BP 07 01-Contractors' Installation, Tools, And Equipment Coverage

BP 07 01–CONTRACTORS’ INSTALLATION, TOOLS, AND EQUIPMENT COVERAGE

(September 2019)

INTRODUCTION

This endorsement must be attached to any Insurance Services Office (ISO) Businessowners Coverage Form issued to a contractor. Its primary intent is to eliminate all off premises coverage and then add the coverage back in a more controlled way. This is understandable because the Businessowners Coverage Form was not originally designed for insureds that have extensive off premises exposures. Many contractors have off premises exposures with little or no on premises exposure. This endorsement attempts to match the exposure with the premium charged.

Important Note: This is intended for insureds with comparatively small exposures. Inland marine coverage forms or policies should be used if the insured has more significant exposures because they provide broader coverage. However, even with the separate inland marine coverage, this endorsement continues to be a mandatory endorsement.

Related Articles:

AAIS Contractors' Equipment Coverage Forms

ISO Contractors’ Equipment Coverage Form

AAIS Installation Floater Coverage Forms

ISO Installation Coverage Form

This endorsement was extensively updated in September 2019. Changes will be in bold.

Many concerns that were brought up in our prior analysis of this endorsement have been addressed in this update but some new concerns have been added.

Related Article: ISO Businessowners Program Archive  

ENDORSEMENT SCHEDULE

Coverage 1–Contractors' Installation Coverage

This coverage is mandatory. The only entry is a Limit of Insurance.

Note: This replaces the four separate limits that were required in the prior edition.

Coverage 2–Contractors' Tools and Equipment Coverage

This coverage is mandatory. The following entries are required.

1. Blanket Limit

The blanket limit must be provided. This limit applies to tools and equipment that are not scheduled so an any one item limit must be selected. The available choices are $500, $1,000 or $2,000.

If an X is entered in the Actual Cash Value Option box, the valuation is on an actual cash basis. Otherwise the valuation is replacement cost.  

2. Scheduled Limit (and description of property)

Spaces are provided for each scheduled and described tool or item of equipment, its limit of insurance, and for the total scheduled property limit of insurance.

Coverage 3–Non-Owned Tools and Equipment Coverage

This is an optional coverage. Spaces are provided for a limit of insurance on Non-Owned Tools and Equipment. Coverage applies only if a limit is entered.

Coverage 4–Employees’ Tools Coverage

This is an optional coverage. Spaces are provided for a limit of insurance on Employee Tools, not to exceed $$2,500 for all tools of any one employee.

Note: The prior edition coverage was limited to $100 per tool and no more than $500 per employee.

Deductible (09 19 addition)

A deductible can be added to the schedule. This is a per occurrence deductible that applies to all coverages.

COVERAGE ANALYSIS

A. PROPERTY NOT COVERED

1. The following is added to the list of Property Not Covered in BP 00 03–Businessowners Coverage Form.

a. Tools and equipment.  All accessories of the tools and equipment are also excluded whether or not they are attached to the tools or equipment. Spare parts designed and intended to maintain and operate the tools and equipment are also excluded.

Note: The prior edition applied this to only such items owned by or in the care, custody of the named insured.

b. Property that has been sold using an installation agreement.

Note: No mention as to who is buying and who is selling. It is a very wide-open item. There is also no mention as to when it had to be sold.

c. Materials, supplies, machinery, fixtures, and equipment that belong to the named insured. Similar property that belongs to other(s) and is in the named insured’s care, custody, or control is also not covered. This applies only if the items are to be installed by the named insured or at its direction.

d. On-site built/assembled temporary structures. Examples are cribbing, scaffolding and forms.

2. Item 1. above does not apply if one of the following coverages is selected. However, it doesn’t apply only to the extent that coverage for the item is available under that coverage.

a. Coverage 1–Contractors' Installation Coverage

b. Coverage 2–Contractors' Tools and Equipment Coverage

c. Coverage 3–Non-Owned Tools and Equipment Coverage

d. Coverage 4–Employees' Tools Coverage

B. COVERAGE EXTENSIONS

BP 00 03–Businessowners Coverage Form, A. 6. Coverage Extensions b. Personal Property Off Premises is changed by eliminating coverage under that extension for property being covered under the following:  

·         Coverage 1–Contractors' Installation Coverage

·         Coverage 2–Contractors' Tools and Equipment Coverage

·         Coverage 3–Non-Owned Tools and Equipment Coverage

·         Coverage 4–Employees' Tools Coverage

Note: This could be the main purpose of  this coverage form because it removes any and all off premises coverage. Contractors’ personal property is mostly off premises.

C. EXCLUSIONS

Note: In prior editions earthquake and flood were covered causes of loss but only for Coverage 2. Under this revision, they not only have the causes of loss been expanded they now also apply to all coverages.

1. Earth Movement

The first four items in the earth movement exclusion are eliminated but only if the loss or damage is as the result of an earthquake. This means that earth movement that is not triggered by an earthquake is not covered. In addition, all loss or damage due to volcanic eruption remains excluded.

2. Water

The first item in the water exclusion is eliminated.

Editorial Note: This could result in ambiguity because of the phrase “direct and indirect loss or damage” due to item 1 are covered. As an example, would mudslide damage continue to be excluded even if it can be shown that flood made the land unstable resulting in the mudslide?

D. COVERAGE

1. Coverage 1–Contractors' Installation Coverage

This coverage is mandatory

a. The following property is added to A. 1. b. (2) Business Personal Property but only for Coverage 1.

(1) Property being sold under an installation agreement. However, this applies only if the named insured’s insurable interest ends the purchaser accepts the project.

(2) The following property:

Note: These are the same items that became Property Not Covered earlier in this endorsement.

(a) Materials, supplies, machinery, fixtures, and equipment that belong to the named insured. Similar (property that belongs to other(s) and is in the named insured’s care, custody, or control is also not covered. This applies only if the items are to be installed by the named insured or at its direction.

(b) On-site built/assembled temporary structures. Examples are cribbing, scaffolding, falsework and forms.

The property listed in (a) and (b) above is covered only when it is in any of the following circumstances:

·         At a job site but only if the named insured does not own, lease, or operate the site

·         While waiting to be installed, during installation, and also while waiting for the purchaser to accept the project

·         When in transit

·         While at temporary storage locations

b. Coverage ends at the earliest of:

·         The expiration or cancellation date of this coverage

·         When the purchaser accepts the property, this endorsement covers

·         When the named insured's interest in the property this endorsement covers ends

·         When the named insured abandons the project without intending to complete it

·         Ninety days after the project is complete, unless the insurance company amends the number of days in writing

 

Example: Commercial Builders, Inc. is building an office under an installation agreement for Insurance Agency, LLC. Commercial orders custom cabinets that are delivered before they are ready to be installed. Until it’s time for installation, Commercial stores the cabinets at Material Holders, Inc., a local builders’ supplier. Lightning strikes Material's building, a fire ensues, and the cabinets are destroyed. Commercial has a $25,000 limit for contractors’ installation coverage and the cabinets are valued at $17,750. This loss is covered because the loss occurred at a temporary storage location and involved materials awaiting installation at a job already in progress.

 

Example: Continuing this example, imagine that Commercial and Insurance Agency disagree over the quality of the work. After the cabinets are delivered, Commercial walks off the job and refuses to return. Once again, fire from a lightning strike destroys the cabinets. In this case, the contractors’ installation coverage does not insure this loss because Commercial abandoned the work with no intent of completion.

 

c. Property Covered

The following items that are part of item d. and e. in the Property Not Covered portion of the Businessowners Coverage Form are removed which results in them becoming covered property but for only Coverage 1.

·         Growing crops

Note: Lawns continue to be property not covered.

·         Outdoor fences

·         Radio or Television antennas including any satellite dishes

·         Trees, shrubs or plants

d. Property Not Covered

In addition to items listed and described in Property Not Covered in the Businessowners Coverage Form, Coverage 1  does not apply to:

·         Existing structures or buildings where additions, alterations, remodeling, restoration, repairs, or improvements are being made

·         Property at the named insured's owned storage yards or warehouses

·         Designs, blueprints, plans, specifications, or other documents that form the basis for the work

·         Tools, equipment, machinery, and supplies not intended to become permanent parts of the building or structure

Note: The Contractors' Tools and Equipment section of this endorsement should cover the tools and equipment.

e. This coverage endorsement introduces five exclusions that apply in addition to the exclusions in the Businessowners Coverage Form. There is no coverage for loss or damage due to the following:

(1) Costs to repair, replace, or make good on faulty workmanship or defective materials

Note: There is no coverage if the contractor does a poor job or uses inferior materials.

(2) Testing, unless it results in fire or explosion, and then only for the loss or damage the fire or explosion causes

Note: Most machinery or processing equipment must be tested after it is installed to ensure that it operates properly. Since testing usually involves pushing the system beyond its recommended limits, losses that result from testing are excluded.

(3) Faulty or defective designs or blueprints or other professional errors or omissions

 

Example: Construction of the building is complete but it develops mold almost immediately because the exterior brick was applied directly over the exterior plywood without installing a vapor barrier. Because the contractor did exactly what the plans called for, this loss is due to faulty design and professional errors and is excluded.

 

(4) Weight of loads that exceed the design capacity of the property that lifts, moves, or supports the load. This property must be covered property under this coverage endorsement in order for this exclusion to apply.

Note: This exclusion is poorly worded and difficult to follow. Does the exclusion apply to the damage to the property that does the lifting/supporting/moving or does it apply to the property subsequently damaged by being lifted/supported/moved?

(5) Damage to tires or inner tubes of property that this coverage item insures when the damage is due to   collision, upset, or overturn. However, the damage to inner tubes or tires is covered if the same accident also causes damage to other parts of the item.

f. Coverage 1–Contractors' Installation Coverage Limits of Insurance

Note: The prior edition provided separate limits for Property at Covered Job Sites, Property in Transit and Property at a Temporary Storage Limit. This update now contains only a single per occurrence limit of insurance.

The most paid in a single occurrence for direct physical loss that is covered under Coverage 1 is the Coverage 1. limit on the declarations. This limit applies in addition to the limits provided in the Limits of Insurance Section of the Businessowners Coverage Form.  

Related Articles:

AAIS Installation Floater Coverage Forms

Installation Coverage Form

2. Coverage 2–Contractors’ Tools and Equipment Coverage

Note: This coverage is mandatory.

a. The following property is added to A. 1. b. (2) Business Personal Property but only for Coverage 2.

Tools and equipment the named insured owns or has in its care, custody, or control are covered business personal property. All accessories of the tools and equipment are also covered whether or not they are attached to the tools or equipment. Spare parts designed and intended to be used to maintain and operate the tools and equipment are also covered.

A statement is made that this property is covered while away from the described premises.

Note: Does this mean it is covered ONLY while away from the described premises or does it mean is it covered both on and off the described premises.  

b. Property Not Covered, Paragraph A.2.a. in the Businessowners Coverage Form is replaced with respect to this coverage. The replaced item excludes aircraft, automobiles, motor trucks, and any other vehicles that are subject to motor vehicle registration. This item excludes them as well as:

·         Watercraft including its/their parts and equipment

·         Dealers' demonstration equipment, machinery, and vehicles

·         House trailers

·         Mobile homes

·         Motorcycles

·         Dirt bikes

·         ATVs

·         Snowmobiles and other vehicles primarily designed and licensed for road use

c. Property Not Covered

In addition to items listed and described in Property Not Covered in the Businessowners Coverage Form, Coverage 2. does not apply to:

(1) Property used in underground mining, tunneling, or similar operations and underwater construction. This includes property in caissons.

Note: Caissons are watertight containers used in underwater construction. This and similar property is unique and is usually insured under specialty coverage forms.

(2) Property leased, loaned, or rented to others

Note: Coverage does not apply while tools or equipment are in the care, custody, or control of others, regardless of whether or not monetary fees are involved.

(3) Property that is or is intended to be a permanent part of the building or structure

Note: This wording differentiates installation coverage from tools and equipment coverage so that the coverage parts are mutually exclusive and there is no duplication of coverage.

(4) Property held for sale

Note: As with other property, other coverage forms should be used to insure this exposure.

(5) Property being sold under an installation agreement. However, this applies only if the named insured’s insurable interest ends the purchaser accepts the project.

(6) Materials, supplies, machinery, fixtures, and equipment that belong to the named insured. Similar (property that belongs to other(s) and is in the named insured’s care, custody, or control is also not covered. This applies only if the items are to be installed by the named insured or at its direction.

(7) On-site built/assembled temporary structures. Examples are cribbing, scaffolding, falsework and forms.

Note: Items (5), (6) and (7) above are the same as the property covered under Coverage 1.

(8) Non-owned tools and equipment the named insured leases or rents from others while in its care, custody, or control, except such property leased for six months or more

Note: This coverage can be purchased as Coverage 3.

(9) Tools the named insured's employees, temporary employees, and leased employees own

Note: This coverage can be purchased as Coverage 4.

 d. Additional exclusions that apply to Coverage 2:

Loss or damage caused by or that results from the following is excluded:

(1) Theft from unattended vehicles unless they are completely closed, all doors, windows, and other compartments are locked, and there are visible signs of forced entry. This exclusion does not apply if the property is in the custody of a carrier for hire.

(2) Weight of a load that exceeds the designed capacity of any insured equipment to lift, move, or support it

Editorial Note: This exclusion is poorly worded and difficult to follow. Does the exclusion apply to the damage to the property that does the lifting/supporting/moving or does it apply to the property being lifted/supported/moved that is subsequently damaged?

(3) Damage to tires or inner tubes of property that this coverage item insures when the damage is due to   collision, upset, or overturn. However, the damage to inner tubes or tires is covered if the same accident also causes damage to other parts of the item.

 

Example: A forklift overturns on the jobsite because the operator misjudges the ground conditions and the tires are damaged. Coverage does not apply to the tire damage unless other parts of the forklift are also damaged.

 

e. Coverage 2–Limits of Insurance

      These limits are in addition to the Businessowners Coverage Form Limits of Insurance Section.

(1) The blanket limit of insurance on the endorsement schedule is the most paid in any one occurrence for the total of all covered losses for direct physical loss or damage to covered property. There is a per item sub-limit that applies to each covered item within the blanket. That sub-limit can be  $500, $1,000 or $2,000 based on the entry on the declarations. This provision does not apply to scheduled tools or equipment that has its own limits of insurance.

(2) Under scheduled limits, the most paid in any one occurrence for direct physical loss or damage to each item scheduled is its limit of insurance.

3. Coverage 3–Non-Owned Tools and Equipment Coverage

This is an optional coverage.

a. When a limit is shown on the declarations for this coverage, the following property is added to A. 1. b. (2) Business Personal Property.

Tools and equipment leased or rented from others but only while they are in the named insured's care, custody, and control.

A statement is made that this property is covered while away from the described premises.

Note: Does this mean it is covered ONLY while away from the described premises or does it mean is it covered both on and off the described premises. 

b. Coverage 3–Non-owned Tools and Equipment Coverage Limits of Insurance

The most paid in a single occurrence for direct physical loss that is covered under Coverage 3 is the Coverage 3. limit on the declarations. This limit applies in addition to the limits provided in the Limits of Insurance Section of the Businessowners Coverage Form. 

c. Property Not Covered

In addition to items listed and described in Property Not Covered in the Businessowners Coverage Form, Coverage 3. does not apply to:

·         Non-owned tools and equipment the named insured leases or rents from any of its employees, temporary employees, or leased employees.

Note: This coverage can be purchased as Coverage 4.

·         Other non-owned tools the named insured leases for six months or more

·         On-site built/assembled temporary structures. Examples are cribbing, scaffolding, falsework and forms.

4. Coverage 4–Employees’ Tools Coverage

This is an optional coverage.

a. When a limit is shown on the declarations for this coverage, the following property is added to A. 1. b. (2) Business Personal Property.

Tools and equipment the named insured's employees, temporary employees, or leased employees own and use in the named insured’s business.

 A statement is made that this property is covered while away from the described premises.

Note: Does this mean it is covered ONLY while away from the described premises or does it mean is it covered both on and off the described premises. 

b. Coverage 4–Employees’ Tools Coverage Limits of Insurance

The most paid in a single occurrence for direct physical loss that is covered under Coverage 4 is the Coverage 4. limit on the declarations.  No more than $2,500 will be paid for any one employee. The occurrence is limit applies in addition to the limits provided in the Limits of Insurance Section of the Businessowners Coverage Form. 

E. DEDUCTIBLES

When a deductible is entered on the declarations, no payment will be made for loss or damage in a single occurrence until the loss or damage amount exceeds the deductible. This is the only deductible that applies.

When loss or damage occurs to property that is covered under this endorsement and also to property covered under the Businessowners coverage form each will be subject to its own deductible rules.

An unusual statement then follows:

“However, the larger of these deductibles shall be reduced by the amount of the smaller deductible.”

Editorial Note: This is the first time this wording has been used in an ISO coverage form and therefore deserves some review.  The more common wording is that used in the CP 00 10–Building and Personal Property Coverage Form. The part of the deductible section dealing with multiple type of property reads as follows:

“When the occurrence involves loss to more than one item of Covered Property and separate Limits of Insurance apply, the losses will not be combined in determining application of the Deductible. But the Deductible will be applied only once per occurrence.”

Under CP 03 20– Multiple Deductible Form the following statement is made when multiple deductibles could apply:

“A. In the event that loss or damage occurs to Covered Property at more than one building location as a result of one occurrence, the largest applicable deductible for that Covered Cause of Loss, shown in the Schedule above or in the Declarations, will apply.”

Another approach used by ISO is the following for IH 00 80–Difference in Conditions:

“In the event that more than one Deductible applies to loss or damage as a result of one occurrence, we will apply only the largest Deductible.”

Because of the wording varying from the norm and the lack of examples of how to apply it the application of the new deductible wording could be subject to multiple interpretations.  

F. LOSS PAYMENT

The Coverage 2. Blanket limit section of the Declarations displays an Actual Cash Value Box. When that box is checked, the valuation of property that is part of that blanket is based on actual cash value.

G. Definitions

One definition has been added to the Definitions section of the Businessowners Coverage Form but only for this endorsement's coverage.

Temporary Storage Location – refers to any location where property intended to become a permanent part of a completed project is stored, pending delivery to a job site. The named insured must not own, lease, or operate the job site and work must be in progress or be scheduled to begin in 30 days.