BP 07 75–APARTMENT BUILDINGS

(September 2019)

INTRODUCTION

The Insurance Services Office (ISO) Businessowners Program includes apartment buildings as an eligible class of business. ISO recognized that this class faces exposures requiring coverages that are not in the unendorsed Businessowners Coverage Form. This endorsement adds a number of coverages, considerations, and definitions that respond to those exposures. This analysis examines them relative to BP 00 03–Businessowners Coverage Form.

BP 07 75–APARTMENT BUILDINGS ANALYSIS

Note: This analysis is of the 07 13 edition of this endorsement. The single change from the 01 10 edition is in bold print.

A. Additional Coverages Amended

This section increases the limit of insurance for Pollutant Cleanup and Removal from $10,000 to $25,000 under the Businessowners Coverage Form Section I–Property A. 5. Additional Coverages h. Pollutant Cleanup and Removal.

B. Additional Coverages Added

This section adds four new coverages under the Businessowners Coverage Form Section I–Property A. 5. Additional Coverages.

a. Reward Payment (07 13 change)

(1) Reimbursement

(a) The insurance company reimburses the named insured up to $5,000 for rewards it paid to eligible persons for information that results in the arrest and conviction of anyone who committed a crime that caused loss or damage to covered property from a covered cause of loss. It does not pay more than the lesser of the following:

· The covered property’s actual cash value at the time of loss up to (but not to exceed) amounts needed to repair or replace it

· The amount determined by applying the loss settlement procedure in the Loss Payment Condition

(b) The insurance company pays up to $5,000 to eligible persons for return of stolen covered property. It does not pay more than the property's actual cash value based on its condition when returned up to (but not to exceed) the lesser of the following:

· The amount needed to repair or replace it

· The amount determined by applying the loss settlement procedure in the Loss Payment Condition

(2) This additional coverage is subject to three specific conditions:

(a) An eligible person is the party that law enforcement authorities consider to be the first person to voluntarily provide information that leads to the arrest and conviction in a case or to the return of stolen property. However, the following are not considered eligible persons, even if they are the first ones to supply such information.

· The named insured, its family members, employees, temporary employees, leased employees, or their family members

· Employees of a law enforcement agency or a property protection business

· Anyone with custody of the property when it was stolen

· Any person involved with the crime

(b) Rewards are not paid until the parties that committed the crime are convicted or the property is returned.

(c) The amount of reimbursement in any one occurrence is the lesser of the reward amount or $5,000.

b. Ordinance or Law–Equipment Coverage

The insurance company pays more than to simply repair or replace equipment that qualifies as covered property damaged by a covered cause of loss.

(1) It pays to repair or replace qualifying equipment as the law requires. This is subject to item (2) below.

(2) If a loss involves refrigeration equipment, it pays the additional costs to satisfy the various laws that require reclaiming refrigerant, retrofitting the equipment to use non-CFC refrigerants, and the higher costs to recharge the system with such non-CFC refrigerants.

(3) This coverage applies separately to each item of covered equipment.

(4) Coverage does not apply to any costs that relate to enforcing laws or ordinances that require any response to pollutants, fungi, wet rot, dry rot, or bacteria.

(5) Loss to equipment is determined as follows:

(a) If damaged equipment at any location is repaired or replaced, the company pays the lesser of the amount actually spent to repair it or the cost to replace it with like kind and quality, up to the limit of insurance.

(b) If damaged equipment is not repaired or replaced, the company pays the lesser of the equipment's actual cash value on the date of loss or the limit on the declarations that applies to Building or Business Personal Property.

(c) The insurance company does not pay the increased costs to comply with any ordinance or law that the named insured should have complied with prior to the loss but did not.

Example: Meadowview Apartments has operated for many years. A town ordinance recently introduced requires all refrigerators to use only “green” refrigerants. Existing owners are given five years to comply with the ordinance.

Scenario 1: A fire occurs at Meadowview one year after the ordinance is enacted. Because the ordinance was in effect and Meadowview was not yet required to comply with it, this coverage pays the costs to upgrade.

Scenario 2: A fire occurs at Meadowview six years after the ordinance is enacted. Meadowview had not yet replaced the refrigerated units the fire damaged. Because Meadowview did not comply with a required ordinance, this coverage does not pay for the upgrade.

c. Lock Replacement

This coverage pays the costs incurred to repair or replace locks at the described premises when keys are lost or stolen. The limit of insurance is $5,000 in any one occurrence and is subject to a $100 deductible.

Example: Harry is the Belafont Apartments manager. He hangs his coat at church on a Sunday morning but finds the keys that were in one of its pockets missing when he returns. One was the master key to all of the apartments. Since he is concerned for the safety of his tenants, he has all the locks re-keyed. This coverage responds, up to the $5,000 limit, and subject to the deductible.

d. Tenant Move-Back Expenses

This coverage pays up to $15,000 in expenses the named insured incurs to move its tenants from a temporary premises back to their homes. The reason the tenant had been removed must have been due to direct physical loss or damage to covered property from a covered cause of loss that caused the property to not be habitable.

Coverage applies to packing, transporting, and unpacking tenants' property. It also applies to the net costs after refunds to re-establish their utility and telephone. Only expenses incurred within 60 days after the damaged building is repaired and is again habitable are covered.

Example: Unit A in a six-unit apartment building has a small fire that sends smoke throughout unit A and the rest of the units. The tenants all have to move out until the smoke damage is repaired. This coverage pays for the expenses the named insured incurs to return the displaced tenants to their respective units.

C. Employee Dishonesty

The following is added to Section I–Property g. Optional Coverages 3. Employee Dishonesty but only if Employee Dishonesty Optional Coverage is provided. It is subject to that paragraph's provisions.

3. Employee Dishonesty

The insurance company pays for loss or damage to a tenant's money, securities, and other property due to theft by an identified employee who either acted alone or with others. The property must have been in an insured building at the premises on the declarations. It must have been property the tenant owned or leased, was legally liable for, or held for others.

This coverage is for the named insured's benefit and does not benefit other parties, even tenants. As a result, the named insured must submit all such claims for covered losses.

As used in this section, other property means property other than money and securities that is tangible and that has intrinsic value. It does not include any property the coverage form excludes.

D. Liability Coverages Added

This section adds three new coverages to Section II–Liability A. Coverages.

1. Tenants' Property Legal Liability Coverage

a. The insurance company pays amounts the insured is legally obligated to pay as damages because of covered property damage to tenants' property or property of others it is legally liable for. However, this is only when the property is in the named insured's care, custody, or control outside a leased unit, apartment, or storage area at the premises on the declarations. It has the right and duty to defend the insured against suits that seek such damages that coverage applies to, including the right to investigate and settle any claim or suit.

The most this coverage pays is $10,000. This is subject to a $250 deductible. The company's right and duty to defend ends when it exhausts this limit paying judgments or settlements. It does not have any other obligations to pay, act, or provide services other than as Supplementary Payments specifically provides.

b. Coverage applies only if the property damage occurs in the coverage territory during the policy period.

c. Coverage does not apply to:

(1) Property damage to land motor vehicles, trailers, or semi-trailers the tenant stores at the described location

(2) Property damage for liability the insured assumed in a contract or agreement

This exclusion does not apply to liability the insured has without a contract or agreement.

(3) Liability caused by or that results from intentional acts of property damage, dishonest acts, or criminal acts the named insured, its employees, or others entrusted with such property commit

(4) Liability that arises from the named insured's sale and disposal operations

(5) Losses that the Businessowners Coverage Form Section I–Property covers

d. This coverage is subject to the Supplementary Payments provision that applies to Bodily Injury, Property Damage, and Personal and Advertising Injury Liability coverages.

e. The $10,000 limit applies per premises per occurrence.

f. Section II–Liability E. Liability and Medical Expenses Conditions 2. Duties in the Event of Occurrence, Offense, Claim, or Suit applies to this coverage.

Example: Fairfax Apartments receives all parcel deliveries for its tenants so that they are not left outside their apartment units during the day. While the apartment manager is at lunch one day, the parcels received that day are stolen. This coverage insures the tenants' losses as long as an employee did not take the parcels.

2. Lock-Out or Sale, Removal, and Disposal Liability Coverage

a. The insurance company pays amounts the insured is legally obligated to pay as damages because of acts or omissions that arise out of lock-out, sale, removal, or disposal of tenants' property. The act or omission must occur during sale and disposal operations. The insurance company has the right and duty to defend the insured against suits that seek such damages that this insurance covers and this right includes the right to investigate and settle any claim or suit.

The most this coverage pays is $5,000. The company's duty to defend ends when it exhausts this limit paying judgments or settlements. It does not have any other obligations to pay, act, or provide services other than as Supplementary Payments specifically provides.

b. Coverage applies to only acts or omissions that take place in the coverage territory during the policy period.

c. Coverage does not apply to:

(1) Liability for damages the insured assumed in a contract or agreement

Note: This exclusion does not apply to liability the insured has without a contract or agreement.

(2) Liability caused by or that results from dishonest acts or criminal acts the named insured, its employees, or others entrusted with such property commit

d. This coverage is subject to the Businessowners Coverage Form Section II–Liability A. Coverages 1. Business Liability f. Coverage Extension–Supplementary Payments provision that applies to Bodily Injury, Property Damage, and Personal and Advertising Injury Liability coverages.

e. The $5,000 limit is a policy year aggregate. It applies per premises.

f. Duties in the Event of Claim or Suit as a Result of a Lock-Out or Sale, Removal, or Disposal of Tenants' Property

This condition replaces Section II–Liability E. Liability and Medical Expenses General Conditions 2. Duties in the Event of Occurrence, Offense, Claim, or Suit.

(1) The named insured must notify the insurance company as soon as possible of any lock-out, sale, removal, or disposal of tenants' property that may result in a claim, including how, when, and where it took place.

(2) The named insured must immediately record the details of the claim or suit, the date it was received, and notify the company as soon as practicable if any of these activities results in a claim being made or a suit being brought against any insured.

(3) The named insured and any other insured involved in a claim or suit must immediately send copies of all related legal papers and documents received to the company and authorize it to obtain any relevant records or other information. They must cooperate with the company as it investigates, settles, or defends the claim or suit and help it enforce its rights against any party that may be liable to the insured because of an action that this insurance may cover.

(4) Coverage does not apply to any voluntary payments made, obligations assumed, or expenses incurred without the insurance company's consent.

Example: Corvair Management contracted with JH-L to remove property from apartments after tenants were evicted. Following Corvair’s instructions, JH-L removed everything from Apartment 2D. Upon returning home, 2D's tenant found the apartment empty and asked Corvair to explain. Because of a clerical error, JH-L was misinformed and should have cleared Apartment 2E instead of Apartment 2D. Corvair has up to $5,000 to compensate Apartment 2D's occupant.

3. Heating or Air Conditioning Loss Reimbursement Coverage

a. The insurance company reimburses the named insured for payments it made voluntarily or because of demands for per-diem rental returns. The return must be demanded become of a complete loss of heating or air conditioning to a tenant's rental unit. The loss of heat or air conditioning must be caused by a mechanical breakdown an or electrical failure. The amount of reimbursement is limited to $5,000 from any one breakdown or failure and $10,000 in any annual policy period. The company does not have any other obligation or liability to pay sums, perform acts, or provide services.

b. The coverage provided is subject to three requirements:

(1) The breakdown or failure must occur at a premises on the declarations during the policy period.

(2) The named insured must receive a notarized written demand for per-diem rental return from a tenant within 90 days following the breakdown or failure.

(3) The named insured determines that such voluntary payment may prevent bodily injury or property damage.

Note: This is a very open-ended statement because it does not say whose bodily injury or property damage is being prevented. This could be a way to prevent more significant claims just as medical payments expense is often used to prevent bodily injury claims. Quick action a landlord takes can prevent a lawsuit.

c. The insurance company is not obligated or required to defend the insured, perform acts, or provide services.

d. The coverage provided does not apply to expenses the named insured incurs to repair or replace the malfunctioning system or to bodily injury, property damage, personal injury, or advertising injury.

e. The $5,000 per occurrence and $10,000 policy year aggregate limits apply per premises.

f. Duties in the Event of a Heating or Air Conditioning System Failure

This condition replaces Section II–Liability E. Liability and Medical Expenses General Conditions 2. Duties in the Event of Occurrence, Offense, Claim, or Suit.

(a) The named insured must notify the insurance company as soon as possible of voluntary payments made or of a demand for rental return. Notice should include the tenant's notarized demand letter for a rental return and a written description of how, when, and where the breakdown or failure occurred. It should also include the tenant's name and address and the cancelled check or money order written to the tenant.

(b) The named insured must also explain the cause of the breakdown or failure and describe the actions it took to repair or replace the system. This must be done as soon as possible after the company requests this information.

(c) The named insured must cooperate with the company in its review of the reimbursement.

Example: The boiler at the Edgewood Apartments malfunctions. Tenants continue to live there but are forced to use alternate heating sources. They are upset and the manager hears rumors of retribution in the form of planned property damage. He tells the tenants that he will return their daily rent for each day the heat remains off. This is covered for up to $5,000.

E. Definitions Added

Three definitions that apply to this endorsement's coverage are added to Section II–Liability F. Liability and Medical Expenses Definitions.

1. Lock-out

This denies a tenant access to its property or occupancy of an apartment he or she rents, leases, or otherwise occupies.

Example: Peter is three months past due paying his rent. Marlbory Apartments issues Peter an eviction notice and changes the locks on his apartment.

2. Sale and disposal operations

These are activities the named insured conducts to reclaim an apartment or storage space when the tenant pays its rent late or does not pay at all.

Example: Paula executes an eviction notice against Maggie. Maggie vacates the property but leaves most of her possessions behind. Paula removes and sells items she believes have value, distributes others to charity, and sends the rest to the landfill.

3. Tenants' property

This is property that belongs to the named insured's tenants. It consists of money, securities, and other tangible property that has intrinsic value.