's business.

Example: Mr. John and Mr. Joe are partners in a carpentry business. They and their spouses are insureds with respect to conduct of the carpentry business. However, none of them are insureds under this coverage form for their personal exposures or for any other business activities.

c. If the named insured is a limited liability company, the limited liability company is an insured. Members of the company are insureds but only with respect to conduct of the named insured's business. The named insured's managers are also insureds but only to the extent of their specific duties as managers.

Note: A limited liability company is a hybrid form of business between a partnership and a corporation. Managers operate a limited liability company on behalf of its members. Members have the protection of a corporation, in that personal assets are protected and only company assets can be assessed. On the other hand, the income and profit the limited liability company earns is not taxed against the company but is the obligation of its members as individuals.

d. If the named insured is an organization other than those listed above, it is an insured. Executive officers and directors of the named insured are insureds but only while performing their duties as such. Stockholders are also insureds but only for the liability imposed on them as stockholders.

e. If the named insured is a trust, it is an insured. Its trustees are also insureds but only with respect to their duties as trustees.

Note: A trust is an unincorporated business organized under a legal document and a declaration of trust. It is used instead of a corporation or partnership to transact business with limited liability. It is different than a corporation because it does not receive a charter from the state that gives it legal recognition. It derives its status from the voluntary actions of the individuals who form it.

2. Insureds based on relationship with the named insured

The following persons or organizations are also insureds:

a. Volunteer workers but only when they perform duties related to the named insured's business.

Employees are insureds within the narrow range of activities in the scope of their employment or while conducting the named insured's business. This does not apply to executive officers of organization nor to managers of limited liability companies.

Volunteers and employees are not insureds for bodily injury or personal and advertising injury:

· To the named insured, its partners, or members

· To co-employees but only while those co-employees are acting within the scope or their employment or otherwise conducting the named insured’s business

· To volunteer workers but only while they are involved in activities that are related to the named insured’s business

Example: Meredith is an employee of Goods and Plenty. She drives a forklift that suddenly goes out of control and plows into a group of people before it comes to a stop. Meredith’s supervisor and two of her co-employees are injured. Meredith is not an insured for their injuries. John, a co-employee who had just clocked out for the day, is also injured. Meredith is an insured for his injuries because he was not within the scope of his employment at the time of the injury. Jason and Wendy, unpaid interns, were also injured. Because they were volunteers performing duties on behalf of Good and Plenty at the time of their injuries, Meredith is not an insured for their injuries.

· To designated relatives of any co-employee or volunteer if that co-employee or volunteer's injury is not covered above

· When there is any obligation to share with or repay others for damages related to injuries described above as not covered

· That relate to any professional health care services

Volunteers and employees are also not insureds for property damage to property owned, occupied, used by, rented to, in the care, custody, or control of, or physically controlled for any reason by any insured.

b. Any party other than an employee or volunteer who acts as the named insured's real estate manager

c. Any party with temporary legal custody of the property of a deceased named insured. The status applies to only liability that arises out of or is caused by maintaining or using that property and only until a proper legal representative is appointed.

d. A properly appointed legal representative for a deceased named insured but only while carrying out duties as the legal representative

Note: The legal representative assumes all of the deceased named insured's rights and duties. This goes beyond the standard insured status and extends to rights to cancellation, conditions, and other elements assigned to only named insureds.

Who Is an Insured provides broad coverage to the named insured for exposures usual to any business operation that can be expected in a commercial venture. It also clarifies that any current or past partnerships, joint ventures, or limited liability companies not listed on the declaration are not insureds.

Note: A number of endorsements are available to add other interests for liability coverage.

D. LIABILITY AND MEDICAL EXPENSES LIMITS OF INSURANCE

1. Amounts Paid

The most the insurance company pays are the limits of insurance on the declarations. This is regardless of the number of insureds, claims made, suits brought, or number of parties that make claims or bring suits. This is subject to items 2, 3 and 4 below.

Example: Bonnie Brownlocks was a longtime customer but sued Lara and Prentiss Greatkuple D/B/A Hair Essentials. While getting into a chair in their salon, the chair collapsed and she fell to the floor, sustaining a concussion, various cuts, and a broken back. She filed two different lawsuits. One named Lara and the other named Prentiss. The Greatkuples reported the loss and provided all the relevant paperwork on the two suits to their insurance company. The company informed them that it would defend the lawsuits but the $1,000,000 limit was the most it would pay for both suits.

2. Liability and Medical Expenses Limit

The Liability and Medical Expenses limit on the declarations is the most paid for the total of all damages for bodily injury, property damage, and medical expenses that arise from a single occurrence. It applies regardless of the number of claims that develop from the occurrence. It is also the most paid for personal and advertising injury that any one organization or person sustains.

Example: Melvin’s Bakery has a liability and medical expenses limit of $1,000,000. Melvin is teaching a cake baking class when a stove explodes and injures a number of class members. Twenty-five claims for damages that amount to $5,000,000 are submitted to the insurance company. The $1,000,000 limit applies to the occurrence and is subject to the aggregate limit. Melvin's Bakery is responsible for the remaining $4,000,000 claimed.

The medical expenses limit on the declarations is a sub-limit. It is the most medical expense paid because of bodily injury that a single person sustains. However, it is still subject to the Liability and Medical Expenses limit on the declarations.

Example: Melvin’s Bakery's medical expenses limit is $5,000. The claims adjusters settled the cases quickly. One late claim for medical expenses was not filed until the $1,000,000 limit was paid. Even though the amount claimed was less than $5,000, it was denied because the $1,000,000 limit had been exhausted.

3. Damage to Premises Rented To You

The Damage to Premises Rented to You Limit on the declarations for the particular location is the most paid under Business Liability coverage for damages to the premises the named insured rents. It is also the most paid in case of fire for premises the named insured temporarily occupies with the owner's permission. The limit for premises the named insured temporarily occupies is the highest Damage to Premises Rented to You limit on the declarations.

Example: The Damage to Premises Rented to You limit at each location is $50,000. Melvin's Bakery operations at one such premises cause a fire that completely burns down the building. The total loss is $250,000. The $50,000 Damage to Premises Rented to You limit at that location is all the insurance company pays.

4. Aggregate Limits

The most paid for:

a. All bodily injury and property damage in the products-completed operations hazard is two times the Liability and Medical Expenses limit

b. All bodily injury and property damage except as the products-completed operations hazard includes is two times the Liability and Medical Expenses limit.

The Damage to Premises Rented to You limit is subject to either the products-completed operations aggregate or the all other aggregate, whichever applies to the particular loss.

This section explains how the limits of insurance apply. They apply separately to each annual 12-month policy period, beginning with the inception date. If any period of less than 12 months remains, the limits apply separately to that period as well, unless coverage is extended for that period. In that case, the extended period is part of the preceding period for the purpose of applying the limits.

Example: Beulah's Boutique's coverage was originally in force from January 1 to January 1 of each year. In the second year, Beulah requested that the expiration date be extended to July 1 in order to match her accounting year. The limits applied separately to the first annual 12-month January 1 to January 1 period. They also applied separately to the second period now extended to 18 months, from January 1, past the next January 1 to July 1. After that, each annual July 1 to July 1 period has separate limits.

Note: ISO has not developed any endorsements to amend, modify, or delete either the liability limits or the aggregate limit. However, the Commercial General Liability (CGL) Coverage Form has endorsements that do so. The named insured should consider being insured under the CGL Coverage Form if its limits must be modified.

E. LIABILITY AND MEDICAL EXPENSES GENERAL CONDITIONS

1. Bankruptcy

The insurance company is not relieved of its obligations under this coverage form if the insured or the insured's estate becomes bankrupt or insolvent.

2. Duties In The Event of Occurrence, Offense, Claim, or Suit

The named insured has certain duties that it must perform if there is a claim or demand for coverage:

a. It must inform the insurance company of any occurrence or offense that may result in a claim as soon as possible. As a minimum, the notice should include information about how, when, and where the event took place and the names and addresses of all injured parties and any witnesses. It should also indicate the nature and location of any injury or damage as a result of the occurrence or offense.

b. Concerning claims made or suits brought, it must immediately record the details of the claim or suit, the date it was received, and notify the insurance company as soon as possible.

Note: This is in addition to providing the insurance company with timely written notice of the claim or suit.

c. Every insured involved in or with the claim must:

· Immediately send the insurance company copies of demands, notices, summonses, and legal documents it receives in conjunction with the claim or suit

· Authorize and allow the insurance company to obtain records and other needed information

· Cooperate with the insurance company as it investigates or settles the claim or defends against the suit

· When the insurance company requests, assist it to enforce any rights it has against any person or organization that may be liable to the insured for injury or damage that this insurance covers

d. No insured may voluntarily make any payments, assume any obligations, or incur any expenses (other than first aid) without the insurance company's consent. If it does, it does so at its own cost or expense.

3. Legal Action Against Us

No one has the right to:

a. Join the insurance company in any way or bring it into a suit that claims damages from an insured

b. Sue the insurance company until the terms and conditions of the policy have been met.

The insurance company can be sued to recover on an agreed settlement or on a final judgment against an insured. However, it is not liable for damages that are not subject to payment under this policy’s terms or that exceed the limit of insurance that applies.

An agreed settlement is a settlement and release of liability that the insured, the insurance company, and the claimant or the claimant's legal representative signs.

4. Separation of Insureds

Other than the limits of insurance and any rights and duties that apply specifically to the first named insured, this insurance applies to each named insured as if it is the only named insured and separately to each insured against whom a claim is made or a suit is brought.

Examples:

Businessowners Coverage is issued to Zach Taylor, Inez Polk, and Leslie Enterprises, Inc. Inez sues Zach for defamation of character. The coverage form responds and defends Zach, even though Inez is another named insured.
Daisy Enterprises, Inc. has Businessowners Coverage. A suit is filed against it, Daisy’s president, and Orrin, an employee, for an alleged assault in the parking lot. The insurance company defends all three parties. If Orrin’s actions are found to be intentional, the insurance company may refuse to defend him but continue to defend Daisy Enterprises and its president.

F. LIABILITY AND MEDICAL EXPENSES DEFINITIONS

Defined words are used throughout the coverage form. Restricting their meaning to the definition in the coverage form gives all parties a clearer understanding of the coverage intended. Twenty-two terms are defined.

1. Advertisement

This is a published or broadcasted notice to the general public or specific market segments concerning the named insured's goods, products, or services. The reason for the notice must be to attract customers or supporters. Material that is placed on or in the Internet and other electronic forms of communication are considered published notices. An entire website is not considered advertisement. However, notices on a website that provides information about the named insured's goods, products, or services to attract customers or supporters are advertisement.

2. Auto

This is a land motor vehicle, trailer, or semi-trailer designed for travel on public roads. It includes any attached machinery or equipment. It does not include mobile equipment. However, it does include any land vehicle subject to financial responsibility laws or motor vehicle registration rules.

3. Bodily injury

This is bodily injury, sickness, or disease a person sustains. It includes death that results from bodily injury, sickness, or disease at any time.

4. Coverage territory

This is the United States of America, its territories and possessions, Puerto Rico, and Canada. It includes international waters or airspace, subject to the injury or damage occurring during travel or transportation between any of these places.

It includes other parts of the world, subject to the injury or damage arising out of the following.

Goods or products the named insured manufactures or sells in the coverage territory
Activities of persons whose homes are in the coverage territory but who are away on the named insured's business for a short period of time
Personal and advertising injury offenses that take place through the Internet and other electronic forms of communication

The worldwide coverage above is subject to the insured's responsibility to pay damages being determined in a suit that is based on the merits in the territory described in the first paragraph of this definition or in a settlement to which the the insurance company agrees.

5. Employee

The term employee is broadened to include leased workers but not temporary workers.

6. Executive officer

This is a person who occupies any officer position that the named insured's charter, constitution, by-laws, or similar governing document creates.

7. Hostile fire

A fire that becomes uncontrollable or burns at a place other than where it is supposed to be.

8. Impaired property

Tangible property that cannot be used or is less useful because it includes a portion of the named insured's product or work known or thought to be dangerous, inadequate, defective, or deficient. It can also be a situation where the property cannot be used or is less useful because the named insured has not satisfactorily completed the terms of a contract or agreement. The property is considered impaired only if the property is capable of being restored to use by repair, replacement, adjustment, or removal of the named insured's product or work, or by the named insured fulfilling the terms of the contract or agreement.

9. Insured contract

This term means any of the following:

a. Leases of premises, except for the part that agrees to indemnify for fire damage to any premises the named insured leases, rents, or temporarily occupies

b. Sidetrack agreements

c. Easement or license agreements. It does not include such agreements connected with construction or demolition operations that take place on or within 50 feet of a railroad.

d. Obligations to indemnify a municipality that an ordinance requires. It does not include obligations connected with work for that municipality

e. Elevator maintenance contracts

f. An insured contract also includes the part of any other contract or agreement that applies to the named insured's business whereby it assumes the tort liability of another party to pay for bodily injury or property damage to a third person or organization. This includes contracts or agreements that indemnify a municipality in conjunction with work done for that municipality. It does not include any part of a contract or agreement:

· That indemnifies a railroad for bodily injury or property damage that arises out of construction or demolition operations conducted within 50 feet of any railroad property and that affects railroad bridges, trestles, tracks, roadbeds, tunnels, overpasses, or crossings

· That indemnifies an architect, engineer, or surveyor. However, this applies only as it relates to injury or damage that arises out of any of the following:

Preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders, change orders, drawings, and specifications
Giving or failing to give instructions or directions, if that act is the primary cause of the injury or damage

Where the insured is an architect, engineer, or surveyor and assumes liability for injury or damage that arises out of its rendering or failing to render professional services (including those listed above) and also any supervisory, inspection, architectural, or engineering activities

Note: Tort liability is liability that laws impose without a contract or agreement.

10. Leased worker

A person the named insured leases from a labor-leasing organization under a contract or agreement to perform duties related to conduct of its business. Leased workers are not the same as temporary workers. The manner in which the contract or agreement is made is not specified.

11. Loading or unloading

This is handling property after it is moved from where it is taken for transportation on aircraft, watercraft, or autos, while in or on those conveyances, and while being removed from them at the final delivery location. It does not include property that is moved by mechanical devices if the devices are not attached to the aircraft, watercraft, or auto. The only exception is when the device is a hand truck.

12. Mobile equipment

This is the following land vehicles and machinery or equipment attached to them:

a. Bulldozers, farm machinery, fork-lifts, and other vehicles designed to be used off-road

Note: These are considered mobile equipment even when used on public roads. They just must be designed as an off-road land vehicle.

b. Vehicles the insured keeps with the plan to use them only on or next to owned or rented locations

Note: These vehicles are covered if they leave the intended location as long as that their planned use is to always be at the location. A golf cart owned by a condominium association with the plan to use it only on premises is still mobile equipment when it is used on public streets because of an emergency.

c. Vehicles that operate using crawler treads

d. Vehicles used to provide mobility to permanently mounted power cranes, shovels, loaders, diggers, drills, and road construction or resurfacing equipment. Graders, scrapers, and rollers are examples of resurfacing equipment. The vehicles may or may not be self-propelled.

e. Vehicles other than as described above that are not self-propelled and that are used to provide mobility to permanently attached equipment. Examples are air compressors, pumps, and generators, spraying, welding, building cleaning, geophysical exploration, lighting, well servicing equipment, and devices used to raise or lower workers or equipment, such as cherry pickers.

f. Vehicles not described above used mainly for purposes other than to transport persons or cargo. The following self-propelled vehicles with permanently attached equipment are treated as autos and not as mobile equipment:

· Snow removal, street cleaning, and road maintenance equipment. This does not include construction or resurfacing equipment.

· Cherry pickers and related equipment used to raise and lower workers that are mounted on automobile or truck chasses

· Air compressors, pumps, and generators. This also includes spraying, welding, building cleaning, geophysical exploration, lighting, and well servicing equipment.

Mobile equipment does not include land vehicles subject to mandatory or financial responsibility laws or motor vehicle insurance or registration laws in the jurisdiction where they are licensed or principally garaged. Land vehicles subject to mandatory or financial responsibility laws, other motor vehicle insurance law, or motor vehicle registration law are considered autos.

Note: This type of mobile equipment is considered auto and coverage is available under only auto coverage forms and policies.

13. Occurrence

This is an accident. It includes continuous or repeated exposure to essentially the same harmful conditions.

14. Personal and advertising injury

This is injury and consequential bodily injury that arises out of one or more of the following offenses:

a. False arrest, imprisonment, or detention

b. Malicious prosecution

c. Violations of the right of a tenant’s private occupancy. This includes wrongful eviction from, wrongful entry into, or invasion of a space or a premises a person occupies. The act must be committed by the owner, landlord or lessor, or by parties that act on their behalf.

d. Material that libels or slanders a person or an organization. It is also any material that discusses a person or organization’s goods, products, or services in a disparaging way. The material can be in oral, written, or any other form, including Internet and electronic forms.

e. Any form or type of oral or written publication of material that violates a person's right of privacy

f. Using another party's advertising ideas in the named insured's advertisement

g. Infringing on another’s copyright, trade dress, or slogan in the named insured's advertisement

15. Pollutants

This is any solid, liquid, gaseous, or thermal irritant or contaminant. It includes smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.

16. Products-completed operations hazard

a. This includes all bodily injury and property damage that occurs away from premises or locations the named insured owns or rents that arises from its products or work, except:

· Products the named insured still physically possesses

· Work that is not complete or that has been abandoned. Work is considered complete on the earliest date that all the work the contract calls for is done, when all work to be done at a job site is done (in cases where the contract calls for work at more than one job site), or when that part of the work done at a job site is put to its intended use by any person or organization other than another contractor or subcontractor working on the same job site project.

Work that is essentially complete except that it still requires some service, maintenance, correction, repair or replacement is treated as complete.

The bodily injury or property damage must occur away from the named insured’s premises. There is an exception in cases where the named insured’s business includes selling, handling, or distributing its products to be consumed on its owned or rented premises.

b. Products-completed operations hazard does not include bodily injury or property damage that arises from:

· Transporting any property. There is an exception if the injury or damage is due to a condition in or on a vehicle the named insured does not own or operate. This is subject to the condition having been created when an insured loaded or unloaded the vehicle.

· The presence or existence of tools, uninstalled equipment, or abandoned or unused materials

17. Property damage

This is:

a. Physical injury to tangible property. It includes all resulting loss of use of that property. Any and all loss of use claims are treated as having taken place at the same time as the physical injury that caused it.

b. Loss of use of tangible property that is not physically injured. Any and all loss of use claims are treated as having taken place at the time of the occurrence that caused it.

Electronic data is not considered tangible property. Under this definition, electronic data is information, facts, or programs stored as or on, created or used on, or transmitted to or from computer software or any other media used with electronically controlled equipment.

18. Suit

This is a civil proceeding that alleges damages for bodily injury, property damage, or personal and advertising injury that this insurance covers. It includes arbitration and other alternative dispute resolution proceedings. The insurance company must consent to the insured submitting to any arbitration or alternative dispute resolution.

19. Temporary worker

Any person furnished to the named insured as a substitute for a permanent employee who is temporarily away from the business or is furnished to meet seasonal or short-term workload conditions.

20. Volunteer worker

This is a person the named insured does not employ but who donates his or her work and acts at the named insured's direction and within the scope of duties prescribed. Volunteer workers are not paid a fee, salary, or other compensation by the named insured or any other party for the work they perform.

21. Your product

This is not real property. Real property usually means land, buildings, and property rights. This means that a home a contractor builds is not a product.

a. It is goods or products the named insured or any party that trades under its name manufactures, sells, disposes of, handles, or distributes. It includes the goods or products of any party whose business or assets the named insured acquires. It also includes containers, materials, parts, or equipment furnished as part of the covered goods or products. Vehicles are not considered to be containers.

b. It also includes warranties or representations made with respect to the fitness, quality, durability, performance, or use of the named insured's product and the warnings and instructions provided with the product. It includes the warnings and instructions that were included as well as the ones that should have been and were not.

This definition does not include vending machines or other property rented to or located for use by others but not sold.

22. Your work

a. Work or operations the named insured does or that others do on its behalf. It also means materials, parts, or equipment furnished in connection with such work or operations.

b. Warranties or representations that are made concerning the fitness, quality, durability, performance or use of the named insured's work and the warnings and instructions provided with the work are also your work. The included warnings and instructions are your work but in addition those warnings and instructions that should have been included but weren’t are also your work.

SECTION III COMMON POLICY CONDITIONS (APPLICABLE TO SECTION I–PROPERTY AND SECTION II–LIABILITY)

The Businessowners Coverage Form combines several different coverages. Most have their own coverage descriptions, definitions, causes of loss, and conditions. The two areas all coverages share in common are the declarations and the common policy conditions.

A. Cancellation

1. The first named insured person or organization on the declarations can cancel, make changes, pay premiums, receive cancellation notices, and request cancellation.

Note: It is important to select the correct first named insured for proper communication and to be certain that all rights are properly protected.

2. The insurance company can cancel the policy by mailing or delivering written notice of cancellation to the first named insured at least:

a. Five days before cancellation takes effect. This very short time period can be used only under the following circumstances:

(1) The building has been vacant for 60 or more consecutive days. This provision does not apply to buildings that experience normal seasonal unoccupancy or that are under construction. Vacant means 65% or more of rental units or floor area is vacant.

Example: Supersnob Department Store moves out of Magnificent Mall that Conservative Mutual insures. Supersnob was the mall anchor and occupied 70% of the retail space. Sixty days after the move out, Conservative Mutual sends Magnificent Mall a five days’ notice of cancellation.

Note: This definition of vacancy is not the same as the definition of vacancy in the Vacancy Condition. Instead of defining vacancy to be when less than 31% is occupied, this definition states that the building is vacant or unoccupied when 65% of the rental units or floor area is vacant. In addition, this item applies only to covered buildings so named insureds who are only tenants are not subject to this item.

(2) Repairs have not begun or been contracted for within 30 days after a covered loss is initially paid

Note: Initial payment can include a minimum down payment against the total future payment.

(3) The building has an outstanding order to vacate, an outstanding demolition order, or a government authority has declared it unsafe

(4) Repaired and salvageable items were or are being removed and will not be replaced. This does not apply to items removed due to remodeling or remodeling that will eventually be returned.

(5) Necessary heat, water, sewer, or electricity has not been provided for 30 days unless it is due to normal periods of seasonal unoccupancy.

Property taxes have not been paid for a year, unless there is a legitimate dispute with the taxing authority over the tax payment.

b. Ten days when the reason for cancellation is nonpayment of premium

c. Cancellation for any reason other than listed in a. or be above requires 30 days’ advance written notice.

3. All cancellation notices are sent to the first named insured at the last mailing address the insurance company knew about.

4. The cancellation notice must state the date that cancellation takes effect. That is the date when the policy period ends.

5. The first named insured receives any premium refunds. Refunds are pro rata if the insurance company cancels. The refund may be less than pro rata if the named insured cancels. Cancellation is effective even if a refund is not made or offered.

6. Proof of mailing is sufficient proof of notice, unless a state law that requires certified mail or some other form of postal verification supersedes or replaces this condition.

Note: The cancellation notice periods indicated above may be different in certain states based on laws that usually require longer notice periods.

B. Changes

This coverage form contains all the agreements and terms between the parties. It can be changed or waived only by endorsements that the insurance company issues.

C. Concealment, Misrepresentation, or Fraud

This coverage form is void in case of fraud by the named insured as it relates to the coverage provided. It is also void if the named insured or any other insured at any time intentionally conceals or misrepresents a material fact. However, the material fact must concern the coverage form, covered property, interests of any insured in the covered property, or a claim.

Example: Mary’s application stated that her dog’s name was Spot but its real name was Rover. This is not a material fact and does not affect her coverage. However, stating that Spot/Rover was a Teacup poodle instead of it actually being a Pit Bull could be a material fact that affects coverage and may result in it being voided.

D. Examination of Your Books and Records

The insurance company can examine or audit the named insured’s books as they relate to the insurance provided at any time during the policy period and up to three years after.

E. Inspections and Surveys

1. The insurance company may make surveys and inspections at any time. It may give reports of those inspections to the named insured along with recommendations to improve conditions but is not required to do so.

2. Inspections are not required. The insurance company uses them only to determine insurability and premiums to be charged. Such inspections do not warrant that a location meets safety or health requirements or that it complies with local, state, or federal ordinances or regulations.

3. The provisions in 1. and 2. above also apply to rating, advisory, rate service, and similar organizations that conduct similar inspections and surveys and make similar reports and recommendations.

4. The provisions in 2. above do not apply to insurance company inspections, surveys, reports, or recommendations with respect to certification, ordinances, or regulation of boilers, pressure vessels, or elevators under state or municipal statutes.

Note: A number of states noted that insurance companies regularly went into buildings to make inspections. This drew the attention of legislators who attempted to have the industry become the watchdog for various safety and health issues. These paragraphs represent the insurance industry's response.

F. Insurance Under Two or More Coverages

Only the actual amount of loss or damage is paid in cases where two or more coverages apply to the same loss or damage.

Note: This eliminates double coverage and duplicate loss payments.

G. Liberalization

The insurance company may adopt revisions that broaden coverage during the policy period or within 45 days before it begins that do not require additional premium. In that case, the broadened coverage applies immediately.

Note: However, any restrictions similarly adopted at the same time do not apply in the same way.

H. Other Insurance

1. If other insurance that covers the same loss or damage applies, this insurance is excess over the amount due from that other insurance, whether it can be collected or not. However, the insurance company never pays more than the Section I–Property Limit of Insurance that applies.

2. Business Liability insurance is excess over any other insurance that insures for direct physical loss or damage. This means it is excess over Section I of this coverage form, a commercial property coverage form, auto physical damage coverage, and other first party insurance coverage. It is also excess over any other primary insurance where the named insured is added as an additional insured. The 07 13 edition removes the words “by attachment of an endorsement” from the end of this sentence.

3. If this coverage is considered excess, the insurance company does not pay defense costs that the other company should pay. If the other company refuses to defend, this insurance company has the option to do so. If it does, it assumes the insured’s rights under the other policy to proceed against the other insurance company.

I. Premiums

1. The first named insured pays all premiums due and receives all return premiums.

2. The premiums on the declarations are based on rates in effect when the policy is issued. Renewal premiums are subject to change, based on rules and rates in effect at that time.

3. Insurance coverage can continue in force year after year, subject to insurance company approval, if the named insured pays the premium before the anniversary date. However, any rate changes are reflected in that renewal premium and any forms changes apply. If the renewal premium is not paid, coverage ends on the first anniversary that the insurance company did not receive the premium.

4. Changes in the named insured’s operations or exposures during the policy period may require an additional premium charge. Rates and rules for these changes apply as of the effective date of the change and not the rules and rates in effect at inception.

J. Premium Audit

1. If the policy is subject to premium audit, the premium on the declarations is an advance premium. The insurance company calculates the final premium after the actual exposures are determined.

2. The advance premium is only a deposit premium. The actual earned premium is calculated at the end of the audit period. At that time, the first named insured must pay any additional premium on the due date specified on the billing. However, the first named insured receives a premium refund if the advance premium exceeds the earned premium.

3. The first named insured must keep records of the information the insurance company needs to calculate the earned premium and send that information to the company when the company requests.

K. Transfer of Rights of Recovery Against Others to Us

1. With respect to property coverage, the named insured can waive its rights of recovery against other parties in writing prior to a loss. However, it cannot do anything after a loss to impair the company’s rights to recovery. The named insured can waive its rights to recovery after a loss only if it controls or owns the other business, if the business owns or controls the named insured, or if the individual or other business is the named insured's tenant. The named insured can accept normal bills of lading that limit the liability of carriers without restricting its insurance.

2. With respect to liability coverage (but not medical payments), the insured must ensure that the insurance company has the right to recover all payments it made, help it enforce them, and not do anything after a loss to impair them. The insurance company can request that the insured bring suit or transfer such rights to it and require the insured to assist it enforce them.

Note: The insured may agree to waive write of recovery in contracts. By doing so it has no rights of the recovery to transfer to the insurance company. As long as these waivers took place prior to the loss, the insurance company must honor them and not penalize the insured. However, if the insured agreed to waive the recovery following a loss, it has breached the contract with the insurance company and the insurance company can elect to not cover the loss.

L. Transfer of Your Rights and Duties Under This Policy

The named insured may not transfer its rights under the policy without the insurance company’s written approval to do so. However, practical considerations apply when an individual named insured dies. When that happens, the named insured's rights and duties transfer to his or her legal representative. The representative has insured status only while acting within the scope of its duties as a legal representative. Anyone that has proper temporary custody of the deceased named insured’s property assumes the named insured's rights until a proper legal representative is appointed.