BP 0200–BUSINESSOWNERS SPECIAL POLICY AND BP 0100–BUSINESSOWNERS STANDARD POLICY ANALYSIS

(June 2018)

 

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INTRODUCTION

The Businessowners Policy for small businesses was developed over 40 years ago and has evolved from a fairly simple product with limited perils, eligibility, and closely designated premises treatment to a much broader and more sophisticated product. It now applies to many more eligible classes of business with larger and higher eligibility thresholds.

BP 0200 is analyzed first. The differences between it and the BP 0100 are then analyzed at the end of this article.

BP 0200–BUSINESSOWNERS SPECIAL POLICY ANALYSIS

This analysis is of the 06 12 edition of the American Association of Insurance Services (AAIS) BP 0200–Businessowners Special Policy and BP 0100–Businessowners Standard Policy. BP 0816-Policy Amendatory Endorsement was introduced with a 01 15 edition date. This mandatory nine-page endorsement contains many of the type of changes that are incorporated in a policy edition change. While the endorsement is analyzed separately, to aid in understanding the changes, we have cut and pasted the changes into this analysis. The changes in the policy that are due to the BP 0816–Policy Amendatory Endorsement are in bold print.

Related Article: BP 0816-Policy Amendatory Endorsement

Table of Contents

This detailed table of contents follows the optional insurance company policy jacket and BP 0010–Businessowners Policy Declarations. In addition to chronologically listing the contents in subject and page order, it refers to mandatory state specific endorsements as well as other endorsements that may be added. It points out that certain words are defined in various definitions sections and that these words appear within quotation marks.

Agreement

The insurance company provides certain coverages in return for the named insured paying the premium. This is subject to policy terms and conditions.

Common Policy Definitions

Defined words are used throughout the policy. Restricting or expanding the meaning of words or phrases to only the definition in the section can reduce or increase coverage so it is important to carefully review each definition. Defined terms are marked in the coverage form by quotation marks. Fifteen terms are defined:

1. You and your

These are the parties identified on the declarations as the insured. Each party listed is a separate you.

2. We, us and our

This is the insurance company that provides the coverage.

3. Basic territory

This is the United States of America, its territories and possessions, Canada, and Puerto Rico.

4. Computers

This is hardware the named insured owns and any hardware that is in the named insured’s care, custody, or control. Computers also includes software. The named insured is not required to own the software or have it in its care, custody, or control.

5. Data Records

These are files, documents, and information that is stored in an electronic format on any type of media.

6. Declarations

These are any pages designated as declarations, supplemental declarations, or schedules but only if they relate to the policy.

7. Fungus or related perils

This is a broad definition. It is mold, mildew, and other types of fungi, algae, slime mold, and any other type of protist, wet rot, or dry rot. It also is chemicals, compounds, and matter that fungi, wet rot, dry rot, and protists release. Examples are metabolites (such as microbial volatile organic compounds), toxins, spores, and fragments.  

Note: A protist is a very broad category of single celled organisms that are part of the kingdom Protista.

8. Hardware

This is a network of electronic machine components that accepts instructions and information, processes the information according to the instructions, and produces the desired results. This definition restricts hardware to mean only mainframe and mid-range computers and servers, personal computers and workstations, various portable computer devices and accessories, and data processing equipment that is peripheral to the other hardware such as printers, modem, and keyboard.

9. Limit

This is the amount of coverage that applies.

Note: Limits are usually on the declarations but may be anywhere in the policy.

10. Media

Media is used with hardware. It is where data records, programs, applications, and proprietary programs are recorded or stored. Examples of media are films, tapes, cards, discs, drums, cartridges, cells, DVDs, and CD-ROMs. However, the definition is not restricted to only the example items.

11. Pollutants

This is a broad and expansive term. It includes solids, liquids, thermal, or radioactive contaminants and irritants including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste but is not limited to just these. Waste also includes materials intended to be disposed of, recycled, reclaimed, or reconditioned. The term also includes visible and invisible electrical, magnetic, and electromagnetic particles or fields and sound.

12. Programs and applications

These are operating programs, applications, and data management tools that can be purchased on a retail or wholesale basis. They can be stored on media or be pre-installed in hardware.

13. Proprietary programs

These are operating programs and applications developed specifically for the named insured (or another entity) to use. They are stored on media or installed in hardware.

14. Software

This is a broad term that includes media, data records, programs and applications, and proprietary programs as defined in this section. However, the definition of software is not limited to only these items.

15. Terms

These are provisions, limitations, exclusions, conditions, and definitions that can be found throughout this coverage form and other forms that are used in creating the policy.

 

Common Policy Conditions

The common policy conditions apply to the property, liability and any other coverage provided by this policy.

1. Assignment

The policy cannot be assigned to another party without the insurance company's written consent.

Note: This is consistent with the long-standing rule that insurance coverage forms and policies are personal in nature and cannot simply be handed off from one party to another.

Related Court Case: Assignment of Policy is Not Valid without Insurer Consent

 

Example: Jason sells his Army-Navy clothing store to Merick. Merick does not have an insurance agent, so Jason agrees to just assign his current policy to Merick. In turn, Merick agrees to pay the premiums and abide by all the policy’s terms. Jason and Merick believe this is an effective way to resolve the issue but the insurance company does not. It will not honor any claim Merick presents because of this condition. If Merick wants coverage, he must apply in his own name.

2. Cancellation

Cancellation provisions vary by state so rather than provide a countrywide cancellation provision, this condition refers the reader to specific state endorsements.

3. Change, Modification, or Waiver of Policy Terms

The insurance company is the only party that can make changes to or waivers in policy terms. These changes are valid only when the insurance company makes them in writing.

Related Court Case: Handwritten Changes to Declarations Creates Coverage Dispute

 

Examples:

Scenario 1: Praether asks his agent to ask Simple Insurance Company to waive its vacancy provision. The underwriter agrees to do so but does not issue a written endorsement to the policy. The vacant building is vandalized two months later. Simple denies coverage.

Scenario 2: Simple Insurance Company’s underwriter tells Praether’s agent that he will endorse Praether’s policy to provide coverage on only a named perils basis. A loss that none of the named perils covers occurs and Simple denies coverage. However, the change in perils covered was not endorsed to the policy. As a result, the loss is covered because all changes must be in writing.

4. Conformity with Statute

This provision automatically conforms any part of the policy that conflicts with an applicable law to immediately correspond to that law or statute.

Note: This eliminates having to constantly endorse the policy when new legislation enacted affects the policy.

5. Cooperation

This condition requires that the named insured cooperate with the insurance company and must perform all acts the policy requires. This condition applies only after a loss occurs.

Related Court Case: Uncooperative Insured Can’t Seek Arbitration (Classic)

6. Examination of Books and Records

The insurance company has the right to examine and audit the named insured’s books and records but only those that relate to the policy. This right is restricted to books and records related to the policy period. The insurance company can examine the books and records only during the policy period and for up to three years after the policy expires.

Note: This caps the company’s right to examination while allowing it additional time to deal with unexpected circumstances and situations that may arise after a normal period of time elapses after the policy expires.

7. Inspections

Any inspection the insurance company makes is for its benefit, not for the named insured’s benefit. The insurance company has the right to inspect any of the named insured’s operations or properties. However, the insurance company decides whether it will inspect. The insurance company may or may not share the information from an inspection it made with the named insured. However, any inspection, report, or advice the inspector gives to the named insured does not warrant that the property or operations are safe, healthful, or comply with codes, laws, rules, standards, or any regulations.

Related Court Case: Inspection of Premises by Insurer Was Not Performance of a Duty Owed the Insured

8. Liberalization

The insurance company may make a revision to this policy’s coverage during the policy period that broadens coverage without making an additional premium charge. In that case, the broadened coverage automatically applies to this policy. This condition also applies if the revision went into effect up to 60 days before the policy’s effective date.

Note: This is helpful to both the named insured and the insurance company because insureds and agents may ask to cancel and rewrite policies or delay renewal issuance to obtain the latest edition.

Related Court Case: Pollution Definition, Policy “Revision” Challenged

9. Misrepresentation, Concealment, or Fraud

Coverage is void to all insureds – named or not - when any of the following takes place:

Related Court Case: Insured’s Material Misrepresentation in Application Warranted Denial of Coverage

Related Court Case: Misrepresentations Voids Entire Policy

Note: The materiality and significance of the misrepresented information is the key element in any situation that involves concealment or misrepresentation.

Property Coverages

This section applies to the property coverages in this form. It has its own definitions, coverage descriptions, perils, exclusions, limitations, and conditions. These apply in addition to the common policy definitions and conditions.

ADDITIONAL DEFINITIONS

The following definitions apply to the Property Coverages. They are in addition to the Common Policy Definitions. Fourteen terms are defined.

1. Computer hacking

This takes place when an individual or group gains unauthorized access to a computer, website, or network in any way. These individuals or groups may or may not be employees. The following are some examples of what might happen when such individuals or groups gain such unauthorized access but are not limited to just these:

2. Computer virus

A computer virus is a type of code. It may be malicious and self-replicating, but it may be another type of code. Regardless it must be inserted into a computer, its network, or a website server. The following are examples of the types of actions that might occur because of the virus introduction:

3. Dependent locations (BP 0816 changes)

These are locations within the basic territory that the named insured does not operate but that it depends on for its business. There are four types of dependent locations:

Note: BP 0662–Utility Service Disruption–Time Element provides coverage for loss of income due to disruptions at utility service providers.

 

Example: A tire manufacturer may be a dependent property for a tire retailer.

 

 

Example: The named insured is a manufacturer. Its customers, especially significant ones, are the dependent locations.

 

 

Example: A major retail store in a shopping center could be the leader location for other retail stores in the shopping center.

 

 

Example: A machine shop provides component parts that completes the named insured’s machinery for its customers.

 

The BP 0816 change eliminated the term supplier and replaced it with the more precise term “deliver material and services.” It also specifically removed wastewater removal services from being a contributing location.

4. Earth movement (BP 08 16 change)

The definition of earth movement the BP 0816 totally replaces the one in the BP 0200.  

Paragraph a. in the BP08 16 defines earth. Whenever the term is used in this definition it is not only earth but also substrates, strata, soil, ground, and sediment.

Paragraph b. states that earth movement is quite simply the movement of earth. The following are examples of such movement.

1) Earthquake

Earthquake is expanded to include earth tremor or earth temblor. The aftershocks of any are also part of the definition. The way in which any of this is manifested does not matter. It could be through shaking; the ground being displaced in any other way.

2) Liquefaction of soil

Whenever soil is liquefied it is earth movement regardless of it being a part of an earthquake.

3) Volcano

All the movement around a volcano is earth movement. This means the eruption, explosion, and effusion. It is also the shaking and ground rupture before, during and after a volcanic eruption.

4) Landslide

The material that is being carried by the landslide or that is moving along with the landslide is part of the landslide.

5) Mine subsidence

This term applies only to man-made mines and applies regardless of the activity or use of the mine at the time of the subsidence.

6) Any other earth movement

This item is further explained to include the sinking, contracting, risking, shifting, or rising of the earth. Examples of this movement is erosion, expansion, shrinking, freezing, thawing, improperly compacted soil, and water that moves beneath the ground’s surface but only if they cause covered property to crack, settle or shift. Sinkhole collapse is not considered other earth movement and losses caused when sinkholes appear are covered.

Acts, errors, or omissions that result in earth movement regardless of where the act, error or omission takes place is also earth movement. Examples include the following:

1) Excavating or construction

2) A blast or vibration without regard as to where it came from

3) Any type of process that extracts natural resources underneath the earth’s surface. Examples of processes are hydraulic fracturing (fracking), drilling, mining, and the extraction of geothermal energy but not limited to these. Examples of natural resources are gas, heat, minerals, water, and oil but not limited to these.

4) Any injection under the earth’s surface. Examples are water and wastewater but could be any material natural resource or substance.

5) The storage of a natural resource, material, or substance beneath the earth’s surface. Carbon dioxide is one example.

6) Any of the above in combination with each another.

5. Employee

This definition describes three diverse types of employees.

a. This is the traditional definition of employee. An employee must meet all the following criteria:

b. Employees of a labor contractor are considered employees of the named insured if they meet all the following criteria:

·         Be a natural person as opposed to a created person. A created person could be a legal creation, such as a corporation, or could be a mechanical person, such as a robot. These are not considered to be employees.

c. An intern or student who meets the following criteria:

There is an important restriction for temporary and short-term employees. They are considered to be employees if they have custody of property while on the premises. However, they are not considered to be employees if they remove that property from the premises.

Note: Although coverage is restricted as to short-term workers there is no explanation as to what constitutes a short-term worker.

 

Example: Jayson asks Kate to take the company’s bank deposit to the bank. A week later, the bank advises Jayson that his funds are short because no deposit was made the prior week. Kate disappeared after taking the deposit:

Scenario 1: Jayson employed Kate for two years. Employee Dishonesty covers this loss.

Scenario 2: Accounting Temps employed Kate and she worked for Jayson over a two-year period but only on a short-term basis for periods of two or fewer weeks at a time. Employee Dishonesty does not cover this loss.

Scenario 3: Kate is an intern. Her internship was for three months and was to end a week after she made the deposit. Employee Dishonesty does not cover this loss because the internship was a short-term assignment.

 

Two additional restrictions apply. Agents, brokers, commission merchants, contractors, and similar individuals or entities are not considered to be employees. Partners, directors, trustees, joint venturers, managers, and members are considered to be employees but only when they perform acts that are typical employee duties. They are not considered to be employees when they perform duties that are not considered to be employee duties.

Note: This begs the question of what an employee duty is. That question may be answered only in a court of law.

6. Insured

This is the named insured. It also includes other persons or entities insured under Property Coverages.

7. Interruption

This is either of the following:

a. The named insured’s business being reduced or completely stopped

b. Any (or all) of the described premises that becomes unfit for renters to occupy

Note: This definition applies to Coverage C–Loss of Income. This definition may be viewed as a clarification of coverage or as a restriction.

8. Money

This is currency, coins, bank notes in common use (as opposed to collector’s items) and register checks. Traveler's checks and money orders that are being held for sale are also considered money.

9. Restoration period

This is an important part of Loss of Income coverage. It determines when coverage begins and when it ends. While Earnings and Extra Expense coverages do not begin at the same time, they end at the same time.

a. Earnings coverage begins 72 hours after a covered peril physically damages covered property. Extra Expense starts immediately after such covered physical damage loss occurs.

b. The restoration period ends when the physical damage is repaired or when business resumes at a new business location, whichever occurs first. However, the repaired date is not based solely on the date the building is repaired. It is based on the date on which the building should have been repaired, rebuilt, or replaced. This can lead to serious disagreements between the named insured and the insurance company.

 

Example: A fire destroys Joshua’s kitchen. He is visibly upset but immediately begins to talk to architects and contractors about rebuilding. He considers several options, including moving to another location, but finally decides and rebuilding proceeds. Rebuilding takes 180 days. His insurance company believes that the rebuilding should not have taken more than 120 days but was delayed because Joshua tried to select from his many options. Joshua argues that he was being prudent. The insurance company contends that he procrastinated.

 

The expiration date does not affect the restoration period.

c. The restoration period is not affected by any delay due to enforcing any type of ordinance or law that regulates rebuilding, rezoning or any pollution or fungus-related activity (including abating).

New Unnumbered Definition

Secondary dependent location (BP 0816 addition)

A location within the basic territory that is neither owned nor operated by a dependent location, but it does one or both of the following:

Transit type structures such as airfields, bridges, pipelines, road, tunnels, and waterways are excluded from this definition. Water, communication, and power suppliers are also excluded from the definition as are wastewater removal services.

 

Example: Peggy sells custom designed western shirts. The shirts are manufactured by Western Styles, but the embroidery work is provided by Flying Needles. In this example, Peggy is the named insured, Western Styles is the dependent location and Flying Needles is the secondary dependent property. 

 

10. Securities

These are both negotiable and non-negotiable instruments or contracts that have monetary or other property value.

The following are examples of securities, but they are not the only such instruments or contracts considered securities:

Note: Money is not securities. In addition, stamps currently being used do not include stamps in stamp collections.

11. Sinkhole collapse

This occurs when the soil below the covered property that supports it collapses into an underground opening. The opening must have been created by water acting on limestone or similar rock formations. The term does include the land’s value or to the cost to fill sinkholes. The term also does not include land that collapses or sinks into man-made underground cavities.

12. Specified Perils (BP 0816 change)

These are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow, or ice, and windstorm. However, these perils are not covered if they are excluded or limited elsewhere.

Falling objects does not include loss to personal property stored in the open. It also does not include damage to the interior of buildings or personal property stored in buildings unless a falling object first breaches the building's exterior.

The BP 0816 change is to enumerate these perils and then to explain falling objects and water damage within the peril discussion. The falling object coverage is unchanged. However, a meaningful change has occurred with the water damage peril so that it lines up with the Water Exclusion.

Water damage is the sudden or accidental discharge or leakage of water or steam. However, it must be a direct result of a part of the system or appliance that holds the water or steam cracking or breaking.  It is also the sudden or accidental discharge or leakage of water or material that is waterborne but only if all the following occur:

 

The Water Exclusion’s paragraphs on surface water and water damage below the surface of the ground do not apply if coverage is provided within this definition of water damage.

13. Valuable papers and records

These are written, printed, or otherwise inscribed documents and records. Books, maps, drawings, extracts, films, deeds, mortgages, and manuscripts are some examples. The definition does not include money, securities, or data records.

14. Volcanic action

Airborne is an important word in this definition. Airborne volcanic blast or shock waves are volcanic action. Ash, dust, particulate matter, and lava flow are also considered to be volcanic action. None of these actions take place underground.

The cost to remove dust, ash, or particulate matter is excluded unless covered property first sustains direct damage.

 

Example: A nearby volcano discharges an ash plume.

Scenario 1: Hot ash lands on plastic containers in the named insured’s yard. The containers melt and must be destroyed. This loss is covered.

Scenario 2: Hot ash lands on several nearby buildings. The ash does not damage the buildings, but it must be removed because of its appearance. This loss is not covered.

 

PROPERTY COVERED

Direct physical loss or damage to property that is described under Coverage A–Buildings and Coverage B–Business Personal Property is covered. This statement is limited by both of the following:

Coverage A–Buildings

Building includes property in addition to simply the building itself. It is all buildings and structures on the declarations that have a limit of insurance. A covered building or structure includes the following:

1. Completed additions

Note: Completed is not a defined term.

2. Machinery and equipment

This is building only when the machinery and equipment is a permanent part of the described building or structure.

Note: Permanent is not a defined term and may have to be investigated and evaluated to determine what is permanent and what is not permanent.

3. Fixtures, including outdoor fixtures

Note: Fixtures includes inside and outside property. Some fixtures, such as plumbing and lighting fixtures, may appear to be personal property.

 

Example: A restaurant has several chandeliers installed in its main ballroom. These chandeliers are fixtures, not personal property.

4. Maintenance/service personal property

This is personal property the named insured owns and uses to maintain or service the described premises. Examples include air-conditioning equipment, fire extinguishing apparatus, and floor coverings but are not limited to just these. Other examples are refrigerating, ventilating, cooking, dishwashing, and laundering appliances and outdoor furniture.

 

Example: Jerry’s apartment complex placed several benches along the complex sidewalks for the convenience of its tenants. It also installed outdoor grills for tenants to use to encourage them to not grill on their porches. The benches and grills are considered building.

 

Related Court Case: "Fixtures Pertaining to the Service of the Building" Defined by Court

5. Construction materials

This is covered property only when no other insurance applies to it.

Coverage applies to additions that are under construction and alterations or repairs that are being made to a covered building. Materials, equipment, supplies, and temporary structures on or within 100 feet of the described premises being used to make the additions, alterations, or repairs are covered.

Note: Once an addition is completed, it is covered as a completed addition as outlined in item 1. above.

6. Landlord-owned personal property

Owned personal property that is in communal areas, rooms, or apartments are covered but only when the named insured is a landlord. Furniture, furnishings, or equipment provided to a tenant occupying the premises is an example of such property.

7. Building glass

 

Coverage B–Business Personal Property (BP 0816 Change)

Business personal property of the named insured that is in the building or structure on the declarations is covered. Such business personal property that is within 100 feet of the described premises and is either in the open or in or on a vehicle is also covered. The property is covered only if there is a limit on the declarations for business personal property at the described premises.

If the named insured only occupies part of a building or structure, the business personal property must be within 100 feet of that building or structure and either in the open or in or on a vehicle to be covered.

 Business Personal Property is the following:

1. Owned property

Owned property of the named insured is covered but only if that property is used in the named insured’s business.

Related Court Case: Business Personal Property Meant All Merchandise the Retailer Had an Insurable Interest in

2. Personal property of others

The legal liability of the named insured in property of others plus the cost of labor, material, and other services the named insured has provided on that property of others is covered.

Example: Jim is a tailor. When a small fire damages property on his premises, his business personal property coverage pays the following:

  • $25,000 for the value of the suits in Jim’s possession to be altered at the time of the loss. The replacement value of the suits exceeds $100,000 but Jim’s legal liability is limited to their actual cash value.
  • $10,000 for the cost of Jim’s labor in the alterations. This includes the fabrics and other notions used in the alterations.

 

Note: The insured that works on property of others should consider if legal liability coverage alone is sufficient. Bailee Customers Coverage may be more appropriate.

Related Articles:

AAIS Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form

AAIS Miscellaneous Bailee–Processor Floater

ISO Bailees Customers Coverage Form

3. Leased personal property

Personal property the named insured leases is covered but only for as much as is required by the lease contract.

Note: Because property leases differ, the limit required can only be determined by reading the lease.

Personal property the named insured leases is covered but only for as much as is required by the lease contract.

Note: Because property leases differ, the limit required can only be determined by reading the lease.

4. Tenant’s property

a. When the named insured is a tenant, this coverage is available that applies to improvements made to the space it leases. Improvements are fixtures, alterations, installations, and additions. A tenant cannot remove improvements when the lease ends and it moves out of the building. However, the improvements have a financial value to the tenant for the length of the lease. This coverage is for the tenant’s use interest in those improvements.

Note: Items the named insured can legally remove are considered owned business personal property.

 

Example: Jason leases retail space from Mini Shopping Plaza. Mini is in the process of renovating the space to Jason’s specifications. The renovations include dressing rooms, built in cubbies, wood covering, and inserts for window displays. The cost of these renovations is $50,000 and is part of the rent paid by Jason, so this item covers them. However, coverage is limited to only Jason’s use interest in them.

 

Related Article: Improvements and Betterments

b. The tenant may own or be in control of the building’s exterior glass. In such a case, this policy covers that glass as business personal property. However, if building coverage is provided at the same premises, this glass coverage does not apply and only building glass coverage applies.

PROPERTY NOT COVERED

Neither Coverage A–Building nor Coverage B–Business Personal Property insures the following property. However, Additional Coverages or Extensions of Coverage provides limited coverage for some of these items as stated in the remarks that accompany each item.

1. Accounts Receivable

Accounts receivables are not covered.

There is an exception. Extensions of Coverage B–Business Personal Property 1. Accounts Receivable provides limited coverage.

2. Animals

Animals are not covered. There are two exceptions.

3. Antennas, Fences, or Signs

Outdoor radio, television, satellite, dish-type, or other antennas or their masts are not covered. Towers, lead-in wiring, fences, and signs that are not attached to buildings are also not covered.

There is an exception. Additional Coverages 1. Antennas, Fences, or Signs provides limited coverage.

4. Contraband

 

Example: Cigarettes can be sold legally in all states. However, cigarettes taxed in one state and then transported and sold in another state to avoid the second state’s excessive taxation are considered contraband.

 

5. Data Records and Programs (BP 0816 change)

Electronic data records, software programs and applications, and proprietary software programs are not covered.

There are two exceptions.

6. Land, Water, Growing Crops, or Lawns (BP 0816 change)

Land is not covered even if the land is underneath covered property. Water that is on the surface or under the ground is not covered. Crops while growing and lawns are also not covered. The only exception is for lawns that are part of a vegetated roof.

Note: This would mean that bottled water, transported water, or water used in processing could be covered and that crops that have been harvested could also be covered.

7. Lottery Tickets

Lottery tickets the named insured is holding for sale are covered. However, lottery tickets that are not being held for sale but that may have value to the named insured are not covered.

8. Money or Securities

There is no coverage for money, securities, accounts, bills, or food stamps.

Note: Coverage can be added by endorsement.

Related Article: AAIS Businessowners Policy Available Endorsements and Their Uses

9. Trees, Shrubs, or Plants (BP 0816 change)

Indoor or outdoor trees, shrubs, or plants are not covered. Grain, hay, straw, or other crops that are outdoors are also not covered but they are covered when they are indoors.

There are two exceptions.

  • Extensions of Coverage: Coverage A–Buildings 3. Trees, Shrubs, and Plants provides limited coverage.
  • Trees, shrubs, or plants that are part of a vegetated roof are covered.

 

10. Valuable Papers and Records

There is no coverage for valuable papers and records.

There is an exception. Extensions of Coverage: Coverage B–Business Personal Property 6. Valuable Papers and Records provides limited coverage.

11. Vehicles or Aircraft

Coverage does not apply to aircraft or vehicles. There is also no coverage for any self-propelled machine when a license is required for them to be used on a public road. Computers that are permanently installed in any of the above are also not covered. This applies to such computers even when they are not, at the time of the loss, installed in the aircraft, vehicle, or machine.

 

Example: Kelly purchased a drone to take photographs of real estate properties that he can use in his business as a realtor. This policy does not cover the drone. The drone has a permanently installed computer that is used for navigation and photography. Kelly removes parts of the computer for maintenance and a fire damages them. The fire damage to the parts is not covered even though it occurred while they were not attached to the drone.

 

Note: This property can be covered under separate coverage forms and policies specifically designed for them and for their operations.

Related Article: CA 00 01–Business Auto Coverage Form Analysis

Related Court Case: Mobile Vehicle Held to be Property Not Covered in Spite of Insured's Claim of Warehousing

12. Watercraft

There is no coverage for watercraft. There is also no coverage for the watercraft's motors, equipment, or accessories but only while they are afloat. The motors, equipment and accessories are covered property while they are on land.

Note: Coverage for watercraft and its related equipment is available under boat, yacht, or ocean marine policies.

Related Article: Ocean Marine Insurance Overview

ADDITIONAL PROPERTY EXCLUDED AND LIMITATIONS

The following exclusions and limitations apply to Coverage A–Buildings and Coverage B–Business Personal Property.

1. Animals

The Property Not Covered Animals item provides two exceptions so that some animals are covered property. However, the coverage is very limited. First, the animal must sustain damage that is caused by a specified peril or building glass breaking. Second, the damage must either kill the animal or result in the animal having to be destroyed.

Note: Only animals the named insured owns, keeps inside a building, and holds for sale, and animals that others own that the named insured boards are covered property.

2. Boilers

Note: This item provides more coverage than may appear.

There is no coverage when loss or damage occurs to any of the following:

a. Steam boilers, steam pipes, steam turbines, or steam engines but only when a condition or occurrence within them causes the loss or damage. However, if gas or fuel that explodes in a firebox, combustion chamber, or flue causes the loss or damage coverage continues.

b. Hot water boilers or water heaters but only when a condition or occurrence within them causes the loss or damage. However, if there is an explosion within a hot water boiler or water heater, coverage continues.

Note: In other words, steam boilers, steam pipes, steam turbines, steam engines, hot water boilers, and water heaters are covered for all perils except when a condition inside them causes the loss or damage. However, even that is further modified!

 

WaterHeater

Example: The hot water heater's pilot light goes out. However, gas continues to fill the chamber and sparks from attempts to re-ignite the pilot light cause an explosion. The damage caused by the explosion is covered.

 

Equipment Breakdown Protection Coverage fills this gap in coverage due to this limitation.

Related Article: ISO Equipment Breakdown Protection Coverage Form Overview

 

3. Furs

2012-01-28 12

 

Theft of furs or fur garments is covered but limited to not more than $2,500 in a single occurrence.

Note: Businesses that have stocks of fur can be insured under furrier’s block coverage forms and policies.

Related Articles:

Furriers Block Policy

Other Non-Filed Inland Marine Coverage Forms Archive

ISO Furriers Block Coverage Form

4. Glassware/Fragile Articles

Loss or damage because fragile articles such as glassware, statuary, porcelains and bric-a-brac break is excluded unless a specified peril or building glass breaking causes them to break. This limitation does not apply to glass that makes up part of the building or structure. It also does not apply to bottles and other containers that are being held for sale. Photographic and scientific instrument lenses are also not subject to this limitation.

5. Interior of Building or Structure (BP 0816 change)

Coverage does not apply to loss or damage to the interior of a building of structure that rain, snow, sleet, ice, sand, or dust causes. It also does not apply to loss or damage to the personal property in that building of structure from the same perils. This applies regardless of whether wind is involved. However, there is coverage if these elements enter the building through an opening that a covered peril first creates. There is also coverage if the snow, sleet, or ice thawing on the building or structure causes the loss.

 

Examples:

  • Rain enters through an open window, pools on the hardwood floor, and damages it. This loss is not covered.
  • The force of the wind from a tornado blows open the same window, rain enters, pools on the hardwood floor, and damages it. This loss is covered.
  • The snow on the roof is 10 inches thick. It begins to melt and leaks through the roof into the bedroom, pools on the hardwood floor, and damages it. This loss is covered.

 

6. Jewelry, Watches, Jewels, Pearls, Precious Stones, or Metals (BP 0816 change)

Theft of jewelry, watches, jewels, pearls, precious stones, or precious metals is covered but limited to no more than $2,500 in a single occurrence. However, individual watches and jewelry valued at $100 or less are not subject to this limitation. The $2,500 limit can be increased on the Declarations.

 

Example: A thief breaks into the Jones Department Store, focusing on the jewelry area. She steals $25,000 in jewelry and watches valued at less than $100 each. She also steals $50,000 of items that are worth more than $100 each. She then starts a fire to cover her tracks that causes an additional $100,000 in damage to the jewelry area.

The total claim paid is $25,000 for jewelry and watches valued at less than $100 each, $2,500 for items valued at more than $100 each, and $100,000 for the damage the fire caused. This is because this limitation applies to only theft.

 

Note: Businesses with stocks of this type of merchandise can be insured under Jewelers Block Coverage Forms and Policies.

Related Articles:

ISO Jewelers Block Coverage Form

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

New Unnumbered Additional Property Excluded and Limitation Item

Lawns, Trees, Shrubs, or Plants That Are Part of a Vegetated Roof (BP 0816 addition)

Vegetated roof lawns, trees, shrubs, and plants are covered as any other type of property because of changes made to the Property Not Covered Section. However, there are certain types of exposures that are unique to such items that are not covered. The four new exclusions for only these items are:

7. Missing Property

Property that is gone and for which there is no physical evidence to explain where, when or how it left is not covered. Property that is considered missing because of an inventory shortage or that has mysteriously disappeared are examples of such uncovered losses.

This limitation does not apply to losses that would otherwise be covered under Optional Property Coverages 1. Employee Dishonesty, or 2. Money and Securities covers.

8. Patterns, Dies, Molds, Models, or Forms

Theft of patterns, dies, molds, models, or forms is covered but limited to no more than $2,500 in a single occurrence.

9. Personal Property in the Open

Personal property that is left in the open and then damaged by rain, snow, ice, or sleet is not covered.

Note: Personal property kept in the open is not usually susceptible to such losses or the insured would keep it inside to keep it protected. Any insured that leaves personal property susceptible to such losses outside would be considered negligent.

10. Unauthorized Transfer of Property

Coverage does not apply to loss or damage to property which has been transferred to a person or to a place which is outside the described premises when the transfer is made because of unauthorized instructions.

 

MusicStore_1

Example: Mary receives a call from someone named John who says he is calling on behalf of Gus, Mary’s boss. John tells Mary he paid Gus $2,000 for a new keyboard and asks her to give it to the deliveryman when he shows up. Mary follows John’s instructions. When Gus returns, Mary tells him that she followed his instructions only to discover that John misrepresented himself and the keyboard is now nowhere to be found. This loss is not covered.

 

ADDITIONAL COVERAGES

This section provides additional property coverages. Each has additional limits unless specifically stated otherwise.

1. Antennas, Fences, or Signs

The Property Not Covered section excludes loss or damage to distinct types of outdoor property. This additional coverage insures that type of property subject to the following limitations.

Note: The wording that applies to the most paid does not state if it is per occurrence, per item, or per policy. This could lead to some confusion.

2. Collapse

This Additional Coverage does not increase the limit for the covered property.

Note: This additional coverage is necessary because of the Collapse exclusion. At one time, coverage forms and policies did not exclude collapse. However, various judicial interpretations revealed an ambiguity in the concept of collapse, so form writers developed the current method of excluding collapse as a peril and then providing collapse coverage in a more straight and defined manner.

For an example of how the collapse continues consider the following court case:

Related Court Case: Definition Of “Collapse” Ambiguous: Ruled To Include Both Actual And Imminent Collapse

a Collapse Coverage Applies To Only Sudden And Abrupt Collapse. It Covers Direct Physical Loss Or Damage To Covered property when a covered building or structure collapses. It applies whether the entire building or structure collapses or only part of it collapses. The sudden and abrupt collapse must be caused by one or more of the following:

1) A structural component being decayed. This cause is covered only if the decay was hidden in such a way that no insured was aware the decay existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the decay. This means that negligently ignoring signs of potential decay is not acceptable.

Related Court Case: Support Beam Failure Excluded Under the Policy

 

Example: The front porch suddenly collapsed.

Scenario 1: Jess was concerned because she previously heard creaking when the wind blew. She Googled and talked with friends who all told her that older buildings creak. Everyone was surprised when the porch collapsed. This loss is covered.

Scenario 2: Jess was concerned when she noticed that her porch was bowing and suspected that there was a problem. She did not have the money to spend to correct the condition and she just ignored the situation and tried to build up her savings. She was thrilled when the porch finally gave way. The insurance company denied her claim because the decay was obvious. This left Jess with some serious decisions to make.

 

2) A structural component that has been damaged by insects or vermin. This cause is covered only if the insect or vermin damage is hidden in such a way that no insured was aware the damage existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the decay. This means that negligently ignoring signs of potential damage is not acceptable.

 

Example: The floor suddenly collapsed.

Scenario 1: Percy was very surprised when he heard a loud crash in the file room. The room contained archives and was occupied only a few days each year. Termites had apparently infested the beams under the room and weakened them, causing the collapse. This loss is covered.

Scenario 2: Percy had noticed that the waiting room floor flexed when people walked on it. He checked in the basement but did not see any obvious problems because of the suspended ceiling in the finished basement. He did notice some ants and decided to contact an exterminator but never followed through on it. The floor collapsed because of an infestation of carpenter ants. This loss is not covered.

 

3) Defective materials that are used during construction, remodeling, or renovation. Also, defective methods that are used during construction remodeling or renovation. This cause is covered only if the collapse occurs while the construction activities are taking place.

 

Example: Paul places boards against the tilt-up wall to hold it in place until it is properly secured. The boards give way because they are defective and the wall collapses. This collapse is covered due to the defective boards.

 

When collapse of a completed building of structure is caused solely by defective materials and/or defective methods that were used during construction there is no coverage. There is an exception. If any of the following causes of collapse result in a sudden and abrupt collapse there is coverage even if the collapse is caused only because that cause was combined with defective materials or methods:

a) A structural component being decayed. This cause is covered only if the decay was hidden in such a way that no insured was aware the decay existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the decay. This means that negligently ignoring signs of potential decay is not acceptable.

 

Example: James had windows installed when he remodeled his office. The windows were not installed properly, and water seeped in. Because the walls were paneled, there were no obvious problems. The water seeped into the floor boards, and eventually resulted in their decay that resulted in collapse. Even though defective construction methods were the reason behind the collapse, coverage applied because the hidden decay caused the collapse.

 

b) A structural component that has been damaged by insects or vermin. This cause is covered only if the insect or vermin damage is hidden in such a way that no insured was aware the damage existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the decay. This means that negligently ignoring signs of potential damage is not acceptable.

c) Specified perils or building glass breaking but only as insured under the Property Coverages

 

Example: Gayle purchased a garden shed kit. She assembled it based on her best guess and ignored the detailed instructions that accompanied the kit. A windstorm that occurred three months later caused the improperly constructed shed to collapse. Coverage applies even though the defective construction was a primary reason behind the wind causing the shed to collapse.

 

d) Weight of personal property or of people

 

Example: The architect’s plans for the balcony called for Jerry’s crew to use 3/4-inch screws. However, Jerry’s crew decided that 1/2-inch screws would work just as well. The balcony collapsed when furniture was moved onto it. Coverage applies even though the primary cause of the loss was Jerry’s defective method in substituting 1/2-inch screws for 3/4-inch screws.

 

e) Weight of rain that accumulates on a roof

b. Collapse restrictions

It is important to understand what collapse means. This paragraph defines the term.

Note: There is no indication of who must state that the building is in such danger.

c. Additional Property Restrictions

This is coverage for collateral damage of a covered collapse. There is coverage when a building or structure collapses as described above and causes direct physical loss or damage to the property described in this paragraph. However, this applies only if this policy covers the described property. The described property is the following:

 

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Example: The high-rise office building collapses. The building collapse is covered. When it collapsed, the collapse damaged the following property. Coverage applied to all the following:

·         The tower and antenna on the roof that were destroyed

·         The satellite dishes on the ground that were also destroyed

·         The awnings on the owned building next door that were torn off

·         The gutters and downspouts on the owned building next door that falling debris tore off

·         The fences and yard fixtures of the building that collapsed and the owned neighboring buildings that falling debris crushed

 

d. Collapse of Covered Personal Property

Direct damage caused when covered personal property collapses is covered even when the building or structure does not collapse. The personal property collapse must be sudden and abrupt and must result from one of the causes listed in paragraph a. of this additional coverage. The important words are sudden and abrupt. Gradual collapse is not a covered collapse. The personal property must cave in, fall in, fall down, or give way.

Personal property that is bending, bulging, cracking, expanding, leaning, sagging, settling, or shrinking has not collapsed. The collapse must be sudden and abrupt.

The coverage this paragraph provides has two restrictions. There is no coverage for either of the following:

e. Any reference to Covered Peril includes this Additional Coverage 2. Collapse as described and limited in
2. a., 2. b., 2. c., and 2. d. above.

 

Example: An earthquake damages a building's wall and causes a tree limb to fall and cause part of the roof to collapse. The collapse peril usually applies to falling objects but neither the damage to the wall nor the damage to the roof is covered because both were the result of the earthquake, an excluded peril.

Related Article: Concurrent Causation and Anti-Concurrent Causation Clauses–A Discussion

 

Examples:

  • Carpenter ants eat through roof supports in sections of the roof where there is no access and there is no visible evidence of damage until the roof collapses. This loss is covered.
  • Visible termite damage in the floor joists causes the floor to collapse. This loss is not covered.
  • The building under construction collapses when faulty temporary supports fail. This loss is covered.
  • The building collapses six months after being renovated and reoccupied due to the weight of personal property. This loss is covered.
  • Workers pile more weight on a shelf than the shelf was designed to handle. The shelf subsequently collapses and $100,000 of merchandise is destroyed. This loss is covered.

 

Related Court Cases:

Collapse Coverage Did Not Apply to Replace All Stucco

Policy is Ambiguous about Collapse

3. Counterfeit Money or Money Orders

The insurance company pays up to $1,000 for loss if the named insured, in good faith, accepts counterfeit paper currency or accepts money orders that are not paid when presented. Coverage applies only if the named insured provided money, services, or products in exchange for the currency or money order. Higher limits are available.

 

Example: Jeremy takes a money order that Angela gave him to the bank. The bank rejects it.

Scenario 1: Angela buys groceries from Jeremy’s store and uses the money order to pay for them. Coverage applies.

Scenario 2: Angela gives Jeremy the money order as a present. Coverage does not apply.

 

4. Debris Removal (BP 08 16 change)

The insurance company pays costs to remove debris that results from a covered direct loss during the policy period. This includes debris of both covered and other property.  

There is no coverage to remove any of the following debris:

The most paid is 25% of the amount paid for the direct damage loss (not the limit) plus 25% of the deductible.

 

Example: Walt insures his building for $100,000 with a $1,000 deductible. A tornado devastates the town and causes $85,000 in damage to Walt's building. The debris removal costs are $50,000. The maximum debris removal payment is $84,000 X .25 + $1,000 X .25 = $21,250. This means that $28,750 is not covered.

 

The combination of the debris removal payment and the direct damage loss cannot exceed the damaged property’s limit of insurance.

 

Example: In the example above, because the limit on Walt’s building is $100,000, it is the maximum amount paid. The $84,000 loss is paid (after the deductible is applied) and $16,000 is left to pay for the debris removal. This means that $34,000 of the calculated debris removal expense is not covered.

 

An additional $25,000 is available for debris removal. It can be used if the $25% of direct damage is either inadequate or if the combination of direct loss plus debris removal is inadequate (but not both). The $25,000 additional limit is available only once, but the limit can be increased on the Declarations.

 

Example: Because using the $25,000 limit to satisfy the $28,700 shortfall in the first example does not prevent the limit capping in the second example, it is not used there. Applying the $25,000 limit to the second example results in a debris removal payment of $41,000.

 

If only debris of other property occurs but there is no direct damage loss to covered property, $5,000 is available to remove that other property debris.

 

Example: The tornado picked up a trailer from the neighboring trailer park and dropped it onto the named insured’s premises. No property was damaged when it dropped but the trailer was destroyed and needed to be removed. The $5,000 limit can be used to pay for the incurred removal costs.

 

The only debris removal expenses that are paid are those reported to the insurance company in writing within 180 days of the direct damage loss.

Related Court Case: Debris Removal Obligation Was Paid

5. Fire Department Service Charges (BP 0816 change)

The insurance company pays any charges that the named insured must pay to a fire department called to save or protect covered property from a covered peril. The charges may be required by a local ordinance or may be in a contract or agreement between the fire department and the named insured that was executed prior to the loss. The limit is $2,500 and is not subject to a deductible. Higher limits are available.  

A very important restriction applies. The limit applies per occurrence and is not based on how many fire departments response or how many services are performed.

 

Example: Enjoyable Eating has contracted with three different volunteer fire departments because it is at the further point of town. A fire occurs and all three responds. One of them stays behind after the others leave to watch for rekindling of embers. The total bill is $1,500 for two of the fire department and $2,000 for the third. This coverage will pay only $2,500 total.

 

6. Forgery

The insurance company pays for a direct loss caused by the following:

a. Forgery or alteration of written promises. This paragraph applies to written promises, orders, or directions that require that money be paid. Examples of such promises include checks, drafts, and promissory notes but are not limited to just these. These could either be made, or allegedly be made, or drawn on the named insured or on an agent who works on the named insured's behalf. This applies to actual forgeries and to allegations of forgeries.

Mechanically reproduced facsimile signatures are treated as handwritten signatures with respect to the coverage in this paragraph. In addition, substitute checks (as the 21st Century Act defines them) are considered the legal equivalent of the original check.

b. Forgery or alteration of cards. This paragraph applies to those written documents used with credit, debit, or charge cards. These cards must have been issued to the named insured, a partner, officers, directors, trustees, members, managers, or employees to be used in the named insured’s business.

This paragraph’s coverage applies only when the named insured is legally liable to the organization that issued the credit, debit, or charge card that was used with the forged or altered written instrument. The named insured is required to comply with all terms, provisions, and contract conditions it agreed to when the credit, debit, or charge card was issued.

Under both paragraph a. or b. above, if the named insured is sued because it refuses to honor the forged or altered documents claims; the named insured has permission to defend with the assurance that the insurance company will pay reasonable defense costs.

The most paid for paragraphs a. or b. above it $ 2,500 and that limit includes the defense costs described above. This means those defense costs must be incredibly reasonable! The $2,500 limit can be increased on the Declarations.

 

Example: Ornelle Shopping Company has credit cards issued to all its managers, but Roger rarely uses his. He receives a credit card bill that reflects charges he did not incur. He checks his wallet, discovers the card is missing, and immediately notifies the credit card company. Ornelle refuses to pay the bill because it is forged. When the credit card company sues Ornelle, its legal expenses are paid up to $2,500.

 

7. Glass

First things first, the actual glass loss is covered as either building or business personal property coverage. This Additional coverage is about the extra costs incurred following a glass loss.

The insurance company pays the following expenses if building glass is damaged. These expenses are not in addition to the limit of insurance.

a. When the glass frames are damaged as part of the building glass loss, the cost to either repair or replace those frames is covered.

b. Often delays occur that prevent glass from being immediately repaired. This item pays the cost of protecting the opening where the glass had been until the glass can be replaced. This may involve boarding up the opening or putting in temporary glass until the replacement glass is installed.

c. A glazier must have access to the glass to remove damaged glass and to properly install replacement glass. Barriers may be in place that must be removed before work can begin. The costs to remove and to replace those barriers are covered.

However, this Additional Coverage does not include removing or replacing window displays.

 

Example: Velvy’s mother installed artistic iron gratings over all the store front’s windows. In the past, there was a key that allowed the gratings to be removed but the key was lost years ago. Velvy is known for her creative window displays that work with the iron gratings while showing off the latest fashion. An attempted smash and grab damages a window but, thanks to the iron gratings, the perpetrators did not enter the store. Velvy’s insurance company pays to remove the gratings and, because they were damaged in the removal, it also pays to replace them. However, it does not pay for the cost Velvy incurs to remove the window display and replace it.

 

8. Increased Costs-Ordinance or Law

Perils Excluded 5. Ordinance or Law excludes coverage for any increased costs of construction that are due to a civil authority imposing or exercising a law or ordinance after a loss. This Additional Coverage provides limited relief from that exclusion.

If construction costs related to a direct damage loss increase because a code, ordinance, law, or decree that regulates construction, use, or repair of any property is enforced, this coverage covers those increased costs. However, this additional coverage is subject to several restrictions:

a. Coverage applies only if the building is insured on a replacement cost basis.

b. The code, ordinance, law, or decree must be in force at the time of loss.

 

Example: Al owns a two-story frame building in downtown Plymouth. It was built in 1900. After the building burns down, Plymouth passes an ordinance that all downtown buildings must be of masonry or better construction. This coverage does not apply because the ordinance was enacted after the fire.

 

c. If the building is subject to a code, ordinance, law, or decree before a loss occurs but the named insured does not comply with it, the insurance company does not pay to comply with it after a loss.

 

Example: Harry's Hardware is cited for not complying with the village's plumbing and drainage rules. Harry argues with the village about the issue. A storm damages Harry’s building. Harry must pay the increased construction costs to satisfy the ordinance because he will not get a building permit unless he agrees to do so. The insurance company will not pay for that cost.

HardwareStore

 

d. If a business must relocate based on a code, ordinance, law, or decree, the increased cost of construction is limited to the increased costs of construction required at the new location. The increased costs that would have been required at the old location are not taken into consideration.

 

Example: Millie’s Pet Suites and Spa is in the village limits of West Union. The village council passes an ordinance that no business or residence within the village limits may have more than four animals on premises. Millie’s business is grandfathered from the law until the weight of ice and snow causes the roof of her main building to collapse. The ordinance requires that she relocate her business outside the city limits. Millie would have been forced to comply with four other ordinances if she stayed in the village. However, since the new location is outside the village limits and its jurisdiction, none of them are covered because they do not apply to the new location.

 

e. The named insured has the option to build at a new location instead of rebuilding at the same site. If it exercises that option, the insurance company pays only the increased costs of construction that the named insured would have incurred to rebuild at the old site.

 

Example: Change Millie’s example above so that there is no ordinance that requires that she relocate. However, there are four regulations she objects to and she chooses to relocate. She is eligible to receive increased costs equal to the costs she would have incurred at the old location if she decided to rebuild there. She decides to voluntarily improve her facility by complying with two of those regulations. The costs of those increases are covered.

 

f. The insurance company does not pay anything until the building is repaired or replaced. However, there is a time frame to consider. The repair or replacement must be done as soon as reasonably possible and completed within two years of the date of loss.

 

Example: Millie is exhausted and decides to take a vacation before tackling the rebuilding project. If she delays too long, the insurance company could decline to pay any costs because of this condition.

 

g. This coverage cannot be used to gain coverage for pollution or fungus and related expenses.

Many states have imposed environmental regulations but those will not be covered by this coverage. Any costs or expenses for abating, monitoring, assessing, cleaning up, removing, containing, treating, detoxifying, neutralizing, or in any other way responding to pollution or fungus or related perils are not paid. In addition, coverage does not apply to any increased cost because pollutants or fungus or related perils exist.

This Additional Coverage’s limit of insurance is $10,000 on each covered building or structure.

The BP 0321–Ordinance or Law Extension is available that provides a more comprehensive coverage and higher limits.

Related Article, , AAIS Businessowners Policy Available Endorsements and Their Uses

 

9. Inventory and Appraisal Expenses

The insurance company agrees to pay inventory and appraisal expenses the named insured incurs. However, these expenses are covered only if the insurance company requests that the named insured incur them to determine the value of the loss. This means that coverage does not apply if the named insured incurs the expenses solely for its own benefit.

In addition, this Additional Coverage does not pay public adjusters’ fees or any expenses due to invoking the Appraisal condition. The most paid is $2,500 and is not subject to a deductible. (Higher limits are available.)

10. Limited Fungus and Related Perils (BP 0816 change)

This Additional Coverage is provided because the policy excludes most losses that fungus causes. This extremely limited coverage is similar to Additional Coverages 12. Pollutant Cleanup and Removal, especially with respect to the aggregate limit.

a. Coverage

Coverage applies only if a covered loss resulting from a specified peril first occurs and because of that covered loss a fungus or related perils loss occurs. The specified peril must occur during the same policy period in which the fungus loss occurs.

 

Example: Costume Corner’s policy is issued for the period 02/04/17 to 02/04/18. The renewal period is 02/04/18 to 02/04/19. A windstorm occurs on 02/01/18. On 03/01/18, Margie notices fungus activity that she believes is directly related to water that entered the building at the time of the storm. Her claim is denied because the specified peril loss occurred in the first policy period and the fungus loss occurred in the second policy period.

 

Coverage applies for both the direct loss as well as clean-up costs. The costs to remove and replace property to remove the property that the fungus damaged and to conduct any follow up testing are also covered.

Coverage applies only if the named insured does everything possible to protect the property after the occurrence.

Coverage does not apply to a vegetated roof’s lawns, trees, shrubs, or plants.

Note: The coverage form uses the term occurrence but does not reference which occurrence. This could be the occurrence of the specified peril loss or the fungus and related perils occurrence.

b. Limited Fungus and Related Perils Coverage Aggregate Limit

This coverage is subject to a $15,000 aggregate limit. This limit is restrictive in that it does not apply per occurrence. It applies for each consecutive annual policy period or any extension of a policy period that consists of less than 12 months, regardless of the number of claims made or buildings insured. This coverage does not increase any other limits for covered property, expenses, or assessments.

c. Exceptions

This Additional Coverage has four exceptions. These are intended to prevent conflict and ambiguity because each exception is covered elsewhere in the policy. The limitations within this item do not apply to any of the following:

d. Application of Coverage

This Additional Coverage does not apply to loss or damage to covered property that fungus or related perils does not cause in any way. The only exception is when fungus or related perils increase the amount of a loss. This Additional Coverage insures the increased amount of loss due to fungus or related perils. However, the increase is subject to this Additional Coverage’s terms.

11. Lock and Key Replacement

When a burglary is considered a covered theft loss, this coverage is available. It covers the expenses the named insured incurs to repair or replace exterior or interior door locks and keys but only at the location where the loss occurred. Coverage applies under two circumstances. The first is if the named insured property was damaged and the second is if the named insured’s keys were stolen.

 The most paid is $1,000 but it is not subject to a deductible. Higher limits are available.

12. Pollutant Clean Up and Removal

This Additional Coverage is provided because this policy excludes most pollution losses. This extremely limited coverage is similar to Additional Coverages 10. Limited Fungus and Related Perils, especially with respect to the aggregate limit.

Coverage applies to expenses the named insured incurs to extract pollutants from land or water. However, it applies only if a covered peril caused the pollutant to be released. The peril that causes the release must occur during the policy period.

There are two restrictions:

a. The named insured must report the expenses to the insurance company within 180 days of the date that the covered peril occurred to be paid.

b. The insurance company pays the costs to observe, test, evaluate, or record pollutants (or their effects) only when this Additional Coverage covers the expense to extract them.

This coverage is subject to a $10,000 per premises aggregate limit. This limit is restrictive in that it does not apply per occurrence. It applies for each consecutive annual policy period. Higher limits are available.

 

Example: Because of a fire in Fernando's building, chemicals leak onto the land, into the stream, and into the building’s basement. This Additional Coverage covers the costs to clean up the land and the stream. It does not cover the cost to remove chemicals from Fernando's basement.

 

13. Recharge of Fire Extinguishing Equipment

This Additional Coverage pays the costs to recharge fire extinguishing systems or manual fire extinguishing equipment. Coverage applies only if the discharge was due to an accident, a covered loss, or to fighting a fire on the premises or within 100 feet of it. Coverage also applies to conduct hydrostatic testing.

This Additional Coverage also applies to loss or damage to covered property that such accidental discharges cause. However, there is no coverage for loss due to a discharge that takes place during installation or testing.

The limit is $5,000 and is not subject to a deductible. Higher limits are available. The insurance company has the option to replace the equipment instead of recharging it.

Note: This Additional Coverage is to the named insured and the insurance company’s benefit because the safety equipment is fully charged and ready if there is another fire.

14. Removal

Covered property moved from a covered location to another location to protect it from a potential covered peril is covered during the move and at the new location for up to 30 days or until the policy expires, whichever occurs first.

Note: This important coverage is unique because the coverage provided is not subject to any exclusions. The only requirement is that the potential peril be a covered peril.

 

ColoradoFirePan

Example: Roger watches the progress of the wildfire and moves his inventory to his brother's repair garage that is safely beyond its reach. When he attempts to retrieve the property 20 days later, he discovers that it is damaged beyond repair by being exposed to the gasoline and oil fumes in the garage. The loss to the inventory is covered because it was moved there to protect it from the wildfire.

 

15. Tearing Out and Replacing

The named insured may have to open walls, ceilings, or floors to reach and repair a leaking plumbing system that causes water, liquid, powder, or molten material damage to the building or business personal property. Without this coverage, the policy does not cover the damage to the walls, ceilings, or floors because a covered peril did not damage them. This Additional Coverage insures damage done to undamaged property that conceals the plumbing system. However, it does not pay the costs to repair the plumbing system itself. An exception to this covers the costs to repair an automatic fire protection system damaged by freezing or by discharge of any substance from such systems.

This Additional Coverage does not have its own sub-limit. It is considered part of the limit of insurance.

 

Example: A water pipe bursts behind a wall. The cost to tear out the sheet rock to get to the break is covered, as well as the water damage to the walls, floors, and personal property. The cost to repair the pipe itself is not covered.

 

EXTENSIONS OF COVERAGE

Each extension of coverage is an additional amount of insurance that applies to losses a covered peril causes at the described premises unless stated otherwise.

The Following Extensions Of Coverage Apply To Coverage A–Buildings.

1. Building Property–Off Premises

Building property being kept temporarily within the basic territory but at a location that the named insured does not own, control, rent or lease is covered. Coverage applies while such property is in transit. There is no coverage for theft of that property from a vehicle that is left unattended unless the property was in a locked and secured part of the vehicle. Evidence of forced entry must be visible.

The limit for property that is off-premises is $5,000. Higher limits are available.

 

Example: Wally removes an air-conditioning unit and takes it to a dealer for repairs. While at the shop, a fire in the shop damages the unit. This loss is covered up to the $5,000 limit.

AirCondUnit

 

2. Newly Acquired Buildings  

Buildings or structures that are newly constructed on the covered premises and buildings or structures that are newly acquired but are at a premises that is not described are covered. The new construction or the acquisition must occur during the policy period. If newly acquired, the premises must be within the basic territory.

Coverage begins when construction begins or when the building or structure is acquired. It ends at the earliest of 30 days later, when the policy expires or when the building or structure is reported to the company for it to be added to the policy.

This is not free coverage. Once reported the items are added to the policy as of the acquisition date or construction starting day and premium must be paid. The maximum paid for a single newly acquired building or structure is $250,000.

3. Trees, Shrubs, and Plants (BP 0816 change)

Loss or damage to the named insured's outdoor trees, shrubs, and plants is covered but only if the perils of aircraft, civil commotion, explosion, fire, lightning, or riot caused the loss or damage.

The cost to remove the debris created by a covered loss is part of this extension. The cost to remove debris of other property consisting of trees, shrubs, and plants that land on the premises is also part of this extension.

This coverage does not apply to a vegetated roof’s trees, shrubs, or plants nor to debris of other property that belongs to the named insured’s landlord.

The most paid is $2,500, subject to $1,000 for any one tree, shrub, or plant. Higher limits are available

 

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Example: Paula’s outdoor landscaping was destroyed when a protest march spilled out from the street onto her property. Three young trees were bent so badly that they had to be removed. Each tree cost $500 to plant but it cost $400 to remove each one because the root systems had to be dug out before new trees could be planted. The cost of the total covered claim was over $5,000 but this coverage paid Paula only $2,500.

 

The Following Extensions Of Coverage Apply To Coverage B–Business Personal Property.

1. Accounts Receivable

a. Coverage applies to four types of losses if a covered peril damages the named insured’s records of accounts receivable.

b. Exclusions

Only three exclusions in Perils Excluded apply to this Extension of Coverage.

 

Only four exclusions in Additional Exclusions apply to this Extension of Coverage:

Three exclusions are added for this Additional Coverage:

Note: The concealment, falsifying, etc., can be conducted by any person – it could be the named insured, but it could also be any employee or even an outsider.

 

Example: Perry is the Journeyman’s bookkeeper. He has been embezzling for a few months and just found out that an outside auditor is coming to the office the next day to review the books. Perry panics, breaks into the office that evening, and sets a fire that destroys all the accounting records. The investigation traces the arson to Perry, who confesses. The insurance company does not pay Journeyman anything for its accounts receivable loss.

 

 c. The most paid for an on premises loss is $10,000 per occurrence. The most for an off premises loss is $5,000 Higher limits are available.

2. Business Personal Property

Note: This extension of coverage is similar to the extension of coverage for newly acquired buildings but with significant differences.

The insurance company pays for loss or damage to the following Business Personal Property:

a. Business personal property that is at a new location the named insured acquires

 

Example: Mark purchases a new building. The purchase price includes all business personal property inside the building. Extensions of Coverage 2. Newly Acquired Buildings covers the building. This Extension of Coverage covers the newly acquired business personal property. If Mark moves any business personal property into the new building, this Extension of Coverage also covers that property.

 

b. Business personal property that is newly acquired by the named insured but is located at an existing premises.

 

Example: Mark finds a great deal. He immediately purchases the machinery, and has it delivered to his main building. This Extension of Coverage covers the newly purchased property.

 

c. Business personal property that is at existing premises in a building that is either under construction or has been newly acquired.

 

Example: Mark moves business personal property into a new building he is building on his property. Extensions of Coverage 2. Newly Acquired Buildings covers the building. This Extension of Coverage covers the business personal property.

 

Coverage applies to only such locations in the basic territory.

Coverage begins when the named insured acquires either the location or the business personal property. It ends not later than 30 days after the date it was acquired. However, coverage ends as soon as the location or the business personal property is reported to the insurance company or the policy expires, whichever comes first. The named insured pays premium for the location or the business personal property it acquired beginning with this coverage’s effective date.

The most this Extension of Coverage pays is $100,000 at each building.

Related Court Case: Newly Acquired Property Held Not Covered After the Automatic 90-Day Protection Expired

3. Business Personal Property–Off Premises

This Extension of Coverage insures business personal property temporarily at locations in the basic territory that the named insured does not own, control, rent, or lease. It also covers property in transit. It does not cover valuable papers and records or accounts receivable. Coverage also does not apply to theft from unattended vehicles unless the property was in a locked and secured part of the vehicle and there are visible signs of forced entry into it.

The most this Extension of Coverage pays is $10,000. Higher limits are available.

4. Data Records and Programs (BP 0816 change)

Loss or damage that a covered peril, computer hacking, or computer virus causes to data records, programs and applications, and proprietary programs is covered.

There is no coverage when loss or damage:

The coverage is limited to no more than $10,000 aggregate in any one policy period. This limit is flat and is not increased regardless of the number of computers, premises, locations, or occurrences. The limit can be increased.

The following are not covered:

Note: These items are considered covered due to exceptions Property Not Covered Section so also covering here would be a confusing duplication of coverage.

5. Personal Effects

Coverage applies to personal effects that the named insured, its partners, officers, directors, trustees, joint venturers, members, managers, or employees own. Personal effects do not include the named insured's business equipment or tools.

The most the insurance company pays at each premises is $2,500. Higher limits are available.

Note: The policy does not define Personal Effects.

 

Example: A windstorm blows in the windows at Jill’s Design Place and destroys Jill’s personal collection of tea cups. It also ruins her family pictures, the two suits that she had just had cleaned, and a pair of boots that she stored under her desk. Her personal assistant’s vase, tea pot, coat, and family pictures were also ruined. All could be covered as personal effects.

 

6. Valuable Papers and Records

a. This Extension of Coverage insures loss or damage to valuable papers and records that the named insured owns and to those in its care, custody, or control. The loss or damage must be caused by a covered peril. 

b. Coverage does not apply to loss or damage to property:

·         After it has been sold even though it has not yet been delivered.

·         That is stored at a location other than the described premises

·         When it is a sample that is for sale

Only exclusions in Perils Excluded apply to this Extension of Coverage:

Only three exclusions in Additional Exclusions apply to this Extension of Coverage:

c. The most paid for an on-premises loss is $10,000 per occurrence. The most for an off-premises loss is $5,000. Higher limits are available.

Additional Unnumbered Coverage B – Business Personal Property Extension (BP 0816 addition)

Business Personal Property – Portable Storage Units

Business personal property that is stored in a portable storage unit or detached trailed is covered under the following circumstances:

The coverage provided above is restricted under the following circumstances:

The coverage is limited to $10,000 for a single occurrence and applies over covered property that is in such trailers or unit. There is no per trailer or per unit limit. This limit can be increased on the declarations.

COVERAGE C–LOSS OF INCOME (BP 0816 CHANGES)

Loss of income coverage begins only after covered direct physical loss or damage to real or personal property. While direct damage to property does not always result in the business being interrupted, loss of income coverage applies if it does. This coverage applies only if the direct damage to property is caused by a covered peril that interrupts the named insured’s normal business activities. Any subsequent loss of income is covered but only during the period of restoration.

Note: There is no requirement that the damaged property be covered by this policy.

Restrictions

Coverage C–Loss of Income is subject to the following four restrictions:

a. A peril that applies to only computers is not a covered peril.

b. Real or personal property must sustain loss or damage at the described premises or within 100 feet of the premises either in the open, or in or on a vehicle. If the named insured occupies, rents, or leases only part of the premises or building, the term premises includes both the portion the named insured occupies and any area of the building that provides service for or access to the named insured’s portion of the premises.

The damage may be to property that is in the open, or in or on a vehicle but only if that property is within 100 feet of the described premises or the building or structure that contains the premises.

c. There is no coverage when Loss of Earnings or Extra Expenses is due to loss, damage, destruction, or corruption of data records, programs and applications, or proprietary programs. A limited amount of coverage is available under Additional Loss of Income Coverages for Destruction of Data Records and Programs.

d. Only the loss of income and extra expenses incurred within the 12 months following the date of direct physical loss or damage to the real or personal property is covered.

Note: This means that this coverage does not have a dollar limitation and that the time period extends beyond the policy expiration date.

 

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Example: Roger has an office on the 14th floor of a high-rise office building. The building’s lobby is damaged so badly that clients cannot use the elevators to reach Roger’s office. Roger has a loss of earnings loss even though his property is not damaged. Roger’s policy period is 02/01/17 to 02/01/18. The damage to the lobby occurred on 01/15/18. Roger cannot resume his operations until 04/01/18. The insurance company pays Roger’s total claim even though his policy expired.

 

Coverage Limit

If there is a limit of insurance for this coverage on the declarations, it is the most paid for all earnings and extra expenses combined.

Note: This might create a degree of ambiguity because there is no indication whether the time limit or the dollar limit takes precedence. The Businessowners Policy Rating Manual states that the limit for Loss of Income is to be 20% of the limit for Coverage A plus 100% of the limit for Coverage B. There is an option to provide coverage without a specific limit, but it is subject to a premium surcharge. When the named insured selects this option, the words “Actual Loss Sustained” are entered on the Declarations instead of a limit.

Related Court Case: Business Income Held Not Applicable to Building Not Scheduled for Such Coverage

Earnings

This coverage pays the actual loss of net income. Net income is defined as the net profit or loss of the business prior to income taxes. This coverage also pays for interest, payroll expense along with operating expenses that continue even during a loss. However, only such expenses that are normal to the business are paid.

To compute the loss, the insurance company looks to the businesses experience and to the probable experience had there been no loss.

 

Example: Harry had net income of $100,000 for the period 01/01/17 to 01/01/18. He signs a contract with a new customer on 11/15/17 that should produce an additional $50,000 in net income. Harry has a loss on 02/01/18 that results in a five-month loss of income. The insurance company examines the net income for the period 01/01/17 to 01/01/18 as well as the anticipated future revenue due to the new contract.

 

Additional Restrictions

The following restrictions apply in addition to the restrictions listed under Coverage C–Loss of Income:

a. The only expenses paid under this coverage (extra expenses coverage will pay other types) are those determined to be necessary during the restoration period. Payroll and other expenses are paid but only as much is needed so that the business can resume normal operations that existed before the loss occurred at the same level of quality.

Note: This means that if the business had lousy service in the past because of inadequate staffing, the payroll expense will be only the amount needed to maintain the same lousy service.

b. The named insured is expected to be prudent. If the named insured can resume any or all operations but chooses not to, this insurance will not pay for an increase in the loss because of that refusal.  

c. The insurance payment is for time that the named insured should have needed to resume operations. If the named insured chooses to not resume operations or delays operations, only the amount of loss that should have been incurred is paid.

 

Example: A covered peril damages the Millie and Sons store. Millie, the owner, has worked for 12 years and has never taken a vacation. She decides that this is the perfect time to take a one-month European vacation. The insurance company believes her vacation delayed the book store resuming operations. As a result, it reduces its payment for loss of income by at least that one month of her vacation.

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d. If the direct damage loss that caused the named insured’s business income loss also caused a situation in which the named insured could have increased its earnings if had been able to operate following the loss, this coverage does not include that increase.

Note: This income would be considered windfall income.

 

HardwareLarge

Example: A tornado destroys Ginormous Hardware Outlet and Building Supply. Because the store cannot reopen, it misses the increase in sales from residents rebuilding and repairing their homes and businesses that the tornado also damaged. Ginormous cannot include the potential increase in sales in its earnings calculation.

 

Related Court Case: Earnings Insurance Held Not Applicable When Motel Was Not Closed

Extra Expenses

This coverage pays three types of extra expenses:

Note: These are not the ordinary expenses described in Earnings. These are expenses incurred above and beyond ordinary expenses to help propel the business back into operation.

 

If extra expense is used to purchase property for temporary use, the salvage value of that property is deducted from the extra expense payment.

Additional Restrictions

The following restrictions apply in addition to the restrictions listed under Coverage C–Loss of Income:

a. The named insured is expected to be prudent. If the named insured can resume any or all operations but chooses not to, this insurance will not pay for an increase in the loss because of that refusal.  

b. Coverage is limited to only necessary extra expenses that are incurred during the period of restoration.

c. The insurance payment is for the amount of time that the named insured should have needed to resume operations. If the named insured chooses to not resume operations or delays operations, only the amount of loss that should have been incurred is paid.

 

Examples:

Scenario 1: OK Printing sustains a covered loss. The equipment it needs to resume operations is not available for three months but the work can be subcontracted to others for an additional cost for the three months. This extra expense is paid.

Scenario 2: Changing the scenario, OK Printing cannot operate without its presses and its business operations are suspended. The new presses ordered from Regions Machinery will take six months to arrive. The suspension costs the insurance company $50,000 per month. Regions Machinery offers a priority service that will reduce the wait period to three months, subject to a $20,000 surcharge and $25,000 in additional freight charges. The insurance company agrees to pay these costs because it reduces its expected loss from $150,000 to $45,000.

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Related Court Case: Extra Expense Coverage Endorsement Held Inapplicable

Exclusions and Limitations

The exclusions and limitations described below apply to Coverage C–Loss of Income.

1. Fire Extinguishing

Coverage does not apply to expenses to fight fires.

2. Leases, Licenses, Contracts, or Orders

There is no coverage for the increased amount of loss because a lease, license, order, or contract is suspended, lapses, or is cancelled during the period of restoration.

The only exception is if the suspension, lapse, or cancellation resulted from the interruption of normal business activities. The Period of Loss Extension also applies to this exception.

Extra expenses are paid for the covered suspension, lapse, or cancellation only during the restoration period.

 

Example: KB has a contract to supply Larry’s Retail with up to 10,000 units during a given year. KB’s roof collapses one month after the contract takes effect and it does not deliver any units during the three-month restoration period. Larry cancels the contract. The insurance company pays for the loss of earnings from the number of units that would have been sold during the restoration period had the contract remained in effect. It does not pay for sales that could have been anticipated after the restoration period and any applicable period of loss extension if the contract had remained in force.

 

3. Strikes, Protests, and Other Interference

The restoration period is not extended if a strike, protest, or similar activity at the premises interferes with rebuilding, replacing, or repairing damaged property.

Note: This means that the insurance company does not pay for that increase of loss of earnings.

 

ClothingStore

Example: Stephanie’s clothing store is damaged when an automobile involved in a police chase crashes into it. The police arrest the auto's occupants, but one dies during the process. Numerous individuals visit the crash site every day to protest the police brutality. The protests make contractor access to the premises impossible and repairs cannot be made. Because the protests last ten days, Stephanie is not paid for the ten days of lost earnings.

4. Unnecessary Expenses

The insurance company does not pay for any expenses that the named insured incurs during the period of restoration that the insurance company believes are unnecessary.

LOSS OF INCOME COVERAGE EXTENSIONS

The following Loss of Income Coverage Extensions are part of the applicable Loss of Income coverage limit, not in addition to it.

1. Alterations and New Buildings

Loss of Income coverage extends to loss or damage caused by or that results from a covered peril at the described premises to the following:

a. Additions or alterations

b. New buildings or structures under construction (or already completed)

c. Equipment, machinery, materials, or supplies that are on the premises or within 100 feet of it. This applies only for such items that are to be used in the construction of a. or b. above or are incidental to the new building(s) being occupied.

If the loss or damage delays the beginning of normal business operations, the restoration period begins when such operations would have begun had there been no loss.

 

Example: The kitchen cabinets for the apartment units are received and stored in a storage shed on premises. Lightning strikes the shed and destroys all the cabinets. Replacing them sets the opening day back 30 days. The 30 days loss of income is a covered loss.

 

2. Fungus and Related Perils

Coverage applies for a cumulative period of up to 30 days to loss caused by the presence and/or any activity of fungus or related perils when it is a direct result of a covered peril. This Coverage Extension does not include fire and lightning as covered perils because fungus from fire and lightning is not excluded.

Note: There are some confusing aspects of this extension that may have to be examined:

3. Interruption by Civil Authority

Loss of Income coverage extends to include losses caused when a civil authority denies access to the described premises. The civil authority’s decision to deny access must be the result of damage to property at other than the described premises. This coverage applies only if a peril that this policy covers causes the damage. However, coverage is subject to both of the following provisions:

a. The described premises must be within one mile of the damaged property. It must also be inside the area to which access is denied.

b. The order must be issued because of one or both of the following:

Note: This change significantly reduces coverage. The previous edition did not have any restrictions as to the distance the described premises had to be from the damaged property. This one-mile limitation may be of special concern in rural areas with limited access to roads and bridges.

 

Example: Millie owns a bait shop near Stonelick Lake. A wildfire starts in a nearby forest and all access to Stonelick is restricted to only emergency vehicles. The fire does not damage Millie’s bait shop, but it loses two weeks of income during the period of restricted access. The previous edition provided coverage in this situation. The current edition does not because the wildfire was more than one mile away.

 

Waiting Period and Time Limitation

Earnings Coverage applies for up to four consecutive weeks after the date of the order. However, Earnings Coverage does not begin until 72 hours from the date this coverage begins.

 

Example: A riot two blocks from Joseph’s Stop and Shop starts at 9:00 p.m. on a Tuesday. Civil authorities shut down all access to the area at 8:00 a.m. the next morning and close all streets that offer access to Joseph's 24-hour convenience store. The looting continues, and the streets remain closed until the order is lifted at 8:00 a.m. on Saturday morning. During this time, Joseph is unable to find suitable inventory or a temporary location for its operations outside the riot zone. Joseph’s loss of earnings is $8,500 per day but the insurance company does not pay anything because the order was not in effect more than 72 hours.

 

Extra Expenses coverage begins when the civil authority issues the order that denies access to the premises. It ends either four weeks after the date of the order or when Earnings coverage expires, whichever is later.

 

Example: Joseph is quite the entrepreneur. He knows that, even during a riot, people need food, drink, and various types of supplies. He quickly rents a food cart and stocks it with inventory he moved out of his store. Extra expense coverage pays for the cost of the food cart and any other expenses above his normal expenses that he incurs to remain in operation. Because there is no waiting period, all the expenses are paid.

 

4. Period of Loss Extension (BP 0816 change)

A business that reopens following a loss can expect a time lag before it resumes a normal revenue stream. However, loss of income coverage ends as soon as it can resume operations. This extension extends the earnings part of the loss of income coverage for the lesser of 60 days or the number of days needed for business activities to return to the level that existed prior to the loss. The 60 days can be increased.

This additional coverage does not necessarily begin when business income coverage ends. It begins when the damaged property is rebuilt, repaired, or replaced and operations resume. Business income coverage ends when damaged property should have been rebuilt, repaired, or replaced without stating that operations are resumed. As a result, there might be a gap between the time that business income coverage ends and the time that the extended business income coverage begins.

 

Example: Hank's Hardware has a fire loss. He cannot find a substitute location and the restoration takes five months. During this time, Hank's customers take their business to Stan's Structural Stuff in the next town. After the restoration period ends, Hank's seasonally adjusted traffic is only half of what it was before the loss and he increases his advertising to get his old customers back. The insurance company pays the difference in earnings until business returns to normal or for 60 days, whichever is less.

 

a. This coverage does not apply when the reason he business activities have not returned to pre-loss level is because the peril that caused the loss of income caused damage in a widespread area resulting in overall unfavorable business conditions.

 

Example: Let’s revisit Hank’s example above. Hank resumes business after five months and the revenue is half of what is was before the loss. However, the reason is not that customers went to Stan’s. Instead, it is because many of his customers are still arguing with insurance adjustors about rebuilding following the tornado. They do not have any money until the claims to fix their homes are resolved and they are not improving their homes because of the extensive work that is needed. Because the loss of revenue is due to the current economic conditions, Hank is not eligible for extended coverage.

 

b. The term “damaged property” does not include finished stock. This means that this coverage begins even if the finished stock has not been replaced.

 

ADDITIONAL LOSS OF INCOME COVERAGES

The following Additional Loss of Income Coverages provide additional amounts of insurance.

1. Destruction of Data Records and Programs

Note: This is not new coverage. It is offered because Loss of Income coverage now excludes it. This means coverage was removed and a much lower amount of coverage with limited perils is now provided as an additional coverage. A further reduction of coverage is that the coverage is now provided on only an annual aggregate basis instead of the standard occurrence basis.

When a covered peril causes loss, damage, destruction, or corruption of programs and applications, proprietary programs, and data records coverage is provided for the resulting loss or earning or extra expense.

a. The perils the policy covers do not apply. The only covered perils are the specified perils, computer hacking, computer virus, and Additional Coverages 2. Collapse.

b. There is no coverage if the damage is caused by or is a direct result of an employee or volunteer, manipulating the computer system. The employee may be full time, leased or temporary. There also no coverage if the computer manipulation was by an individual or organization hired by the named insured to provide computer-related services. 

c. Any additional peril(s) endorsed to the policy do not apply to this Additional Loss of Income Coverage.

This Additional Loss of Income Coverage does not apply when a loss occurs, or expenses are incurred after the end of the restoration period. This limitation applies even if the limit for this coverage has not been exhausted.

The most the insurance company pays in any one policy period is $10,000. This is an annual aggregate. It applies regardless of the number of computers, premises, or interruptions.

2. Earnings from Dependent Locations (BP 0816 change)

This coverage pays the named insured's loss of earnings because a dependent or a secondary dependent property sustains a direct damage loss from a peril this policy covers. It also covers extra expenses the named insured may incur due to the same type of loss.

There are three restrictions:

 

Example: Ashland Floral receives all its orchids from Exotic Orchids. A fire destroys Exotic’s main green house. Ashland’s income drops because it cannot provide many of the more popular flowers. This Additional Coverage pays for that loss of income but only after the first 72 hours of the loss.

If Ashland can obtain comparable orchids from another source, it must do so, or its loss of income loss is reduced.

 

a. This coverage begins 72 hours after the direct physical loss or damage to the dependent or secondary dependent location. It ends when the property at the dependent or secondary dependent location should have been rebuilt, repaired, or replaced if reasonable speed and materials of similar quality had been used.

b. The time period is not extended because of enforcing any codes, ordinances, laws, or decrees that regulate any of the following:

The policy’s expiration date does not limit the coverage period.

The most this coverage pays for any one loss is $5,000. Higher limits are available.

3. Newly Acquired Locations

Loss of earnings or extra expense because of loss or damage to property that is at a location acquired by the named insured is covered if the loss or damage is due to a covered peril. This applies only if the location is within the basic territory.

Coverage applies for up to 30 days after the property is acquired. This restriction is in addition to other policy restrictions that apply to Earnings and Extra Expenses.

This is not free coverage. Once reported the items are added to the policy as of the acquisition date and premium must be paid. The maximum paid for earning and extra expense is $100,000.

Note: This applies only to property at acquired locations. This means this does not mesh exactly with the newly acquired building and business personal property extensions. There is no coverage loss of income due to loss of earnings or extra expense for new buildings or structures or additional personal property at existing locations.  

PERILS COVERED (BP 0816 CHANGES)

Perils Covered applies to Coverage A–Buildings, Coverage B–Business Personal Property, and Coverage C–Loss of Income, unless otherwise stated.

The insurance company covers direct physical loss or damage. This broad statement is modified that loss may be limited and that loss caused by an excluded peril is not covered.

Note: This means that coverage applies if covered property sustains any direct physical loss or damage. This inclusive statement must be modified because no insurance company can afford to pay for all physical damage. To determine what is covered, Perils Excluded and Additional Exclusions must be examined.

Related Court Case: No Coverage without Direct Physical Loss from an Efficient Proximate Cause

PERILS EXCLUDED

If one or more of the following 10 exclusions cause loss or damage, the insurance company will not pay for it. This statement applies no matter what other events may have contributed to the loss or damage or may have caused that loss or damage to be worse. The statement applies if those other events occurred before the excluded event, during the event or following it.

1. Civil Authority

There is no coverage for loss or damage that results from an order of any civil or government authority. Examples of such orders are seizure, confiscation, destruction, or quarantine of property but are not limited to just these. Coverage does apply for loss or damage caused when a civil authority orders that property be destroyed to prevent a fire from spreading. However, coverage applies only if that fire is the result of a covered peril.

Note: Coverage for Interruption by Civil Authority at locations away from the described premises that prevents access to the insured's premises by its customers is available as a Loss of Income Coverage Extension.

2. Earth Movement (BP 0816 change)

There is no coverage for loss or damage caused by any earth movement.  This applies when any of the following apply:

There are four exceptions:

Note: Without this 168-hour grace period separate deductibles would be applied to each eruption and a new set of limits would be available for each occurrence. Because this is not practical, the arbitrary 168-hour time period provides at least a logical grouping of claims.

3. Fungus or Related Perils

There is no payment for loss, cost, or expense when caused by or in some way is related to the existence or any activity of fungus or related perils.

There are five exceptions.

4. Nuclear Hazard

The insurance company does not insure against loss or damage when it is either caused by or is the result of a nuclear reaction, radiation, or contamination. This exclusion applies however it was caused and regardless of whether the nuclear incident was controlled. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke.

The only exception is for direct loss or damage caused by fire when the fire resulted from the nuclear hazard.

5. Ordinance or Law

The insurance company does not pay for loss or increased costs that occur when codes, ordinances, laws, or decrees that regulate construction, use, or repair of any building or structure are enforced. This also apples when any of these require property to be demolished and its debris removed.

The only exception is the limited coverage found in Additional Coverages Increased Costs–Ordinance or Law.

The exclusion always applies. This means that there is no coverage if the enforcement occurs when there is no loss or damage and it applies following a loss so that it increases the cost to rebuild or replace.

 

Example: Marilyn builds a frame addition to her brick restaurant. She and her husband do all the work and do not apply for a permit.

Scenario 1: Marilyn's neighbor becomes upset and complains to the city because the addition obstructs his view. City officials visit the site and inform her that city codes do not allow frame structures to be used with restaurants. The officials then order that the addition be destroyed. This loss is not covered.

Scenario 2: A kitchen loss occurs. The general contractor applies for a permit to repair the kitchen and is informed that the frame kitchen must be removed and replaced with a brick kitchen. The kitchen loss is covered but the cost to remove the undamaged part of the frame restaurant and clearing its debris is not covered. The difference in cost between re-building the damaged portion of the building with brick instead of frame is also not covered.

Restaurant

6. Utility Failure

There is no coverage for loss or damage caused by failure or disruption of power, water, communication, or other utility services supplied to the described premises. This exclusion applies only when the failure or disruption originates at one of the following:

a. A location that is not the described premises

b. The described premises subject to the failure being due to equipment the utility owns and which it furnishes to the described premises to provide it with the utility service.

The following two definitions are provided within this exclusion:

There are two exceptions:

 

 

Transformer

Examples:

An electrical transformer explodes after lightning strikes the pole to which it is attached. The explosion sends an electrical surge into the building and starts a fire that destroys sensitive electronic equipment, including computers.

Scenario 1: The pole is 20 feet away from the Life Station premises. Coverage applies to the loss or damage to the computers but does not apply to the electronic equipment. If the power surge causes a fire, the resulting damage from the fire is also covered.

Scenario 2: The pole is on the Life Station premises. There is coverage for the computers and electronic equipment If the transformer is the named insured’s property. If the utility supplies the transformer, the situation is identical to Scenario 1.

 

7. Virus or Bacteria

Note: Although this exclusion is called the virus or bacteria exclusion, it is microorganism exclusion. Virus and bacteria are merely two examples of microorganisms.

Coverage does not apply for loss, cost, or expense that is due to any microorganism.

The microorganism must meet both of the following criteria:

This is a far-reaching exclusion. Loss, cost, or expense resulting from any of the following is not covered:

Loss, cost, or expense resulting from fungus or related perils are not excluded under this exclusion because those are specifically excluded in exclusion 3. above. If other exclusions could apply to loss, cost or expense that is excluded in this exclusion their terms are specifically superseded. This is important because those other exclusions may have exceptions that are not available in this exclusion.

8. War and Military Action

There is no coverage for any loss or damage caused directly or indirectly by any act of war.

Loss or damage from any of the following activities is excluded:

a. War and this includes civil war and undeclared war

b. Warlike action when such action is from any military force. Action that is taken to stop or hinder the actual or expected warlike action is also excluded. The military force must be part of a governmental, sovereign, or other authority that is using the military personnel or agents.

This last sentence is very important because without it coverage for riot and civil commotion could be excluded.

Example: Frederick has an impressive arsenal at his home. He even owns a tank. He drives his tank to the courthouse one day and threatens to shoot at it unless he is exempted from the local property tax. He is not happy with the response and chooses to fire a round. Although the act could be considered warlike, the damage to the retail store from the errantly fired round struck that was insured under a Businessowners Policy is covered because Frederick is not a governmental authority.

 

c. Insurrection, rebellion, revolution, usurped power, or action a governmental authority takes to hinder or defend against these

Note: This exclusion does not have any exceptions. All loss or damage is excluded. If an action could be considered both war and nuclear hazard, the war exclusion applies instead of the nuclear hazard exclusion.

9. Water (BP 0816 changes)

a. The insurance company does not pay for loss or damage caused by any of the following:

Examples of such wind-driven water that the two bullets above describe are storm surge, storm tide, and tidal surge but any other wind-driven water is also excluded.

b. This exclusion applies in both of the following cases:

There are two exceptions:

 

Example: Muddy Creek rises unexpectedly and floods Kathy’s Restaurant. The cook is so surprised that he forgets to turn off the oven and the burners on the stove when he flees. The flood extinguishes the fires on the burners but does not stop the flow of gas. When power is restored the next day, it causes a spark that ignites the gas and causes an explosion. The loss or damage the explosion causes is covered, even though flood was the proximate cause of loss.

 

Note: Coverage is available for some of the exclusions. BP 0330–Water Backup and Overflow Coverage is available for use with this policy. Flood insurance is available through the National Flood Insurance Program (NFIP).

Related Article: Overview of the National Flood Insurance Program

Related Court Case: Water Damage Excluded As "Flood" Loss Though Sewer Backup Contributed

10. Weather

Loss or damage that weather conditions cause is excluded. However, this applies only when the weather contributes in any way with a cause or event that any of the nine exclusions above exclude.

However, there is an exception. A covered peril may cause a loss and weather may contribute to that loss. In that case, coverage applies unless the loss itself is excluded for another reason.

 

Example: Torrential rainfall causes the Old Dam to give way, flooding Henry’s office building. Because flood is excluded, coverage does not apply to Henry’s loss, even though weather conditions could be considered the proximate cause of loss. However, when Henry’s steam boiler explodes because the flood disrupted the flow of the fuel, the loss or damage the explosion causes is covered.

 

ADDITIONAL EXCLUSIONS

The insurance company does not pay for loss or damage if one or more of the following exclusions apply to the loss.

Note: This lead-in language should be compared to the lead-in language in Perils Excluded above. It is much less restrictive. This means that the following exclusions are less absolute.

1. Animals

There is no coverage for loss or damage caused by nesting, infestation, discharge, or release of waste products or secretions by animals. Birds and insects are considered animals in this exclusion. There are two exceptions:

·         If such a loss or damage results in building glass breaking or a specified peril, the damage from that resulting peril is covered.

·         No part of this exclusion applies to hardware.

Note: This exclusion relates to damage caused by animals, not to animals. Because it applies to only certain types of damage, other types of damage that animals cause is covered.

 

Examples:

  • A raccoon takes up residence in a vacant building. The damage that the raccoon’s waste and other bodily secretions cause is not covered. However, when it crashes through the glass window to escape when the building owners return, the glass damage is covered.
  • A family of squirrels takes up residence in the attic of Sam’s Drug Store. There is no coverage for the infestation but there is coverage for the fire damage caused when a squirrel chews through a wire and causes a fire.

 

2. Collapse

Note: This exclusion has many terms that are used in Additional Coverages 2. Collapse because they are meant to blend together so that coverage applies to many types of collapse. Loss or damage is not covered when collapse, caving in, or impaired structural integrity is involved. Leaning, bending, sagging, bowing are examples of what is not covered. Other examples are when parts of the property separate or when the load bearing capacity of a structure is considered to be inadequate.

There are three exceptions.

 

Example: Harry’s porch suddenly separates from his house. The separation causes an electrical spark that causes smoke and fire. The damage that the smoke and fire causes is covered. The separation loss is not covered.

 

o    Specified perils or building glass breaking but only if this policy otherwise covers the specified peril or building glass breaking

 

Example: Vandals take delight in knocking out beams in the two-story building. The building starts to creak, and they run out just as it collapses. This loss is covered because vandalism is a covered peril. However, the collapse is not covered if vandalism is not covered because the vacancy restriction applies.

 

o    Weight of personal property or people

o    Weight of rain that accumulates on a roof

3. Computer Virus or Computer Hacking (06 12 changes)

Coverage does not apply when computer virus or computer hacking cause any of the following:

a. Direct or indirect loss or damage

b. Loss of access, use, or functionality

The excluded virus or hacking loss or damage may be to the named insured's computers, computer network, or web site due to a computer virus or computer hacking. However, coverage is not limited to only these items.

There is one exception. It is the coverage provided under Extensions of Coverage–Data Records and Programs and Additional Loss of Income Coverages–Destruction of Data Records and Programs.

4. Contamination or Deterioration

There is no coverage for loss or damage when property is contaminated, or it deteriorates. Examples are corrosion, rust, or any quality, fault, or weakness in property that causes it to damage or destroy itself.

There are two exceptions, as follows:

 

Examples:

  • Green wood is used to construct a building. The subsequent shrinkage of the wood distorts the walls and cracks the plaster. There is no coverage because green wood naturally shrinks as it dries.
  • The sign outside the building gives way because rust eats away the supports. There is no coverage for the sign, but coverage applies to the glass damage the sign causes as it crashes into the building’s front window.

                       

 

Example: A wild car chase through town on a Friday night results in multiple damages. One of them is the air conditioning unit that was outside of Billy’s office building. Billy was surprised when he arrived at his office on Monday to discover an overheated computer system because the air conditioning system had been out since Friday night. The damage to the computer system is covered.

 

5. Criminal, Fraudulent, Dishonest, or Illegal Acts (BP 0816 change)

Loss or damage caused by criminal, fraudulent, dishonest, or illegal acts by any of the following is excluded. The acts are excluded if they are committed by only one of them or are committed in collusion with others on this list or with those not on the list:

a. The named insured

b. Any party that has an interest in the property

c. Anyone who, with the named insured’s permission, is holding the property for safe keeping

d. The named insured’s officers, directors, trustees, joint venturers, members, and managers

e. Employees or agents of any of the above

This exclusion applies whether such acts occur during work hours.

 

Example: Penelope is an employee of Jolly Rogers.

Scenario 1: Penelope takes money from her cash register and puts it in her pocket every time she makes change for a customer. This loss is not covered.

Scenario 2: Penelope works with a group of friends. When she checks them out, she returns incorrect change. They split the proceeds after work. There is no coverage.

Scenario 3: Penelope and a friend break into the store on a weekend when she is not working and steal property. There is no coverage.

 

This exclusion does not apply to the following acts of destruction:

 

Example: During a riot, an employee of Margo’s Cleaners steals money from a cash register, damages the store area to make it look like rioters did it, and sets a small fire to cover the crime and add to the realism. The employee is subsequently captured but the money has been spent and is not recovered. The damage to the store and from the fire is covered but the theft of the money is not.

 

6. Data and Computer Errors

Coverage does not apply to loss or damage caused by an error or omission in any of the following:

a. Data records storage, processing, or programming

 

Example: Kraven decides to store records on the cloud and eliminate storage on hard disks. He forgets to pay a few bills and the data stored is eliminated, according to the cloud storage service agreement. There is no coverage.

 

b. The Installing, repairing, modifying, testing, designing, or specifications of the named insured’s computers

 

Example: Kraven receives a phone call that alerts him to the fact that his computer has a bug. He follows the caller’s instruction to “fix” the problem and it just becomes worse. He continues to talk with the scammers to “fix” the problems. The resulting bill for $6,000 is not covered and any further damage the scammers caused is also not covered.

 

There are two exceptions.

7. Defects, Errors, or Omissions

There is no coverage for loss or damage that results from any of the following:

a. Acts, errors, or omissions within this paragraph. These can be on or off the premises and can be considered either negligent or not. They are excluded if they relate to any type of land use. Also, if they relate to the design, specifications, construction, repair, modification, workmanship, installation, or testing of property. Acts, errors, or omissions related to planning, zoning, development, siting, surveying, grading, or compacting are excluded. Finally acts, errors or omission related to the maintaining of the property and its land, structures, or improvements is excluded.

 

Example: Great Furniture’s building was constructed on improperly graded land. During a series of torrential spring rains, the ground softens and moves, causing the building foundation to shift and the walls and floor to crack. There is no coverage because the grading was improper.

 

b. Defects, weaknesses, inadequacies, faults, or unsoundness in the materials that are used to construct, modify, or repair property. The construction, modification or repair may take place either on or off the described premises.

c. Copying or processing errors or omissions. This applies to only valuable papers and records.

d. Any costs that are required to make good or correct design errors

e. Errors or omissions that any organization, group, person, or other party makes that have a negative effect on the form, function, quality, or nature of any goods, products, or merchandise or any of their parts

The above exclusion e. applies to any error or omission that occurs at any time to such goods, products, or merchandise or any of their parts during any of the following times:

This exclusion also applies regardless of the person or party responsible for the error or omission. This includes even applies to those who have possession of the property under a subcontracted or outsourced work arrangement.

Example: Makem Fun Toys receives a shipment of toys from overseas. It tests the necklaces and discovers that the level of cadmium exceeds federal standards. Makem’s supplier refuses to take back the shipment and demands payment instead. Makem sustains a significant loss because it cannot sell the items. It must also defend itself against the demand for payment. There is no coverage because the processing of the product caused these losses. It is excluded elsewhere in the policy as well as here.

 

To the extent that Additional Coverage–Collapse provides coverage, this exclusion does not apply to collapse that using defective materials or methods in construction, renovating, or remodeling (or after such work is complete) causes.

There is a final exception. If any of the items described above result in a covered peril, the loss or damage from that covered peril is covered.

8. Electrical Currents

Editorial Note: The punctuation in this exclusion results in two different ways to interpret it. As editors, we believed presenting both options is important for the reader to consider.

Electrical Currents -- "We" do not pay for loss or damage caused by manmade or mechanically produced electrical, electromagnetic, or magnetic currents or energy; or by their arcing, that results in damage or disruption to: a. electrical or electronic wiring, networks, systems, appliances, or devices; or b. networks, systems, appliances and devices which utilize wireless, microwave, satellite, or cellular technologies. However, if a fire results, "we" do pay for the loss caused by fire. In this exclusion, electrical, electromagnetic, or magnetic currents or energy includes, but is not limited to: 1) the flow of electricity and its' arcing; 2) electromagnetic energy pulses; 3) electromagnetic waves (microwaves); or 4) the electrical charge generated by or conducted through a magnetic or electromagnetic field. This exclusion does not apply to "computers."

Option #1

The insurance company does not pay for loss or damage caused by manmade or mechanically produced electrical, magnetic, or electromagnetic currents or energy.

It also does not pay when arcing by any of the above results in damage to or disruption of any of the following:

a. Systems, devices, appliances, or networks that are electronic or electrically wired

b. Systems, networks, devices, and appliances that do not depend on electronic or electric wiring that use cellular, satellite, wireless, or microwave technology instead

Option #2

The insurance company does not pay for loss or damage caused by manmade or mechanically produced electrical, magnetic, or electromagnetic currents or energy and any arcing when there is damage or disruption to any of the following:

a. Systems, devices, appliances, or networks that are electronic or electrically wired

b. Systems, networks, devices, and appliances that do not depend on electronic or electric wiring that use cellular, satellite, wireless, or microwave technology instead

These two options are identical with respect to arcing but not with respect to the other current or energy. Under Option #1, the loss or damage from the various currents or energy is not modified. This means that all such damage is excluded. Under Option # 2, only the loss or damage that is a result of the different currents or energy disrupting or damaging the various wired and wireless items described is excluded. As a result, the first option is more restrictive than the second.

Regardless of which option applies, this exclusion has the following two exceptions:

Electrical, magnetic, or electromagnetic energy or currents as this exclusion defines includes the following but is not limited to just these:

 

Example: Jerry blows a fuse and does not have another one handy, so he inserts a metal coin instead and keeps working. The subsequent electrical arcing destroys the fuse box, the wiring, and Jerry’s computer. There is no coverage for the loss or damage to the fuse box or to the wiring but the damage to Jerry's computer is covered.

 

9. Electrical Damage 

Coverage does not apply to loss or damage that electrical or magnetic damage, disturbance, or erasure causes to data records, applications, and programs. There are two exceptions:

10. Explosion

This exclusion applies only to equipment that is either owned by the named insured or that is leased and/or under the named insured’s controls.

Loss or damage caused when steam boilers, steam pipes, steam turbines, or steam engines that the named insured owns, leases, or operates explode is not covered. There are two exceptions:

 

Examples:

  • The fuel mixture setting is not properly adjusted, and the fuel mixture becomes too rich. Unburned fuel accumulates in the flue and explodes. Coverage applies to the damage the explosion causes.
  • The exhaust fan belt breaks, exhaust and fumes accumulate, and the boiler explodes. The damage the belt failing causes is excluded. The damage the resulting explosion causes is covered.

 

11. Freezing

There is no coverage for loss or damage caused by water, other liquids, powder, or molten material that leaks or flows from plumbing, heating, air-conditioning systems, appliances, or other equipment due to freezing. There are four exceptions.

o    Computers

o    Fire-protective systems

 

Example: Brington has a main building and a separate unheated detached garage. Both buildings have plumbing systems. An ice storm causes the power lines to snap and fall and the pipes to freeze and Brington cannot get to the buildings to arrange for substitute heating. The frozen pipes in both buildings burst when power is restored and water damages both of them. The damage to the main building is covered because it had regular heat. The damage to the unheated garage is not covered.

 

Related Court Case: Water Damage Loss Held Not Subject to Freezing Exclusion

12. Indirect Losses

There is no coverage for loss or damage that results from delay, loss of use, or loss of market.

This exclusion does not apply to Coverage C–Loss of Income.

13. Mechanical Breakdown

Loss or damage due to mechanical breakdown is excluded. Loss or damage due to centrifugal force that causes moving parts of machinery to rupture or burst is also excluded. There are three exceptions:

·         Resulting glass breakage is covered.

·         Loss or damage caused by a resulting specified peril is covered.

·         No part of this exclusion applies to hardware.

 

Example: The centrifuge in Leopold's Laboratory rotates out of round, cracks, and explodes, spewing pieces of metal and quantities of chemicals throughout the laboratory. One piece of metal breaks out a window and another knocks over a Bunsen burner, causing a small fire. The broken window and the fire damage are covered but the damage by the airborne chemicals and other damage from the flying metal is not.

 

14. Neglect

Coverage does not apply if the named insured does not do everything reasonable to save covered property at the time of loss and afterwards. This exclusion also applies if the named insured does not act to protect property when a covered peril endangers covered property.

Note: The named insured is expected to act in a reasonable way to protect its own property.

 

Example: A fire badly damages the building that Bubbaz Bolts occupies but little business personal property is damaged. The roof is mostly burned off and heavy rain is predicted during the night hours. However, Bubbaz does not do anything to save, protect, move, or cover the undamaged property to reduce the chance of further loss to it. The rains arrive as promised, on time and in heavy amounts, and the water seriously damages the undamaged property, making it mostly unsalvageable. The fire damage to the building and business personal property is covered. The subsequent water damage to the previously undamaged personal property is not.

 

15. Pollutants

There is no coverage for loss or damage when it is caused by or results from any release, discharge, seepage, migration, dispersal, or escape of pollutants.

There are two exceptions to this exclusion.

 

Example: A leak from an automatic sprinkler head (a covered specified peril) fills the open acid tank below it and causes the tank to overflow and spill acid. This results in damage to the floor and some equipment. The pollution exclusion does not apply and the loss to the floor and equipment is covered.

 

16. Seepage

Coverage does not apply to loss or damage that occurs because water continuously or repeatedly seeps for 14 days or more. This exclusion also applies to the existence of vapor, humidity, or moisture that occurs over periods of 14 days or more.

 

100_8091

Example: Moyer Construction stores tools and equipment in the back of the building that it uses only in the summer months. Janice goes to the back of the building to pick out a few items and notices water damage to most of the equipment, the wall, and the floor. She notices that a single drop comes from the water pipe and then a second drop. She estimates that the pipe must have been leaking for at least the past two or three months. Because of this exclusion, none of the damage is covered.

 

17. Settling, Cracking, Shrinking, Bulging, or Expanding

Loss or damage caused when pavement, footings, foundations, walls, ceilings, or roofs settle, crack, shrink, bulge, or expand is excluded. There are two exceptions:

There are two exceptions.

 

Example: The gradual settling of Fred's foundation causes a gas main to move, loosen, and then release gas that the adjacent welding operation ignites. This ignites a small fire that involves combustibles stored nearby. The damage to the building as a result of the foundation settling is excluded but the fire damage (a specified peril) is covered.

 

Related Court Case: Settlement Damage Held Excluded Despite Earth Movement Coverage Endorsement

18. Smog

Loss or damage caused by smog is excluded. There is one exception.

No part of this exclusion applies to computers.

Note: Smog is fog that has become mixed and polluted with smoke.

19. Smoke, Vapor, or Gas

When smoke, vapor, or gas produced by industrial operations or by agricultural smudging cause loss or damage, that loss or damage is excluded. There is one exception. Computers are not subject to this exclusion.

Note: Agricultural smudging is an operation performed by filling an area (such as an orchard) with smoke from a smudge pot that burns kerosene to prevent damage from insects, frost, or freezing.

 

Example: The smudge pots in the apple orchard next to the Apple Restaurant are going full blast because of warnings of freezing predicted to occur overnight. The prevailing winds blow the smoke from the pots directly over the restaurant. Freezing rain mixes with the smoke from the pots and forms an acid that falls on the rubberized flat roof of the building, ruining the rubber and creating openings in it. The damage to the roof is excluded because the smudging operations caused it.

 

20. Temperature/Humidity

When dampness, dryness, changes in, or extremes of temperature cause loss or damage to business personal property, there is no coverage.

There are two exceptions:

·         When resulting building glass breaking or specified peril causes loss or damage, that resulting damage is covered.

·         Loss or damage to the hardware that is caused by temperature or humidity is covered if the temperature or humidity change is caused because of a covered direct physical loss or damage to the air-conditioning system that services it.

Note: BP 0327–Spoilage Coverage insures a number of change of temperature situations and losses.

Related Court Case: Spoilage from Power Failure Not Covered Without Endorsement

21. Voluntary Parting

There is no coverage for loss of covered property when that property was voluntarily given to others. Coverage does not apply even if the surrender was due to a fraudulent scheme, trick, or false pretense.

 

Example: Sara works with George almost two weeks trying to bring a sale together. George is almost convinced and asks if he can test the property before finalizing the deal. He gives his driver’s license to Sara as security before leaving with the property. He does not return with the property and she discovers that the driver’s license is phony. The loss of the property is not covered.

 

22. Wear and Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded because such loss or damage is considered a cost of doing business. There are three exceptions:

 

WHAT MUST BE DONE IN CASE OF LOSS

The named insured must perform certain acts after a loss. Failing to do so may result in an otherwise covered loss not being paid.

1. Notice

The named insured must give the insurance company or its agent prompt notice of a loss. The notice must include a description of the property lost or damaged. The appropriate law enforcement agency must also be notified if a criminal act caused the loss.

The insurance company has the right to require that the notice be in writing.

 

Examples:

  • Foley’s building has a fire and Foley submits a notice of loss to the insurance company as required. The fire department informs Foley that it believes that arson may be involved. In this case, Foley must also notify the police department.
  • Fernando discovers that children are vandalizing his business. Instead of reporting them and the incident to the police, he takes the children to their parents, informs them of the situation, and then both he and the parents counsel the children. Fernando even has the children return to the business location to repair the damage they did. Fernando then submits a written notice and proof of loss for the vandalism loss. The insurance company could deny the claim because it involved a crime that was not reported to the police.

 

2. Protect Property

The named insured must take all reasonable steps to prevent damage to property following a loss. The insurance company has the responsibility to pay reasonable costs that the named insured incurs for necessary repairs or emergency measures it takes. The only repairs and emergency measures that are paid are those that are incurred solely to protect covered property from further damage by a covered peril. Amounts the insurance company pays do not increase the limit for the covered property.

Note: After a loss, the named insured must act as if there is no insurance and take every step possible to avoid further damage to covered property. This could involve making temporary roof repairs after wind and rain damage or boarding up windows to prevent looting after a vandalism loss. Reasonable costs are reimbursed but costs that exceed what is needed may not be paid.

 

Example: A thunderstorm with high winds and accompanied by hail damages the walls and roof of Buster's building, as well as some business personal property inside. Buster moves undamaged goods away from the damaged area, patches the roof, and braces and boards up the walls to minimize further damage until permanent repairs can be made. These repair costs are covered. If such actions are not taken, further damage to the building and business personal property is not covered.

ColoradoFirePan_3

 

The insurance company does not pay for emergency measures taken or for any repairs made to property not yet damaged by a covered peril or that was damaged by an excluded peril.

Note: This means that the insurance company does not pay for expenses incurred before a covered loss occurs, such as boarding up doors and windows in advance of a hurricane. It also does not pay for any emergency measures following a loss that an excluded peril causes.

3. Proof of Loss

The named insured must submit a proof of loss within 60 days after the insurance company requests it. It must be signed and include the following information:

a. The time, place, and details of the loss

b. Disclosure of any other coverage or insurance policies that may apply to the loss

c. The named insured's interest in the damaged property. Others with interest in the property, such as mortgagees and lienholders, must also be provided.

d. Any changes in the title or in the use of the covered property that took place during the policy period

e. Estimates for repairing or replacing the property. These estimates are expected to be provided in detail.

f. If available, the plans or specifications that are to be used in rebuilding or replacing the damaged buildings or structures.

g. Estimates of loss of income and expenses. These estimates are expected to be provided in detail.

h. Inventories of property. This involves not only an inventory of the damaged personal property but also of the undamaged personal property. Any uncovered property is not to be included in the inventory. Quantity, description, cost, actual cash value, and amount of loss must be included. Documentation must be provided such as copies of bills, receipts, and other similar supporting information

If the claim is for less than $10,000 and is also less than 5% of the total limit, the undamaged personal property inventory requirement is waived.

Related Court Case: Insured Fails to Produce Required Documents Following Fire Loss

Note: The above is a clear listing of what tasks the named insured must complete to submit the loss. Because of the detail required, the named insured should begin as early as possible to gather the information. Sooner is better than later especially when recording details and taking inventory.

4. Examination under Oath

The insurance company may require that an insured submit to examinations under oath as often as reasonably necessary. However, this applies only for questions that relate to the loss or to the insurance itself. Answers may take the form of signed sworn statements. When two or more insureds are questioned, the insurance company can request that each insured be interviewed apart from any other insured.

Note: This provision is used to determine fraudulent claims and to establish a legal basis to void the policy in case of fraud or misrepresenting a material fact. It can also be used to initiate subrogation actions against others who may have caused or contributed to a loss.

Related Court Case: Insurer Can Rescind Policy Based on Insured's Material Misrepresentations on Application

5. Cooperation

The named insured is required to cooperate with the insurance company as it works on the investigating and settling of the claim.

Related Court Case: Insured's Failure to Cooperate Relieved Carrier of Its Obligation to Pay Claim

6. Records

The named insured is required to produce records that are related to the loss. The insurance company has the right to make copies and take extracts of them as often as it requests. However, those requests must be considered reasonable. Examples of records that may be requested are tax returns and bank copies of all related cancelled checks.

Related Court Case: Insurer Denied Documents and Access: Insured's Appraisal Request Denied

7. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection. The inspections can be performed repeatedly but the requests must be considered reasonable. During the inspections the insurance company is permitted to take samples of the property.

Note: Samples allow the insurance company to find matches or similar property to replace obsolete property or property that is no longer available and allows it to verify that the property is what it is purported to be.

8. Volunteer Payments

The named insured has the right to voluntarily make payments, assume obligations, pay, or offer rewards and to incur any other expense. The named insured does not have the right to force the insurance carrier to pay any of those unless the insurance company has provided written approval for the named insured to do so. However, if the named insured incurs costs to protect property from further damage by a covered peril, those costs are covered as provided in Loss Condition 2. Protect Property.

 

Example: While the insurance company continues to investigate the claim, Herman gets impatient and orders new stock and equipment to replace what was damaged. The company is not obligated to reimburse these payments because it may have other alternatives available that are less costly. While the company has an obligation to pay, it may be for less than Herman spent on his own because of other less costly alternatives.

 

9. Abandonment

The insurance company is under no obligation to accept any property the named insured no longer wants.

10. Intent to Continue Business

The named insured is required to be expedient in returning to full or partial operations. However, this condition does not apply if the named insured does not plan on continuing its business.

Note: The named insured can decide to stay in business but discontinue a certain process or product line. In that case, the company pays only the amount of the claim and for the loss of income for the restoration period that would have been involved with getting the business or the discontinued process or product back in operation.

 

Example: Rudolph's Stationery sustains a total loss and it will take six months to fully resume operations. An adjacent property could be rented and used to continue operations until the original location is repaired and doing so would reduce the restoration period to one month. Rudolph decides not to continue in business. The insurance company is obligated to pay for only one month of the restoration period.

 

VALUATION OF PROPERTY LOSSES

This section explains how the insurance company values property losses.

1. Replacement Cost

Property is valued based on its replacement cost without a deduction for depreciation. This is subject to items 3 through 12 below. This applies only if the Actual Cash Value option is not selected.

Replacement cost valuation is subject to the following limitations:

a. The insurance company pays the cost to repair or replace property that has sustained loss or damage if the limit of insurance at the time of loss is 80% or more of its full replacement cost immediately before the loss. However, the amount actually paid is not for more than the smallest of the following amounts:

Note: The definition of necessary could lead to disputes between the named insured and the insurance company.

The building is not required to be rebuilt at the same location. If it is built elsewhere, the cost to replace is limited to the cost required to rebuild at the location where the loss occurred.

b. The insurance company does not pay on a replacement cost basis if the limit of insurance at the time of loss is less than 80% of the property's full replacement cost immediately before the loss. Instead, it pays the greater of either the property’s actual cash value or the part of the property's replacement cost that its limit bears to 80% of the property's current replacement cost. Under no circumstance will more than the property's limit of insurance be paid.

 

Example: Greg’s Repair Shop's building is insured for $120,000. The building's 100% replacement value is $200,000. The building’s 100% actual cash value is $100,000. A fire causes $50,000 damage is adjusted on replacement cost or $25,000 if adjusted as actual cash value. The following calculations apply:

$200,000 replacement cost X 80% = $160,000

$120,000 actual limit /$160,000 required limit = .75

 

The loss payment is $50,000 X .75 = $37,500 because it is greater than the actual cash value of $25,000.

 

c. Replacement cost valuation will not be paid until after the named insured repairs or replaces the damaged or destroyed property. The repairs and/replacement must be completed within a reasonable time frame.

There is one exception. A replacement cost valuation payment is made prior to the property being repaired or replaced if the cost is $2,500 or less.

The claim can be presented in two steps.

Related Court Case: Building Not Repaired: Replacement Cost Value Denied

d. Any increased costs due to enforcing codes, ordinances, laws, or decrees that regulate construction, use, or repair of property are not included as part of the cost to repair, rebuild, or replace lost or damaged property.

2. Actual Cash Value

When the named insured selects Actual Cash Value (ACV) on the declarations for buildings and/or business personal property, the value of that property is its actual cash value at the time of loss. Actual Cash Value is computed using a deduction for depreciation.

3. Property Not Eligible For Replacement Cost

Certain property is never valued on a replacement cost basis. Its value is based on its actual cash value at the time of loss. This property includes the following:

a. Household contents. When the named insured is a landlord this restriction does not apply to personal property that the named insured places for use by tenants in apartments or rooms.

b. Manuscripts

c. Personal property that is an object of art, rarity, or antiquity

    Note: This property should be covered under an Inland Marine Floater to be properly valued and insured.

d. Used or second-hand merchandise when it is being held in storage or is being held for sale

e. Personal property of others. However, if there is a written agreement between the named insured and the property’s owner that establishes the named insured’s liability for that property when it is in the named insured’s care, custody, or control the following applies:

4. Glass

When required by law, code, ordinance or decree, the value of glass must include the costs of safety glazing.

5. Hardware

Computer hardware is valued based on the hardware’s disposition:

Note: Technology is changing rapidly. Equipment purchased to replace damaged equipment may be smaller and less expensive and still be functionally superior.

a. Hardware that is replaced is valued based on the cost to replace it with new equipment. The equipment is required to be functionally comparable to the original hardware.

b. Hardware that is not repaired or replaced is valued based on its actual cash value at the time of loss. This includes a deduction for depreciation.

Note: The depreciation on some computer equipment is rapid. In some cases, a five-year old computer’s actual cash value could be close to zero.

c. Partial losses are valued at the reasonable cost to restore the property to the condition that existed just before the damage.

Note: The cost to restore some computers may be more than the computer is worth.

6. Loss to Parts

The value of lost or damaged parts of a complete item made up of several parts is the value of only the lost or damaged part. This could be either the cost to repair or the cost to repair it.

Note: In other words, there is no coverage for the reduced value of the other parts because one part was lost or damaged.

PrintBinder6

Example: A beam that supports the roof falls and damages printing equipment below it at Brad's Printing. Replacement cost valuation applies to buildings and business personal property. The insurance company pays only the cost to repair or replace the parts of the printing equipment that were damaged. It does not pay the cost to replace all the equipment.

7. Money

Money is valued based on its face value.

Note: Rare coins or collectible money is also valued based on its face value, not its market or collectible value.

8. Pair or Set

The value of a loss that involves damage or loss of one part of a pair or set is based on a reasonable proportion of its value to the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

 

Example: The King of a ceramic chess set falls off the board and shatters on the hardwood floor. The set is no longer being made and a replacement King is not available, even on the Internet. The insurance company is obligated to only reimburse the named insured for an amount equal to the value of the King, in its proportion to the value of the full set, even though the entire value of the set is now minimal because it does not have a King.

 

9. Securities

The value of securities can be difficult to determine because their values fluctuate. As a result, this policy sets an arbitrary time to establish the value. It is the specific security’s actual cash value as of the close of business on the day the loss was discovered.

10. Software

Software has four different components and their value is as follows:

a. Data Records

These are valued based on the cost to reproduce them from duplicate copies. One example is the cost of labor to copy or transcribe the information. Other costs are also covered but they are not described.

If there are no duplicate copies, research must take place to duplicate the records. Therefore, the value is based on the research cost plus other necessary expenses involved in replacing, restoring, or reproducing that documents, files and information that was lost.

Even if data records are not restored or replaced the loss has value. That value is based on the cost to replace only the media on which the data records were stored. The value is based on the cost of blank media of similar quality or kind.

b. Media

Media is valued based on the cost to repair or replace it with material of similar quality or kind.

c. Programs and Applications

These items are valued based on the cost to reinstall them from the licensed discs used in the original installation. The bigger problem is when the original licensed discs are lost, damaged, and are no longer available. In that case, the value of programs and applications is based on the cost of their most recent version.

Some programs and applications may not be restored or replaced. In that case, their value is based on only the cost to replace the media on which the programs and applications were stored with blank media of similar quality or kind.

d. Proprietary Programs

These are valued based on the cost to reproduce them from duplicate copies. The cost of labor to copy or transcribe the information from duplicate copies is part of the reproduction cost. When there are no duplicate copies, the value includes the cost of research or other expenses necessary to reproduce, replace, or restore those programs.

Some proprietary programs may not be restored or replaced. In that case, their value is based on only the cost to replace the media on which the proprietary programs were stored with blank media of similar quality or kind.

11. Tenants' Improvements

Tenants' improvements coverage applies only when the named insured is a tenant. This coverage is for property added to the lessor’s property for the named insured’s benefit that becomes the lessor’s property because it is attached to the building the tenant occupies but does not own. The named insured tenant may make the improvements, or the lessor may make them for the named insured tenant’s benefit as part of its lease. The named insured tenant has a use value in the improvements but does not have ownership rights to them.

The value of losses to tenants’ improvements is based on replacement cost if repaired or replaced at the named insured's expense within a reasonable time. If they are not repaired or replaced, their value is based on the following proportional formula:

Step 1: Determine the number of days from the date the improvement was installed to the lease’s expiration date.

Step 2: Determine the number of days from the date of loss to the lease’s expiration date.

Step 3: Divide Step 2 by Step 1.

Step 4: Multiply Step 3 by the original cost of the improvement.

 

Example: The five-year lease expires on 03/01/19 and does not have a renewal option. The improvements were installed on 03/01/16 and the value was $100,000. The date of the covered loss is 03/01/18.

Step 1: 1,095 days

Step 2: 365 days

Step 3: 365 days/1,095 days = .333

Step 4: $100,000 X .333 = $33,333

 

If the lease contains a renewal option, the expiration date of the renewal option period replaces the expiration date of the lease in this calculation.

Tenants' improvements losses are not covered if another party repairs or replaces them at that party’s expense.

12. Valuable Papers and Records

The value of valuable papers and records is based on the cost of blank materials and the labor to transcribe or copy them from duplicates. It also includes the cost of research or other expenses necessary to reproduce, replace, or restore lost information on valuable papers and records that sustained loss or damage when there are no duplicates.

The value of valuable papers and records that are not restored, replaced, or reproduced is based on the cost of blank materials of similar quality and kind.

HOW MUCH WE PAY

This section provides limitations on how the insurance company pays losses.

1. Insurable Interest

The insurance company pays no more than the named insured’s insurable interest in the property.

Note: There is no mention as to when the insurable interest must be established.

Related Court Cases:

Buyer's Insurer Could Not Secure Contribution from Sellers' Insurer for Loss after Closing

Insurable Interest Created By Substantial Economic Interest

2. Deductible

The insurance company does not pay until the single occurrence loss exceeds the deductible amount entered on the declarations. There are three exceptions:

a. If the only loss is an Optional Property Coverage included under this policy's terms, the highest deductible in any one occurrence is the Optional Property Coverages deductible amount on the declarations.

b. When there is more than one deductible that could apply to a single occurrence, the amount to be deducted is the largest deductible that applies.

c. Fire Department Service Charges, Lock and Key Replacement, Inventory and Appraisal Expenses, Recharge of Fire Extinguishing Equipment, or Coverage C–Loss of Income are not subject to any deductible.

Note: Although this provision states that Loss of Income Earnings coverage is not subject to a deductible, it actually is. The 72-hour waiting period before paying any loss of earnings could be a significant deductible for some insureds.

3. Loss Settlement Terms

Subject to other items in this section, the insurance company pays the least of the following:

a. The amount determined based on the Valuation of Property Losses section

b. The actual cost incurred to repair, replace, or rebuild the property with materials that are of similar kind and quality.

c. The limit that applies to covered property. This limit may be on the declarations or may be provided within a coverage.

4. Insurance under More Than One Coverage

Certain property losses may be covered by more than one coverage within this policy. If that is the case payment for the loss will for no more than the value of the actual claim, loss, or damage sustained.

 

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Example: Otis Optical owns its building. A windstorm destroys both the building and all its business personal property. Otis reports loss amounts of $250,000 for the building and $100,000 for the business personal property. He lists one item of equipment valued at $25,000 as building. He then lists the same item as business personal property because it meets the definition under both coverages. The adjuster tells him that he gets paid for that item of equipment only once.

 

5. Insurance under More Than One Policy

Proportional Share

The named insured may have other coverage subject to the same terms as this policy. In that case, this policy pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance on all insurance that covers on the same basis.

 

Example: Fred decides to move coverage from one insurance company to another mid-term. He purchases the new policy, notifies the other company, and requests cancellation. Before the cancellation takes effect, a loss that both policies cover occurs. The policies are the same except that company A's limit is $100,000 and company B's is $120,000. Company A pays $100,000/220,000 multiplied by the amount of loss. Company B pays $120,000/220,000 multiplied by the amount of loss.

 

Related Court Case: "Other Insurance" Clauses Held to Pro Rate

Excess Amount

There may be other coverage available to pay for the loss other than as described in Proportional Share above. In that case, this policy pays on an excess basis. This means it pays only the amount of covered loss that exceeds the amount due from the other coverage, whether that other coverage can be collected or not. Any payment is subject to the limit of insurance that applies.

 

Example: Precision Records has a Valuable Papers and Records Inland Marine Policy with a $500,000 limit. When a fire loss destroys all its valuable papers and records, the Valuable Papers and Records policy responds first. Precision’s AAIS Businessowners Policy then responds as excess, up to its limits.

Unfortunately, the insurance company that provides the Valuable Papers and Records coverage goes into receivership. The Businessowners Policy still does not respond until the loss exceeds $500,000.

 

6. Accounts Receivable

Accounts Receivable losses are subject to items 1, 2, 4, and 5 under How Much We Pay section. The most the insurance company pays is the least of the following:

a. The total amount of accounts receivable that are due. However, to calculate how much will be available; the total amount must be reduced by:

Note: Bad debt amounts are usually based on the named insured’s historical bad debt ratio.

b. The costs that are incurred to reconstruct the named insured's accounts receivable records. Only those costs that are reasonable are considered.

c. The limit that applies

There is an alternative way to value actual accounts receivable amounts due. It is used only if the named insured cannot establish the amount. The insurance company determines the total of the average monthly accounts receivable amounts for the past 12-month period immediately before the month when the loss occurred. This amount is then adjusted based on variances for reasons that can be verified.

7. Automatic Increase

The building or business personal property limits increase automatically annually by the percentage entered on the declarations. If a limit is increased during the year, the increase is proportional based on the date the limit is increased.

Note: This automatic increase paragraph states that the increase is annual. It does not state how the increase applies throughout the policy year. It does state that if a limit change is made during the year that the automatic increase must be proportionally modified based on the date on which the limit was changed.

The following example explains how the increase might be proportioned at the time of loss based on implied intent, but the intent is only implied and not explicitly spelled out.

 

Example: Chris chooses a 6% automatic increase to apply to Coverage A–Building. The building limit is $100,000. The policy term is January 1 to January 1. When a loss occurs on June 30, Chris has a limit of $103,000 available, not the $100,000 limit on the declarations. This limit is calculated as follows:

Step 1: Calculate the number of days from the policy inception date to the date of loss (180 days)

Step 2: Divide step 1 by 365 (.493)

Step 3: Multiply the annual increase percentage by Step 2 (.493 X .06 = .030)

Step 4: Multiply the limit by Step 3 ($100,000 X .030 = $3,000)

Step 5: Add Step 4 to the limit of insurance on the declarations ($100,000 + $3,000 = $103,000)

 

8. Seasonal Increase

The limits for Coverage B–Business Personal Property entered on the declarations automatically increase by 25% to provide for seasonal increases. However, this must be considered cautiously and carefully. This increase applies only if the limit carried is at least 100% of the average monthly values for the insured business for the 12 months immediately before the date of loss or damage. This condition is crucial. If the named insured has an unexpected inventory increase, this 25% increase might be lost if the limits are not increased.

 

Example: Johnny’s Toys has average monthly values of $100,000 for all months except October, November, and December when the values peak at $150,000. Johnny carries a $120,000 limit to cover the peak values. During the summer, a supplier offers him the opportunity to sell the latest popular toy and his inventory increases to $150,000 in June, July, and August. This raises his average monthly values to $125,000. As a result, Johnny does not receive the benefit of the 25% seasonal increase.

 

If the business has operated less than 12 months at the time of loss, the limit of insurance must be 100% of the average monthly values for the time that the business has operated.

 

LOSS PAYMENT

The previous sections explain how the insurance company values property and how much it pays. This section explains how it pays losses.

1. Our Options

The insurance company has four loss payment options:

a. Pay the value of the property that sustained loss or damage

b. Pay the cost to repair or replace the property that sustained loss or damage

c. Rebuild, repair, or replace the damaged or lost property with similar property within a reasonable period of time

d. Take all or any part of the property at the agreed or appraised value. The named insured cannot demand that the insurance company take any of the property.

If the insurance company is going to use option c., it is required to notify the named insured of that decision within 30 days after it receives a properly completed proof of loss.

Note: The expected loss outcome is either a. or b. The insurance company selecting option c. is more unusual so the named insured is going to need prompt notice so that it does not begin to incur obligations that will not be met.

2. Your Losses

All losses are adjusted with and paid to the named insured unless there are other loss payees. The insurance company must pay covered losses within 30 days after it receives a properly prepared and executed proof of loss and one of the following takes place:

a. The parties agree in writing as to the amount of loss

b. An appraisal award is filed with the insurance company

Note: This refers to Additional Conditions 1. Appraisal.

c. A final judgment is entered

Note: This would apply when the amount of the loss must be adjudicated to determine how much payment is owed by the insurance company.

3. Property of Others

There are two different ways to adjust losses to property of others:

a. The insurance company can work directly with the property owner and pay based on the property owner’s interest in the property.

b. The company can pay the named insured and let the named insured settle with the property owner.

The insurance company does not pay both the named insured and the property owner for the same item. If the property owner sues the named insured because of a loss payment, the insurance company has the option to defend the named insured at its own expense.

4. Common Wall

This condition explains the procedures that the insurance company will follow in cases where covered loss or damage involves a wall that is considered a common or party wall. This condition is subject to all other policy provisions and limits that apply.

a. The insurance company pays the share of the loss to the common wall that equals the named insured’s interest in it in proportion to the adjoining owner’s interest in the same wall.

b. There may be a circumstance whereby the named insured decides to repair or replace the covered damage to the common wall, but the adjoining owner does not. Under that circumstance, the insurance company pays the full value of the covered loss to the common wall.

c. The insurance company retains its right of subrogation against the owner of the adjoining property and its insurance company, as well as any other entity or person. However, this provision does not change this policy’s Subrogation Condition.

The definition of common or party wall used within this provision is a shared wall that divides two adjoining properties. It applies only when the properties are under different ownership.

 

Example: Jerry’s Fine Foods shares a common wall with Mindy’s Jewels. A fire at Jerry’s damages the common wall and other property in Jerry’s building. Jerry decides to take his actual value settlement and leave. Mindy wants the common wall to be repaired because it compromises her business. Mindy’s Businessowners Policy carrier pays to repair that common wall. It then subrogates against the party that owns the property Jerry previously owed for its proportional cost of the repair.

 

ADDITIONAL CONDITIONS

This section explains how the insurance company handles certain situations and imposes certain restrictions on the named insured.

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can make a written request for an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and supply their appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within 15 days, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

Appraisals are never used to determine whether the policy covers a loss, to determine what caused a loss, or to interpret policy terms.

The insurance company still has the right to deny the claim even after it goes through the appraisal process.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Control of Property (06 12 change)

Any act or neglect that is beyond the named insured's control does not affect the Property Coverages.

If the named insured violates any policy condition, only coverage at the location where the violation took place is affected.

4. Death of an Individual Named Insured

The rights and duties of an individual named insured under the Property Coverages pass to either his or her legal representative or any other person who has proper temporary custody of the named insured's property if the named insured dies.

Note: Other arrangements are available for other forms of ownership and those businesses may continue in some form. However, the death of the individual named insured usually suggests that the legal representative will arrange to wind down and close the business.

5. Mortgage Provisions

Mortgage companies and trustees have special status with respect to the Property Coverages. The term mortgagee used in this provision also includes trustees.

When the policy lists a mortgagee with respect to covered building property, the insurance company pays any covered loss to the specific building or structure to the mortgagee and the named insured as their interests appear. If there is more than one mortgagee, they are paid in order of precedence.

If the named insured voids coverage because of its own acts or neglect, or if the named insured fails to comply with coverage terms or conditions, this coverage continues for the mortgagee’s benefit. This benefit does not apply if the mortgagee knew about changes in ownership or substantial increases in risk and did not notify the insurance company.

The insurance company may ask the mortgagee to do the following if the named insured fails to do so:

a. Pay the premium

b. Submit a signed, sworn proof of loss within 60 days after the insurance company asks for it

If coverage for the named insured’s benefit is void and the insurance company pays the mortgagee for a loss, it assumes the mortgagee's right to collect that portion of the mortgage debt from the named insured. The mortgagee still has the right to collect the remainder of the mortgage debt from the named insured. The insurance company also has the right to pay the mortgagee its remaining principal and accrued interest to have a full assignment of the mortgagee's interest. The insurance company would then also take over any instrument given as security for the mortgage debt.

 

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Example: Pegly intentionally burns down his building, resulting in a total loss of $1,000,000. The insurance company does not pay Pegly but does pay the mortgagee $1,000,000 of the $1,100,000 loan against the property. The company can then pursue Pegly for the $1,000,000 it paid, and the mortgagee retains the right to pursue and collect the remaining $100,000 on the mortgage. The insurance company also has the option to pay the entire $1,100,000 plus earned interest to obtain clear title to the property. Doing so could enhance its ability to sell the property.

 

The insurance company must give ten days’ notice to the mortgagee if it cancels the policy for non-payment of premium, or 30 days advance notice if the cancellation is for any other reason. It must also notify the mortgagee at least ten days in advance if it decides to not renew the policy.

Related Court Case: Oral Notice to Mortgagee Held Not to Satisfy Written Notice Requirement

6. Policy Period

Covered loss or damage must begin during the policy period.

Note: This is especially important when property losses continue for a number of days and possibly result in overlapping coverage. The insurance policy in effect when loss or damage begins is the only one that responds.

 

Example: Marilyn’s policy period was 01/01/18 to 01/01/19. The insurance limit was $400,000. The renewal policy period was 01/01/19 to 01/01/20 and the insurance limit was $600,000. A fire began on 12/31/18 but was not completely extinguished until 01/02/19. Only the 01/01/18 to 01/01/19 policy with the $400,000 limit responds to this loss.

 

7. Recoveries

Insurance is intended to indemnify the named insured, not to provide it a profit. If the insurance company pays a covered loss and the lost or damaged property is recovered, or the party that caused the loss pays for it, the insurance company is entitled to be a party to such recovery. The following provisions explain how the recovery process works:

a. The named insured must notify the insurance company if it receives payment or recovers the property.

b. The insurance company must notify the named insured if it receives payment or recovers the property.

c. The insurance company pays all recovery expenses and any expenses required to repair the recovered property, subject to the limit of insurance.

d. The named insured can decide to keep the recovered property. If it does, the insurance company and the named insured must agree on the amount of the claim payment to be returned to the insurance company. However, it cannot be for more than the amount of payment the named insured received for the loss.

e. If the claim paid is less than the agreed loss due to deductibles or other policy limitations, recoveries are prorated between the named insured and the insurance company based on their respective interests in the loss.

 

Example: $10,000 worth of cigarettes is stolen from Barney’s Fast Stop Shop. The thief resells them and they are not recovered. However, the insurance company recovers $5,000 (half of the merchandise’s value) from the captured thief who still has the money from the resale. The insurance company pays Barney only $9,000 because of the $1,000 deductible that applies to the loss. In this case, the named insured's share of the loss is 10% (the $1,000 deductible amount) and the company's share is 90% (the $9,000 it paid). The insurance company pays Barney 10% (or $500) of the $5,000 cash recovered because that amount represents Barney’s proportion of the total loss because of the deductible.

 

8. Subrogation

The insurance company assumes the named insured’s place when it settles a property claim. It also assumes the right to act against any party the named insured may seek to recover from due to the claim, up to the amount paid.

The named insured may not do anything after a loss to impair the insurance company’s right of recovery. There is an exception. The named insured may waive its right to recover from any party in writing before a loss occurs without voiding coverage.

 

Example: Harvey's High-Flying Helicopters tells its next-door neighbor, Stan's Surface-To-Air Missiles, that it will not sue for the roof damage to his building caused by a tree that Stan cut down. Harvey then commits that verbal statement to writing. Coverage could be void because Harvey waived his recovery rights in writing after a covered loss occurred.

 

There are exceptions to the prior statement. The named insured may waive its rights of recovery after a loss if the waiver is with any of the following parties:

a. A person, entity, or organization that this policy’s Property Coverage insures

b. The named insured's tenant

c. A business that the named insured owns or controls

d. A business that owns or controls the named insured

 

Example: Change the example above slightly. The reason Harvey told Stan he would not sue is because Stan is Harvey’s tenant. Because of that relationship, coverage is not voided.

 

Related Court Case: Broad Subrogation Clause Waives All of Insurer's Rights

9. Suit Against Us

The two rules of when a lawsuit can be brought against the insurance company are as follows:

a. All terms of the Property Coverages must be satisfied.

b. The lawsuit must be brought within two years after the date that the direct loss or damage took place.

This period only applies if state law permits. If any state law invalidates this provision, the lawsuit must commence within the shortest period of time that the law allows.

 

Example: Fair and Square Insurance Company and Jerry disagree on the value of a claim. Jerry is furious over the amount offered and decides to sue. However, Fair and Square points out that the appraisal provision must be exercised first. A suit cannot commence until the appraisal is concluded and all other terms and conditions of the policy are completed. If the appraisal affirms Fair and Square's offer, Jerry can then commence a suit if he does so within two years after the date of loss.

 

10. Vacancy Restrictions

The insurance company does not pay for any loss or damage caused by attempted theft, building glass breakage, sprinkler leakage, theft, vandalism, or water damage if the building or structure was vacant more than 60 consecutive days before the time of the loss.

The insurance company reduces the amount it pays by 15% for any loss not otherwise excluded.

Sprinkler leakage is moved from the first group of perils to the second group of perils if the named insured protected the system against freezing.

 

Example: Vandals break into Ferguson Realty. The building had been vacant for 90 days. The vandals pry open the back door and spray paint graffiti throughout the premises before they leave without closing the door.

Scenario 1: The sprinkler system was not protected against freezing. The system freezes and begins to leak because the door was left open. There is no coverage for either the vandalism or the sprinkler leakage.

Scenario 2: The sprinkler system was protected against freezing. A bird flies in through the open door and crashes into a sprinkler head, causing it to leak. The vandalism damage is not covered. The sprinkler leakage damage is covered although it is reduced by 15%.

 

Vacancy is not the same for all properties.

 

Example: The Howe Strip Shopping Center has five tenants. The two largest tenants move out and the building is 75% vacant, even though three tenants remain. This building is considered vacant. Howe decides to randomly store some left-over items in the open spaces but this does not change the fact that building is vacant.

 

 

Example: Naylor Realty constructs a building for its tenant, the Meeny Miny, but Meeny declares bankruptcy before it ever occupies the building. Construction ended on May 1. When the fire occurs on August 12 and destroys the building the claim settlement is reduced by 15% because the building had been vacant for more than 60 days.

 

Related Court Case: Vacancy Exclusion Held Applicable When Building Was Devoid of Substantial Warehouse Contents

OPTIONAL PROPERTY COVERAGES

Three Optional Property Coverages are available. They apply only if there are entries for them on the declarations. All are subject to the policy’s Common Policy Conditions, the Common Policy Definitions, and the Property Coverages except when a provision within them more specifically apply.

1. Employee Dishonesty (BP 0816 change)

a. Dishonest acts of a named insured’s employee may cause direct loss or damage to the named insured’s business personal property or money securities. This Optional Property Coverage covers that loss or damage. This coverage also applies to business personal property or money and securities for which the named insured is legally liability. The dishonest act must occur during the policy period for coverage to apply. The dishonest act may be committed by a single employee or by an employee operating in collusion with other employees or non-employees. The definition of single occurrence is not based on a solitary action. Instead, it is the number of related cumulative dishonest actions, regardless of the number of separate losses that take place and the number of individuals involved.

Dishonest acts have the following characteristics:

 

Examples:

  • Paul pilfers money from Scrooge's cash register over a period of months to pay for operations his sick child needs. This dishonest act damages Scrooge, benefits Paul's child, and is covered.
  • Peter is unscrupulous in the way he hounds clients. He treats his employer with disrespect and makes deals that are contrary to the company’s ethics. He is eventually fired but the money he earned in bonuses and salary cannot be counted towards any loss that may be brought because of his many dishonest actions.

 

The limit on the declarations for this coverage is the most the insurance company pays for Employee Dishonesty in any one occurrence. This is even in cases where an occurrence extends over several policy periods.

 

Example: Four accounting employees work out a scheme where they skim $200,000 over a period of four years. The limit of insurance was $50,000 for each of the four years that coverage was in force. The most the insurance company pays is a total of $50,000.

 

b. The Perils Covered section does not apply to this Optional Property Coverage.

c. Exclusions

The Additional Exclusions section does not apply to this Optional Property Coverage.

Only the exclusions for Civil Authority, Nuclear Hazard, and War and Military Action in the Businessowners Policy Perils Excluded section apply.

The insurance company does not pay for loss or damage due to any of the following:

 

Example: Jake is a partner in the C H & W law practice. He and his administrative assistant work together to manipulate billings. The act is discovered, and C H & W submits the loss to the insurance carrier. The carrier denies the loss because Jake is involved.

 

Note: These can be used to substantiate or document a loss but not as the only proof that a loss occurred.

 

Example: Marion worked for Jasmine and Sons. Jasmine discovered her pilfering items and submitted a claim for the loss to its insurance company. The insurance company paid the loss. Marion provided restitution and continued to work for Jasmine and Sons. Coverage for his actions was cancelled once the loss was discovered. Miller, Inc. subsequently acquired Jasmine and Sons and Marion and other employees were retained. Marion became a very trusted employee of Miller. He used his prior talent at pilfering at Miller and was quite content with his added income until an audit revealed his thefts. The insurance company was about to pay the large loss when the claims adjuster’s investigation turned up the previous loss at Jasmine and Sons. Because of this exclusion, the loss was not paid.

           

d. Additional Conditions

The following Additional Conditions apply along with the other policy terms and conditions:

 

Example: Jerry is a partner in J & B Construction Company. Someone tells him that Leslie (the newly hired bookkeeper) looks a lot like a bookkeeper convicted of embezzling from another company. When Jerry confronts Leslie, she admits that it is true. At that point, Jerry recruits her into his scheme to embezzle from
J & B. Leslie takes independent action and steals company property. She is caught, and the investigation reveals her past plus Jerry’s embezzlement scheme. The theft of company property is covered because Jerry kept her past activities a secret to collude. However, the embezzlement is not covered because Jerry is a partner and such dishonest actions are excluded, even those in collusion with another employee.

 

e. Three Supplemental Coverages apply only if this Employee Dishonesty coverage replaces previous Employee Dishonesty coverage as of its expiration or termination date.

Note: This supplemental coverage does not apply if there is a gap in coverage.

The coverage provided is not a separate limit. It is part of the Employee Dishonesty limit that applies.

 

Example: During a two-week trip to Italy, an employee trades samples of merchandise for cash and claims that the airline lost the samples. Coverage applies because the employee was outside the basic territory for less than 90 days.

     

 

Example: Darryl’s Interiors maintained continuous employee dishonesty coverage for the past three years. Coverage was written with Honest and Forthright Indemnity during the first two years with a $50,000 limit of insurance. Coverage in the current year is with More Honest Mutual with a $100,000 limit of insurance. Darryl discovers a loss two years after it occurred and one year after Honest and Forthright's discovery period ended. The coverage that both companies provided applies to the loss. More Honest's policy paid the loss but only up to the $50,000 limit in Honest and Forthright's policy.

     

 

Example: Referring to Darryl’s Interiors, instead of coverage being with Honest and Forthright, it was with Little Honest Mutual, an affiliate of More Honest Mutual. Because of this, the $100,000 limit of insurance is available to pay the loss.

 

2. Money and Securities

a. This Optional Coverage applies to only money, securities, and lottery tickets that the named insured does not hold for sale. The named insured can own them, be legally responsible for them, or just hold them for coverage to apply. The coverage is for disappearance, destruction, or theft. Theft is any act of stealing. This includes but is not limited to burglary and robbery.

 

Examples: These are examples of covered losses:

  • Money stolen from the named insured’s safe
  • A fire destroys the winning $1,000,000 lottery ticket the named insured business purchased to benefit a charity
  • Mary, the named insured, drives to the bank with a number of Bearer Bonds she intends to cash. It is an enjoyable day and Mary rolls down the vehicle’s windows. While driving across the river on a bridge, a sudden gust of wind blows a number of these securities out the window, off the bridge, and into the river below.

 

b. This Optional Coverage has an additional condition. The named insured is required to keep adequate records of covered property. This is because the insurance company uses them to verify the amount of loss.

c. The Perils Covered section does not apply to this Optional Property Coverage.

d. Exclusions

The Perils Excluded and Additional Exclusions sections apply except as modified below. In addition:

The following loss or damage is also excluded:

e. The provisions in How Much We Pay 7. Automatic Increase and 8. Seasonal Increase do not apply to this coverage.

f. The Inside Premises limit on the declarations is the most paid for loss that occurs inside the premises or inside a bank or savings institution. The Outside Premises limit on the declarations is the most paid for losses at other locations.

These limits apply to the actions of an individual person or multiple persons who commit either a single act or a series of acts.

 

Examples:

  • Melanie robs Happy Hippo. This action is subject to one limit.
  • Melanie and her friend Bob rob Happy Hippo. Two persons are involved but this is a single act and only one limit applies.
  • Melanie and Bob rob Happy Hippo. They later return with the keys they took during the robbery and steal additional cash and some securities in the back of the store. There are two actions, but they take place in a series so only one limit applies.

3. Outdoor Signs

a. This Optional Coverage covers outdoor signs that the named insured owns or has in its care, custody, or control. The signs must be at a described premises. A covered peril must cause the loss or damage.

Coverage applies to both signs attached to building and detached signs.

b. The Perils Covered section does not apply to this Optional Property Coverage.

c. Exclusions

Perils Excluded and Additional Exclusions apply except as modified below. In addition:

The following loss or damage is also excluded:

Deterioration or contamination may cause a specified peril or building glass to break. In that case, the resulting damage is covered.

d. This Optional Coverage replaces any and all limitations in the Businessowners Policy that apply to outdoor signs. However, the most paid for loss in any one occurrence is the limit on the declarations for Outdoor Signs.

 

Examples:

Scenario 1: A brush fire causes $10,000 in damage to Cynthia's Healthy Fitness sign. The limit for Optional Coverage–Outdoor Signs is $7,500. Cynthia explains that she arrived at this figure by adding it to the $2,500 for signs in Additional Coverages. You've Gotta Be Kiddin' Insurance Company pays only $7,500 because the limit for this Optional Coverage supersedes and replaces the additional coverage for signs limit.

Scenario 2: This time Cynthia selects a $10,000 limit to apply to Optional Coverage–Outdoor Signs. Cynthia has three signs on the premises, each valued at $10,000. A windstorm causes $17,000 in damage to all three signs. You've Gotta Be Kiddin' pays only $10,000 because the limit of insurance applies per occurrence and the same occurrence damaged all three signs.

Commercial Liability Coverages

This section contains definitions, descriptions of coverage, exclusions, limitations, and conditions that apply specifically to the liability coverages the AAIS Businessowners Policy provides.

ADDITIONAL DEFINITIONS

These definitions apply to the Commercial Liability Coverages. They are in addition to the Common Policy Definitions.

1. Advertisement

An advertisement must be public. It is a notice or announcement that is made in any way including electronically or through the internet. This means it can be in print or issued verbally. The purpose of the notice or announcement must be to offer the named insured's goods, products, or services to any of the following:

a. Prospective clients, patrons, customer, or buyers to encourage them to buy, rent, lease, or for any other purpose

b. Potential supporters so that they can consider or promote

The term advertisement also applies to websites but there is a limitation. Only the part of the website that offers the named insured’s goods, products, or services to any of the following is considered an advertisement:

a. Prospective clients, patrons, customer, or buyers to encourage them to buy, rent, lease, or for any other purpose

b. Potential supporters so that they can consider or promote

 2. Auto

a. A land-based motor vehicle that has been designed for use on the public roads. Trailers and semi-trailers are considered autos. Any machinery or equipment attached to autos described above is also considered autos.

b. Land based vehicles that are subject to any type of financial responsibility, compulsory, or similar motor vehicle-based insurance law are also considered autos. These laws apply on an individual state basis, so this definition is based on the law of the state where the vehicle is either principally garaged or licensed.

The definition of auto does not include any mobile equipment.

3. Bodily Injury

Bodily harm, sickness, or disease sustained by a person is considered bodily injury. When death results from any of these, death is bodily injury. Mental or emotional injury, suffering, or distress is considered bodily injury only when a direct result of a physical injury.

 

Example: A ceiling fixture falls on Bobby while he is shopping at Lighting, Inc. His injuries are extensive, and he requires special rehabilitative services in addition to regular medical care and lost wages for time away from work. Bobby sustained bodily injury. Sally was across the street when the accident happened and heard about it from her neighbors. Because of this information, she will not enter a room with a ceiling fixture. Her mental distress is not considered bodily injury.

 

4. Coverage Territory

The following make up the coverage territory:

a. The basic territory as Common Policy Definitions defines

b. International waters or airspace. This definition is limited to bodily injury, property damage, or personal and advertising injury that occurs in such waters or airspace while traveling between places within the basic territory.

c. Other parts of the world. This definition is limited to bodily injury, property damage, or personal and advertising injury that arises from one or more of the following:

Damages are paid only in cases where the suit is tried in the basic territory or if the insurance company decides to settle with the claimant.

 

Example: HiFalootin Clothing Store in New York City sells a blouse labeled as flame retardant to Gretchen during her visit from Germany. After returning to Germany, she wears the blouse to a party and it suddenly bursts into flames when a cigarette touches it. Gretchen suffers third degree burns and files suit against HiFalootin in Germany. Garment Guaranty Insurance Company denies coverage because Gretchen did not bring the action in the basic territory.

5. Covered Contract

Note: Many contracts attempt to transfer liability from one party to another. The exclusions section in the Businessowners Policy excludes such assumed liability. One exception to the exclusion broadens coverage to apply to only liability assumed in a covered contract. This definition explains the exact amount of contractual liability coverage available.

a. This is only the following:

Tort liability is liability imposed by law, not by contract. Contracts where the named insured assumes another party’s contractual liability are excluded.

b. Covered Contract does not include the part of any contract or agreement:

6. Damages

This is monetary compensation for an organization or person who claims to have sustained an injury.

7. Designated Insured

This is anyone listed in 12. a. in this section’s definition of insured. It also includes employees authorized to provide or receive notice of occurrences or claims.

8. Employee

This term includes leased workers. It does not include temporary workers.

9. Executive Officer

This is a person in an officer position that was created by the named insured's charter, constitution, by-laws, or another similar governing document.

10. Impaired Property

This cannot be the named insured’s product or work. It is tangible property that meets the following criteria:

CircutBoard

Example: Circuit Board, Inc. distributes a part that is included in the circuit board in a refrigerator’s thermostat. The part malfunctions and causes the refrigerator to shut down. This is an example where the refrigerator is impaired property.

           

11. Indemnitee 

This can be an organization or a person. The term is used when an insured assumes that organization or person’s liability for damages due to bodily injury or property damage under a covered contract.

12. Insured

There are several types of insureds.

a. This first group is based on entries on the declarations. If the entity is:

b. The second group has a relationship with the named insured:

o    The person or organization appointed as the legal representative is an insured but only while carrying out the duties of a legal representative. The legal representative has all the named insured’s rights and responsibilities.

o    Persons or organizations that have temporary custody of insured property at the time of death are also insureds but only with respect to liability that results from maintaining or using the property. This status ends once the legal representative is appointed.

Employees and volunteer workers are not insureds for the following:

a. Bodily injury or personal and advertising injury:

 

Example: Jesse is an employee of the Get It Here Grocery. Frank is also an employee. Sherry is the owner’s sister who occasionally helps.

Scenario 1: Jesse, Frank, and Sherry are working in the backroom. Jesse throws a box from the top shelf that strikes both Frank and Sherry. Jesse is not an insured for that action because Frank is in the course of his employment and Sherry is a volunteer performing duties related to the named insured’s business.

Scenario 2: Frank had already clocked out but is still in the store to purchase some items to take home. Jesse throws a box to Frank that knocks him out. Jesse is an insured because Frank was not on duty at the time of the accident.

Scenario 3: Sherry comes in the store to confront Jesse about some private issues. Jesse pushes Sherry to get away from her and Sherry falls. Because Sherry was on the premises for her own purposes, Jesse is considered an insured for the accident.

 

b. Consequential injury claims by the child, spouse, parent, brother, or sister of any of person described in the first three items of paragraph a. above because of an injury to that described person

c. Property damage to property that the named insured, its employees, volunteers, or any of its partners or members owns or controls in any way

No person or organization is an insured with respect to any current or past partnership, joint venture, or limited liability company not listed on the declarations as an insured.

13. Leased Worker

This is a person the named insured leases from a labor-leasing firm under a contract or agreement. The contract or agreement details the duties the person performs with respect to conduct of the named insured's business.

Leased workers are not the same as temporary workers.

14. Loading or Unloading

a. Loading is handling property. It begins when the property is moved from the place where it is accepted for transit in an auto, aircraft or watercraft. It continues as the property moves in or on the mode of transportation. It ends when the property is removed from the transporting mode of transportation at the point of final delivery.

b. It includes movement of property by mechanical devices. However, mechanical devices are limited to either hand trucks or devices attached to the transporting vehicle.

 

Example: Louie places a pallet of lumber at the end of the loading dock. Loading begins when the Anchor Transport driver begins to lift the pallet to place it on the truck.

 

15. Mobile Equipment

a. These are land vehicles that meet any of the following criteria:

b. Self-propelled vehicles that meet the criteria above may still not be considered mobile equipment. A vehicle that has any of the following permanently attached equipment is considered auto, not mobile equipment:

Mobile equipment does not include land vehicles that are subject to financial responsibility or similar compulsory or motor vehicle insurance laws. These laws are state specific. This means that the laws of the state where the vehicle is licensed or principally garaged must be reviewed to determine their status. Such vehicles are considered autos and should be covered as such.

Related Article: ISO Business Auto Coverage Form Overview

16. Occurrence

This is an accident. It also includes continuous and repeated exposure to similar conditions.

 

Example: Joan hits Mary. This is a single occurrence. Joan hits Mary several times. This is also a single occurrence.

 

17. Personal and Advertising Injury

This means injury that results from one or more of the following offenses. This definition also includes bodily injury that results from such offenses.

a. Publishing any material that slanders or libels a person or organization, disparages the goods, products, or services of a person or organization, or that violates any person’s right of privacy. The publication can be verbal, written, or electronic.

Note: Slander is an oral or spoken offense. Libel is the same offense done in writing.

b. False arrest, detention, or imprisonment

 

Example: Carmen thinks she sees a woman shoplifting and asks her to stop. When the woman keeps walking, Carmen follows her and corners her to talk to her. Carmen gets the answer she needs in less than a minute and lets the woman leave. Even though the incident lasts less than a minute, Carmen is considered to have detained and imprisoned the woman.

 

c. Deliberately harmful or malicious prosecution

 

Example: Raymond files a claim against his neighbor for stepping on his lawn. The claim is denied. He files a second claim and it is also denied. Raymond eventually files seven claims, and each is declined. Raymond's neighbor then sues Raymond for malicious prosecution.

 

d. The named insured's advertisements that use advertising ideas of others without their permission

e. The named insured's advertisements that use copyrighted information, slogans, or trade-dress of others without their permission

f. Any entry into, eviction from, or invasion of privacy related to a room, dwelling, or premises a person occupies is an offense. However, this applies only if committed by the landlord, owner, or lessor or by those acting of their behalf.

 

Example:

Scenario 1: Jerry lives in an apartment. He is quite surprised to discover a maintenance man in his apartment inspecting for insects. This is considered a personal or advertising injury for the apartment complex.

Scenario 2: Jerry lives in his owned condominium unit. He is quite surprised to discover a maintenance man in his unit inspecting for insects. This is not considered a personal or advertising injury for the condominium association because the condominium association is not Jerry’s landlord. 

 

18. Products/Completed Work Hazard

a. Products hazard is bodily injury or property damage that arises from products. However, this is only after the named insured physically releases the product(s) to others. In addition, the injury or damage must occur away from premises the named insured owns or rents. There is an exception. If the business of the named insured includes the selling of products that are consumed on premises, those consumable items are considered products even when the injury or damage occurs on premises. The requirement that the item must have been released to others remains.

 

Example:

  • Paul chokes on a bone in the chicken salad sandwich he is eating at Danny’s Delicatessen. This is an example of a products hazard exception.
  • John is a salesman at J & J Appliances. He is demonstrating the latest dishwasher at J & J’s when it shorts and shocks the customer. This is not a products hazard for J & J because it occurred on its premises, but it would be a products hazard for the appliance manufacturer.

 

b. Completed work hazard is bodily injury or property damage that occurs at premises other than ones the named insured owns or rents. The injury or damage must result from the named insured’s work. This does not include work not yet completed or work that has been abandoned. Work is considered completed when one of the following first occurs:

 

100_7853

Example: J & J Appliances contracts to install High Definition televisions at its customer’s three high-rise apartment buildings. When work is completed at one building, the employee who does the work moves on to the next one. When an installation job at the first building causes a fire, it is a completed work hazard. The worker makes the same mistake at the second building, but the fire occurs before he leaves the site. The incident at the second site is not a completed work hazard.

 

Work that requires further service, maintenance, correction, repair, or replacement as a result of a work defect or deficiency that is otherwise complete is still considered complete.

 

Example: J & J’s High Definition television contract requires that it periodically service the units. The repair technician cleans the unit and leaves. The television then shocks an apartment tenant. This is a completed work hazard. The work is complete and periodic maintenance is all that remains.

 

c. Products hazard and completed work hazard does not include bodily injury or property damage that occurs when property is being transported. This does not apply if an insured is loading or unloading a vehicle that the named insured does not own or operate and a condition in or on that vehicle causes the injury or damage. It also does not include bodily injury or property damage that tools, uninstalled equipment, or unused material causes.

 

Example: Jerry decides to leave his welding equipment at Kelly’s house after he completes a job for her. His plan is to drop by and pick it up the next day. Kelly’s son attempts to use the equipment but burns down the house. This is not a completed work hazard.

 

19. Products

a. Any good or product that the named insured manufactures, sells, handles, disposes of, or distributes. It also includes goods and products of others who trade under the named insured’s name. In addition, goods or products manufactured, sold, handled, disposed of, or distributed by persons or organizations whose business or assets the named insured acquires are also products.

b. The definition of products includes the following:

 

Example: Shirley purchases a Shelving Made Easy kit from Do It Yourself retail store. She carefully follows the instructions that accompanied the kit but the bookcase collapses when she places her vast collection of books on its shelves.

This is a products loss because Do It Yourself retail store failed to provide her with the weight restrictions information sheet.

BookShelf

 

c. Products does not include the following:

20. Property Damage

a. This is physical injury to tangible property and the resulting loss of use of that damaged property. Physical injury includes destruction of the property. Loss of use is understood to occur at the same time as the physical injury that caused it.

b. Property damage also includes loss of use of tangible property that is not damaged physically. Loss of use is understood to occur at the same time as the occurrence that caused the loss.

Data records are not considered tangible property.

 

100_9551

Example: Norm’s Nursery has a shed on premises filled with unlabeled chemicals. An employee’s negligent act causes the shed to catch fire, spreading noxious fumes and particulate throughout the neighboring area. The hazardous materials team evacuates everyone in the area for three days as it attempts to identify and evaluate the particulate hazard. The neighboring businesses must be closed and cleaned because of the damage the fumes and particulate cause. The particulate also causes property damage to businesses not physically damaged but that sustain a loss because they must be closed for three days.

 

21. Short-Term Rented Premises

This is any location or premises an insured rents for seven days or less. This definition includes the contents of the premises.

22. Suit

This is not limited to only civil or administrative proceedings where damages are alleged for covered bodily injury, property damage, or personal and advertising injury. It also includes alternative dispute resolution proceedings and arbitration proceedings. These are either of the following proceedings that:

a. Any insured must submit to comply with a law or regulation  

b. Any insured submits to with the insurance company’s consent

23. Temporary Worker

This is a person that an outside company furnishes to the named insured. These workers substitute for employees on leaves of absence or who are used to meet seasonal or short-term workloads.

Note: The key word is temporary. Also note that no time period is specified. If an employee is on a leave of absence due to illness or for military service, the time period could be lengthy.

24. Volunteer Worker

This is a person who gives his or her time or services. Both of the following apply to them:

a. They act at the named insured’s direction and within the scope of duties it determines.

b. They do not receive a salary, fee, or any other remuneration or compensation. However, they may be reimbursed for out-of-pocket expenses.

Employees, leased workers, and temporary workers cannot also be volunteer workers.

Note: The volunteer may derive benefits for the service provided, such as public notice or recognition by the company or agency represented. However, he or she is not directly remunerated for the service provided.

25. Your Work

a. This term includes all work or operations that the named insured performs. It also includes the work or operations that others do on the named insured’s behalf. Material, parts, and equipment necessary for the work or operation are also considered your work.

b. This term also includes any warranty or statement provided with respect to the work’s quality, fitness, durability, use, or performance and any warnings or instructions that should be provided, whether they were actually provided.

 

Example: Magnificent Draperies makes and installs window coverings, including the draperies, blinds, and hardware. Its crews usually consist of four employees, but it often uses subcontractors for more specialized installations. The operations the crews and the subcontractors perform are considered Magnificent Draperies' work, as well as the ladders, hammers, drills, and other tools they use. Instructions and information concerning the blind pulls and other dangerous situations are also Magnificent Draperies’ work.

This policy provides four different liability coverages.

COVERAGE L–BODILY INJURY LIABILITY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. The insurance company pays those amounts an insured is required to pay as damages that result from bodily injury or property damage that this insurance covers. The insurance company has the right but also the duty to defend suits that seek damages. This right and duty does not exist if coverage does not apply.

The insurance company has the right to investigate occurrences and to settle claims or suits as it sees fit. It is not required to consult with the named insured or obtain its consent or approval to do so.

b. The insurance company pays amounts as damages based on provisions in the How Much We Pay section.

c. The insurance company is not obligated to provide a defense after the policy’s limits of insurance has been exhausted through the paying of judgments, written settlements, or medical expenses.

The Supplemental Payments section describes the payments that the insurance company will pay while investigating or settling a claim or defending a suit.

d. The insurance company may defend the insured against a suit or pay for its defense but later determine that the policy does not provide coverage for the types of allegations brought in the suit. The insurance company has the right to be reimbursed for the defense costs it incurred when no coverage exists.

There is a limitation as to the insurance company’s right to be reimbursed. The insurance company must, in writing, notify the named insured that there is a possibility that coverage does not exist and explain that it is proceeding with the defense under a reservation of rights. Only defense costs that are incurred after the written notification has been provided are reimbursable.

e. Coverage applies to bodily injury or property damage that occurs during the policy and is caused by an occurrence that takes place in the coverage territory. There is an exception. The bodily injury or property damage is not covered if it is a continuation or resumption of or a change in an injury or damage that was known by a designated insured prior to the inception date. Refer to the Knowledge of Bodily Injury or Property Damage Condition for an explanation of this exception.

 

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Example: An employee's negligent act at 11:00 p.m. causes a fire at the local drug store. This is one hour before Leslie’s insurance policy takes effect. At 1:00 a.m., as a result of the fire, one of the building walls falls and kills a bystander. Coverage applies, even though the fire started before the inception date, because the occurrence that caused the bodily injury (the wall falling) took place after the policy was in effect.

On the other hand, property damage due to fire to an adjoining business is not covered because the occurrence (the fire) that caused the property damage is considered the entire fire event that began before the inception date.

 

f. Bodily injury or property damage that occurs during the policy period includes coverage for any continuation, resumption of, or change in that bodily injury or property damage beyond the current policy period.

There is an exception. The bodily injury or property damage is not covered if it is a continuation or resumption of or a change in an injury or damage that was known by a designated insured prior to the inception date. Refer to the Knowledge of Bodily Injury or Property Damage Condition for an explanation of this exception.

Related Court Case: Known Injury or Damage Not Excluded in Continuous or Progressive Damage Loss

g. Damages due to bodily injury go beyond the definition of bodily injury. They include damages that any person or organization claims for care, loss of services, and death that result from the bodily injury at any time.

Note: These may not be the only items included because the policy does not state that damages are limited to only these.

2. Exclusions

Editor’s note: We added a title for each exclusion to assist in this analysis.

a. Professional Services

The insurance company does not pay for bodily injury or property damage that arises from either of the following:

Note: This exclusion does not specify the party that rendered or should have rendered the service. As a result, it applies to all professional services.

Related Court Case: Adjuster's "Damaging Statements" Not Covered by Businessowners Policy

b. Employment-related Practices

There is no coverage for any person’s bodily injury because of a refusal to employ that person or because of the termination of that person's employment. Coverage also does not apply if malicious prosecution, coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination, sexual misconduct, or similar employment-related practices, policies, acts, or omissions directed towards that person cause the bodily injury.

In addition, there is no coverage for bodily injury to an immediate member of the family of that person described above as a consequence of the employment-related practices bodily injury.as described above.

When the injury occurs does not impact the application of this exclusion. The injury is excluded if employment-related practices occurred before, during, or after that person’s employment.

This exclusion applies regardless of the relationship the insured has to the injured party. It applies even if the insured has an obligation to reimburse a third party.

Related Article: BP 0623–Employment Practices Liability–Claims Made Basis

Note: Only bodily injury is excluded. Property damage due to employment-related practices would be covered.

c. War and Warlike Action

There is no coverage for any loss or damage caused directly or indirectly by any of the following:

d. Intentional Acts

Bodily injury or property damage that the insured expects, directs, or intends is excluded. There is also no coverage if the insured performs an intentional malicious act that causes bodily injury or property damage.

The exception to this exclusion covers bodily injury that results from reasonable force taken to protect persons or property.

Note: There is no exception for property damage caused by such reasonable force.

Related Court Case: Intentional Damage Exclusion Barred Claims against Liability

 

Example: Pat observes Paul attempting to set Pat's building on fire. Paul is about to strike the match when Pat jumps on him, struggles briefly, and manages to end his attempt. Paul sues Pat for the injuries he sustains in the scuffle and for his ruined leather jacket. The insurance company defends Pat because his actions to keep the fire from being set were reasonable under the circumstances. However, the defense and any settlement will not apply to the damaged jacket.

 

e. Contractual Liability

There is no coverage for bodily injury or property damage that the insured assumes in a contract or agreement.

There are a number of exceptions. This exclusion does not apply to liability for damages under any of the following circumstances:

Damages due to bodily injury or property damage with respect to liability assumed in a covered contract include litigation costs and attorney fees an indemnitee incurs but only if both of the following apply:

The litigation costs and attorney fees must be necessary and reasonable.

Note: This portion of this exception pays for defense. However, it places the fees for the indemnitee’s defense into the limit of insurance. This means that every dollar paid for defense reduces the limit of insurance available to pay for the loss by one dollar.

On the other hand, these defense costs can be paid and not reduce the liability limits if the requirements in Supplemental Payments item 3. b. are met.

 

Example: Mary and Peter enter into an agreement. In it, each agrees to accept the other’s liability if a liability issue arises. This agreement meets the definition of a covered contract. An accident occurs, Mary is sued, and Peter is brought into the action. According to the contract, Peter turns to Mary’s insurance for coverage. The insurance company defends the suit. The limit of insurance available is $300,000.

Scenario 1: The contract did not address defense costs. The insurance company defends Mary outside the policy limit, but Peter must pay for his entire defense. The case is settled for a total of $300,000. Mary is made whole, but Peter must pay his defense costs of $25,000.

Scenario 2: The contract addresses defense costs. However, Peter does not meet the requirements in Supplemental Payments. The insurance company defends both Mary and Peter. Mary’s defense costs are outside the limit but Peter’s defense costs of $25,000 are inside the limit. This means that only $275,000 is available to pay the $300,000 settlement.

Scenario 3: The contract addresses defense costs and Peter meets the requirements under Supplemental Payments. The insurance company defends both Mary and Peter. Both Mary’s and Peter’s defense costs are outside the limits. The entire $300,000 limit is available to pay the settlement.

 

f. Mobile Equipment Racing

There is no coverage for bodily injury or property damage that is caused by mobile equipment being used in racing or similar events. Coverage also does not apply when the bodily injury or property damage the mobile equipment causes happens during any practice or preparation for such events.

Note: Mobile equipment is covered when it is used for its stated purpose. It is not covered for racing, speed, pushing, pulling, demolition, stunts, contests, or other activities.

 

Example: George uses his bulldozer at work and runs over a child’s wagon. The property damage to the wagon is covered. George takes the same bulldozer to the fairgrounds, enters a bulldozer-pulling contest, and runs over a child’s wagon. This property damage to the wagon is excluded.

 

g. Mobile Equipment Transportation

There is no coverage for bodily injury or property damage that is caused when mobile equipment is being transported. There is an exception. This exclusion does not apply when the transporting auto is not owned by, or rented or loaned to, an insured.

 

Example: Gloria rents a truck to tow her bulldozer on her trailer. The trailer strikes a large pothole, causes the trailer to upset, and the bulldozer falls off. Several vehicles swerve attempting to avoid the bulldozer and are damaged. None of this damage is covered. However, if Gloria hired Marty to tow the bulldozer and the same damage occurred, coverage applies to any liability against Gloria because of the mobile equipment.

 

h. Auto, Watercraft, and Aircraft Coverage does not apply to bodily injury or property damage that arises from the following:

Related Court Case: Business Liability Policy Cannot be Construed as Automobile Policy

This exclusion does not apply to bodily injury or property damage that arises from any of the following:

While these vehicles are considered autos the operations of the equipment are covered.

Note: The two exceptions above apply to only damages related to the equipment being operated. This means damages related to owning, occupying, renting, using, entrusting, loading, and unloading are excluded. In addition, only the equipment’s operation is covered, not the operation of the land vehicle to which it is attached.

 

Example: Folksy Restaurant provides valet parking. Phil, one of the valets, strikes Sally while driving a customer’s vehicle. Folksy’s is covered if the accident takes place on its premises. It is not covered if Phil uses the customer’s vehicle to make a side trip to the next block to purchase a candy bar.

     

i. Liquor Liability (BP 0816 change)

There is no coverage for bodily injury or property damage that any insured may be liable for because it did any of the following:

This exclusion applies to only businesses that manufacture, distribute, furnish, sell, or serve alcoholic beverages. There has been confusion as to businesses that allow customers to bring alcohol to the premises but that business itself does not sell, serve, or distribute any alcoholic beverages. Wording has been added that this exclusion does not apply in those circumstances. This applies even when a license is required to operate this way or if the named insured charges a fee for the beverages to be consumed on the premises.

Note: A business that is not technically in the alcohol business may still be subject to this exclusion because of the amount of alcoholic beverage activities at the business.

Related Court Case: Liquor Liability Exclusion Held Applicable to Nonprofit VFW Post

j. Pollution

This exclusion has five parts. Four have significant exceptions.

1) Bodily injury or property damage that arises from actual, alleged, or threatened pollutant discharge, dispersal, seepage, migration, release, escape, or emission is excluded.

The following explains where it is excluded and the exceptions that apply at that location:

a) At or from any location or site that any insured ever owned, occupied, rented, or had loaned to it. This part of the exclusion has three exceptions:

·         Bodily injury or property damage that is due to heat, smoke, or fumes from a hostile fire

·         Bodily injury (but not property damage) that is caused by smoke, soot, fumes, or vapor from heating, cooling, or dehumidifying equipment or from equipment that heats water for the building’s occupants. This exception applies only if the injury takes place in the building where the equipment is located.

·         Bodily injury or property damage when all the following apply:

·         The named insured is a contractor

·         The named insured is liable to the owner or lessee of the premises.

·         The owner or lessee of the premises is an additional insured on this policy for the operations of the named insured.

·         No insured other than the additional insured can have at any time owned, occupied, rented, or had the premises loaned to it

b) At any site, premises, or location that has ever been used to handle, store, dispose of, process, or treat waste

Note: This completely deletes coverage. Any location that involves waste is excluded, regardless of how an insured might be held liable. There is no exception.

c) If the insured or another party for whom the named insured is legally liable ever transported, handled, stored, treated, disposed of, or processed waste at any time

Note: This continues to completely delete coverage for any pollution that involves waste. There is no exception.

d) When an insured or a contractor that is working for the insured brings pollutants to the job site, coverage does not apply if those pollutants are related to the work being performed there. This part of the exclusion has three exceptions:

·         Bodily injury or property damage that is due to heat, smoke, or fumes from a hostile fire

·         Bodily injury or property damage that is due to the escaping of fuels, lubricants, or other fluids from mobile equipment. This exception applies only when escape is unintentional, and their discharge was from the part of the vehicle designed to contain, store, or receive the fluids. This exception does not apply if the fluids are brought on the site with the intent to discharge or release them.

 

100_5117

Examples:

  • A bobcat loader overturns and the oil escapes from the engine. This pollution loss is covered.
  • A bobcat loader needs an oil change. The contractor drains the oil on the site and then adds new oil. The pollution loss due to the drained oil is excluded.

·         Bodily injury or property damage that is due to materials being brought into the building when those materials release gases, vapors, or fumes. However, this is only if the materials were for the named insured’s operation or for the operations of a contractor or subcontractor performing on the named insured’s behalf. In addition, the bodily injury or property damage must occur inside the building where the materials were brought.

e) If any insured must test for, abate, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of pollutants. This applies at or from any premises, site, or location where any insured or anyone working on the insured's behalf is working.

2) There is no coverage for any loss, cost, or expense due to the following:

a) Any requirement that requires that any insured or others deal with the effects of pollutants such as testing for, abating, monitoring, cleaning up, removing, containing, treating, detoxifying, or neutralizing. The requirement can be a demand or a request; it can also be a statute, order, or regulation.

b) When any governmental authority files a claim or suit that deals with the effects of pollutants such as testing for, abating, monitoring, cleaning up, removing, containing, treating, detoxifying, or neutralizing. There is an exception. Item 2) is about government authority actions. If the insured property damage liability is due to such actions but not based on governmental authority action, coverage may apply.

k. Workers Compensation

There is no coverage for the following bodily injury to:

This exclusion is absolute. It applies whether the insured is liable as an employer or is liable in any other capacity. It also applies when there is an obligation to reimburse another for damages as described above.

This exclusion has an exception for liability the insured assumes under a covered contract.

 

Example: Emily is a sales clerk at Sweet Things Bakery. While working, she samples a cookie from a freshly made batch. She begins to feel ill and then starts convulsing. She is rushed to hospital and the cookies she still has with her are taken away from her to be analyzed. The lab discovers that bleach was inadvertently added to the cookies. Emily sues Sweet in its capacity as a cookie maker, but Sweet Things Bakery’s insurance company denies coverage because of this exclusion. Emily’s husband must take time away from work to help Emily and he sues Sweet Things for his consequential loss of income due to Emily’s injury. Coverage is denied again because of this exclusion.

 

Note: Coverage should be obtained through a workers compensation policy.

Related Article: WC 00 00 00 C–Workers Compensation and Employers Liability Insurance Policy Analysis

l. Employee Benefits

The insurance company does not pay for bodily injury if the insured provides workers compensation, disability benefits, occupational disease, unemployment compensation, or any similar benefits. This exclusion also applies if the insured is required to provide such benefits but fails to do so.

m. Owned, Occupied, or Rented Property

There is no coverage for property damage to property that the named insured owns, occupies, or rents. Expenses the named insured or anyone else incurs to improve, repair, or maintain the property are also excluded, even if the reason for such expenses is to avoid injuring a person or damaging non-owned property.

There is an exception to this exclusion. Property damage to premises that is rented on a short-term basis is covered. This exception is subject to the short-term rented property limit in How Much We Pay item 5.

 

Example: The steps at the entrance to Priscilla’s Place tend to ice over. Priscilla decides to install heat elements in the steps to keep her customers from slipping. She submits the cost to her insurance company because this is a loss prevention expense. The company denies the claim because of this exclusion.

 

n. Alienated Premises

There is no coverage when property damage occurs at a premises that the named insured owned or occupied at one time even though it has been sold, given away, or abandoned. There is one exception. Property damage coverage does apply if the premises is considered to be the named insured's work. This exception is limited though and applies only if the named insured never occupied or rented that premises or held it out for rental.

Note: The insurance company’s obligation ends when the named insured is no longer involved with a premises or location. This exclusion caused problems for homebuilders because it eliminated coverage for the actual work they completed. As a result, the exception was developed specifically for them.

 

Example: Old Town Builders constructs five houses. It decides to rent out two of them and sell the other three. Property damage liability coverage does not apply to the two that it rented out but does to the three that it sold.

 

o. Loaned Property

Coverage does not apply to property damage to property that has been loaned to the named insured. There are two exceptions. Coverage applies to either of the following:

p. Care, Custody, or Control

There is no coverage for property damage to either business or non-business personal property that is in the insured's care, custody, or control. There are two exceptions. Coverage applies to either of the following:

Related Court Case: Care, Custody, or Control Exclusion Held Applicable

q. Property Being Worked On

When the named insured works on real property, there is no coverage for property damage to the specific part of the real property being worked on, if the named insured’s work causes the damage. This exclusion applies if the named insured does the work or if a contractor or subcontractor working on the named insured’s behalf does the work.

There is one exception. This exclusion does not apply with respect to liability assumed under a sidetrack agreement.

 

Example: Larry is hired to fix Maggie’s front door. While working on the door, his hammer falls out of his tool belt and breaks a basement window. This damage is covered because Larry was not working on the window when the damage occurred. Coverage would not apply if he had been working on the window.

 

r. Faulty Workmanship

There is no coverage for property damage to the specific part of property that must be replaced, restored, or repaired because the work performed on it was faulty. However, this exclusion has two exceptions. Coverage applies if either of the following applies:

 

Example: John is hired to install four windows in a house.

Scenario 1: One pane in a window breaks while John is installing it. John’s Businessowners Policy does not cover the cost to replace the pane of glass.

Scenario 2: The windows are installed. However, during a heavy rainstorm, the property owner notices water pouring into the house from beneath one of the newly installed windows. Coverage could apply under the Businessowners Policy’s Products/Completed Work Hazard.

 

s. Defective Products

The insurance company does not pay for property damage to products if the damage is due to the product itself or any part of it.

 

Example: Tip-Top Tables sells a line of round tables with Lazy Susans inserted in the middle. One of Rita’s children decides to see how fast it can spin. The centrifugal force causes it to separate from the table, causing the table to collapse and dinnerware to crash to the floor. Rita and two of her children go to the hospital and are treated for cuts and bruises they sustained in the accident. The property damage to the table is excluded but coverage applies to the resulting bodily injuries and property damage.

 

t. Defective Work

Property damage to the named insured’s work is excluded if the reason for the damage is the work itself or any part of it. This applies only if the damage is within the products/completed work hazard.

 

Example: Ken is redoing Barbie’s kitchen. He installs the flooring first and then the cabinets and counters. While installing the counters, water leaks on the flooring before it is fully cured. Six months after the installation is complete, Barbie informs Ken that the flooring is buckling. There is no coverage because the buckling is due to the water that leaked on the floor and it is part of the products/completed work hazard.

 

This exclusion has one exception. Coverage applies if a subcontractor working on the named insured's behalf causes the damage to the work.

 

Example: Continuing the example above, instead of Ken doing all the work, he installs the floor and hires Otto to install the cabinets and counters. Otto causes the water damage and the floor buckles six months later. The property damage to the floor is covered because of this exception to the exclusion. Ken’s carrier will subrogate against Otto for his negligence in causing this loss, but Barbie’s kitchen will be repaired, and Ken will not have to pay for it.

 

u. Impaired Property

This is more of a loss of use property damage exclusion than a physical damage exclusion. There is no coverage for property damage (think loss of use) to property that has not been physically damaged or that is impaired. This applies if the loss of use property damage is because of either of the following:

 

Example: Ollie's Oyster Bar Restaurant purchases a hot water heater from Archibald’s Appliances. He pays to have it delivered and installed. The hot water heater is delivered but no one shows up to install it. Ollie’s down time because he cannot operate without hot water is not a covered property damage loss under Archibald’s Businessowners Policy.

Continuing the example above, the contractor arrives, installs the hot water heater, and leaves. When Ollie inspects the work, he discovers that the release valve was not installed. This leaves the hot water heater in an unsafe condition to the extent that he cannot use it. Ollie’s down time because he cannot operate without hot water is not a covered property damage loss.

RestaurantFlorida_1

 

This exclusion has an exception. The named insured’s work or product may be put to its intended use and then sustain sudden or accidental physical damage. In that case, any loss of use to other property is covered.

 

Example: Changing the second example above, Ollie does not notice that the release valve was not installed and uses the water heater. An incident occurs three months later, the pressure builds up, and the water heater ruptures because it does not have a release valve. Ollie must close the restaurant until the water heater is repaired because he cannot use his dishwasher. This loss of use is covered property damage under Archibald’s Businessowners Policy.

 

v. Product Recall

The insurance company does not pay the following expenses, losses, or costs that the named insured (or others) incur as they relate to the named insured's products, work, or impaired property:

This exclusion applies when any organization or person recalls or withdraws the product, work, or impaired property from use because it has an actual or suspected defect, deficiency, or unsafe condition. This could include a voluntary recall.

Note: This is usually referred to as product recall or warranty coverage.

w. Personal and Advertising Injury

Coverage for bodily injury that arises out of personal and advertising injury is excluded.

Note: Coverage P–Personal and Advertising Injury Liability covers consequential bodily injury due to personal and advertising injury.

x. Electronic Data Records (BP 0816 change)

There is no coverage for loss, cost, expense, or damages due to data records being corrupted, damaged, changed, or manipulated. It also does not cover if they cannot be accessed or used.

This exclusion does not apply to bodily injury.

Note: The definition of data records states that this is only electronic data records when stored on any type of media.

 

Example: Jeremy counts on Merris Tax Service to prepare his taxes every year. Jeremy does not keep copies of the records for himself. The Internal Revenue Service (IRS) contacts Jeremy about a tax audit. Jeremy contacts Merris and finds out that its records have been corrupted. Merris attempts to recreate them but it will take a while. Jeremy misses his audit deadline, is fined, and submits the fine to Merris to pay. Merris does not have coverage for this loss because it is due to corrupted data records.

 

y. Information Distribution and Recording Violations

Coverage does not apply to property damage or bodily injury that is due to actual or alleged direct or indirect violations of any of the following:

o    Recording

o    Collecting

o    Transmitting

o    Communicating

o    Sending

o    Disposing of

o    Distributing material

 

COVERAGE M–MEDICAL PAYMENTS

1. Insuring Agreement

a. Medical expenses are covered when bodily injury due to an accident occurs on premises the named insured owns or rents, or on ways adjacent to it. Such expenses are also covered when the bodily injury is because of the named insured’s operations.

Note: It is not required that anyone be legally liable for the expenses. In addition, the term accident is used but is not defined. Unexpected or undesirable events are usually considered to be accidents.

 

Example: Chrissie is having a really bad day. Her hat almost blows off as her cell phone rings, so she does not notice as she walks head first into the closed exit door at Nancy’s Market. She is knocked unconscious and the store manager calls the EMTs who transport her to the hospital. All expenses incurred are covered, even though Chrissie was the only one negligent.

 

b. Medical expenses are paid without regard to fault, subject to the following three conditions:

c. The How Much We Pay section describes the amount the insurance company pays towards medical expenses.

d. The following medical expenses are covered but only if they are both necessary and reasonable:

 

Example: Continuing the example above, Chrissie demands to be transferred from the first hospital to another closer to her home. The expense of the ambulance ride to the second hospital is not covered because it is not a necessary expense.

 

Note: This is very limited coverage. There is no coverage for lost wages, pain, and suffering, or damage to personal property worn or carried. Medical expenses are limited to only those that the medical field usually provides. This means that unusual expenses are not be considered, except through consultation with the insurance company’s doctors.

2. Exclusions

The insurance company does not pay the following medical expenses:

a. Medical expenses for bodily injury that Coverage L–Bodily Injury Liability and Property Damage Liability excludes

Note: Wording this exclusion this way eliminates having to list those exclusions.

b. Bodily injury to any insured. However, this exclusion does not apply to volunteers.

Note: This exclusion is because coverage applies to only injuries to third parties. Volunteers are excepted because even though they are insureds they are not being compensated.

c. Medical expenses due to bodily injury to a person any insured hires or to any person who does work for an insured or an insured’s tenant

d. Medical expenses for bodily injury to persons injured on the part of the premises that the named insured owns or rents that the injured person usually occupies

Note: The important word is occupies. The injured person may not have a written agreement with the named insured, may not be a tenant, and may even occupy the premises without permission.

 

Example: April is a tenant at Eddie’s Apartments. Her boyfriend, Joe, moves in with her but his name is not on the lease. Joe falls in the apartment and breaks his arm. His medical expenses are not covered.

 

e. Medical expenses for bodily injury to any person who participates in, practices for, or instructs any sports or athletic activity that the named insured sponsors

Note: Athletic activity is still a very broad and open-ended term and could be subject to many different interpretations.

f. If the bodily injury is due to the Products/Completed Work Hazard

Note: Medical payments coverage is primarily premises-oriented. However, it could be confusing in some cases, such as a restaurant or any operation that has consumption on the premises.

 

Example: Lindsay walks into Gino’s restaurant and trips on her shoelaces. Medical expense coverage applies. However, coverage does not apply when Lindsay chips her tooth on a piece of bone in a hamburger because that would be part of the products/completed work hazard.

 

g. Medical expenses for bodily injury to club members if the named insured is a club

h. Medical expenses for bodily injury to guests of a hotel, motel, or tourist court that the named insured owns and/or operates. This exclusion also applies if others operate the hotel on the named insured’s behalf.

i. Medical expenses for bodily injury when benefits are required to be provided under workers compensation, non-occupational disability, occupational disease, or similar laws, or that are actually provided even if doing so is not required.

Note: This does not require that the named insured provide the coverage. It also does not state that the benefits must be required. However, there is no coverage if they are required to be provided and there is no coverage if they are provided.

 

Flowershop

Example: Freddy works for Fanny’s Florists and delivers flowers to Doug’s Drive-In. He spills some water from the flowers, slips on it, and falls. Doug’s Drive-In is not required to provide medical expense coverage for Freddy’s injury because Fanny’s Florists should provide workers compensation coverage on Freddy.

 

j. Medical expenses for bodily injury to the following:

·         Students or campers enrolled in a program at a facility the named insured owns or operates

·         Patients or inmates being treated or detained in a facility the named insured owns or operates

COVERAGE O–FIRE LEGAL LIABILITY

1. Insuring Agreement

a. Coverage applies to those amounts an insured is legally required to pay as damages when fire or explosion causes property damage to buildings that the named insured rents from others. This applies to the building as well as to its parts and any fixtures that are permanently attached to it. It also applies to buildings that are loaned to the named insured.

Note: This coverage is needed because Coverage L–Bodily Injury Liability and Property Damage Liability 2. Exclusions m. Owned, Occupied, or Rented Property excludes property damage to property rented to the named insured.

Related Court Case: Hotel Property Damage Held Covered Only Outside Room

Similar to Coverage L–Bodily Injury Liability and Property Damage Liability, the insurance company has both the right and duty to defend the insured against any suit that demands damages that this coverage may insure. There is no duty to defend if coverage does not apply. The insurance company controls claims and decides how and when it investigates an occurrence and settles claims or suits.

 

Examples:

  • Barry rents office space in the Grand Building. He forgets to turn off the coffee maker when he leaves for the weekend. It overheats, catches fire, and causes damage to Barry’s office and three other offices. Barry’s Businessowners Policy’s coverage applies.
  • Peragin, another tenant in the same building, negligently drives the forks of the forklift through a building wall. Peragin’s Businessowners Policy excludes this loss because it was not caused by either fire or explosion.

 

b. How Much We Pay 6. Coverage O describes and limits amounts paid for damages.

Related Court Case: Fire Legal Liability Limit Specified in Form

c. The insurance company is not obligated to provide a defense after it has used up its limits of insurance by paying judgments, written settlements, or medical expenses.

The Supplemental Payments section describes the payments that the insurance company will pay while investigating or settling a claim or defending a suit.

d. The insurance company may defend the insured against a suit or pay for its defense but later determine that the policy does not provide coverage for the types of allegations brought in the suit. The insurance company has the right to be reimbursed for the defense costs it incurred when no coverage exists.

There is a limitation as to the insurance company’s right to be reimbursed. The insurance company must, in writing, notify the named insured that there is a possibility that coverage does not exist and explain that it is proceeding with the defense under a reservation of rights. Only defense costs that are incurred after the written notification has been provided are reimbursable.

e. The property damage must result from an occurrence for coverage to apply. The occurrence must take place in the coverage territory and the property damage must occur during the policy period.

 

2. Exclusions

Editor’s note: We added a title for each exclusion to assist in this analysis.

The insurance company does not pay for the following:

a. Contractual

Property damage liability that an insured assumes under a contract or agreement to indemnify others for fire damage to the premises.

Note: This contractual limitation does not have an exception for losses that would have been covered if the contract did not require it. This could mean that this coverage ends if any such contract is in place.

 

Example: Roger’s lease requires that he assume the property damage liability if a fire of any kind starts anywhere in the building. When a fire in the building occurs, the property damage loss is denied because of this exclusion.

 

b. Professional

Property damage that arises from either of the following:

Note: This exclusion does not specify the party that rendered or should have rendered the service. As a result, it applies to all professional services.

Related Court Case: Policy Does Not Cover Suit against Law Firm

 

Example: Kermit, a professional firefighter, rents space in the Grand Building. When a fire starts, Kermit decides not to help fight the fire. The Grand Building sues Kermit for the property damage caused because he did not provide professional services to fight the fire. Coverage is denied.

 

c. Intentional Acts

Property damage the insured expects, directs, or intends to occur is excluded. There is also no coverage for property damage that results from the insured's intentional and malicious acts.

 

Example: Schemp is a partner at Mow, Larry, and Kurley LLP. He is angry with one of his partners and places an explosive device in his office that activates when he opens the door. The device explodes when the building that Mow, Larry, and Kurley rents space in is empty and causes widespread damage. This coverage does not insure the property damage because Schemp's malicious actions caused the property damage.

 

COVERAGE P–PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

a. The insurance company pays those amounts an insured is required to pay as damages that result from personal and advertising injury that this insurance covers. The insurance company has the right but also the duty to defend suits that seek damages. This right and duty does not exist if coverage does not apply.

The insurance company has the right to investigate offenses and to settle claims or suits as it sees fit. It is not required to consult with the named insured or obtain its consent or approval to do so.

b. The insurance company pays amounts as damages based on provisions in the How Much We Pay section.

c. The insurance company is not obligated to provide a defense after the policy’s limits of insurance has been exhausted through the paying of judgments or written settlements.

The Supplemental Payments section describes the payments that the insurance company will pay while investigating or settling a claim or defending a suit.

d. The insurance company may defend the insured against a suit or pay for its defense but later determine that the policy does not provide coverage for the types of allegations brought in the suit. The insurance company has the right to be reimbursed for the defense costs it incurred when no coverage exists.

There is a limitation as to the insurance company’s right to be reimbursed. The insurance company must, in writing, notify the named insured that there is a possibility that coverage does not exist and explain that it is proceeding with the defense under a reservation of rights. Only defense costs that are incurred after the written notification has been provided are reimbursable.

a. The insurance company pays those amounts an insured is required to pay as damages that result from personal and advertising injury that this insurance covers. The insurance company has the right but also the duty to defend suits that seek damages. This right and duty does not exist if coverage does not apply.

The insurance company has the right to investigate offenses and to settle claims or suits as it sees fit. It is not required to consult with the named insured or obtain its consent or approval to do so.

b. The insurance company pays amounts as damages based on provisions in the How Much We Pay section.

c. The insurance company is not obligated to provide a defense after the policy’s limits of insurance has been exhausted through the paying of judgments or written settlements.

The Supplemental Payments section describes the payments that the insurance company will pay while investigating or settling a claim or defending a suit.

d. The insurance company may defend the insured against a suit or pay for its defense but later determine that the policy does not provide coverage for the types of allegations brought in the suit. The insurance company has the right to be reimbursed for the defense costs it incurred when no coverage exists.

There is a limitation as to the insurance company’s right to be reimbursed. The insurance company must, in writing, notify the named insured that there is a possibility that coverage does not exist and explain that it is proceeding with the defense under a reservation of rights. Only defense costs that are incurred after the written notification has been provided are reimbursable.

e. The personal and advertising injury must result from an offense. The offense must be committed in the course of the named insured's business and take place in the coverage territory during the policy period.

Note: Offenses cause personal and advertising injury. The policy does not define the term but one dictionary definition states that an offense is an annoyance or resentment brought about by a perceived insult to or disregard for oneself or one's standards or principles.

2. Exclusions

Many of these exclusions apply to the insured’s intentional and pre-meditated acts. Some are criminal in nature. Some have social or moral implications, and some may be transgressions of law.

Editor’s note: We added a title for each exclusion to assist in this analysis.

a. Professional Services

Personal and advertising injury that arises from either of the following:

 (This 06 12 addition restricts coverage by excluding claims for negligent supervision.)

Note: This exclusion does not specify the party that rendered or should have rendered the service. As a result, it applies to all professional services.

b. Employment-related Practices

There is no coverage for any person’s personal or advertising injury because of a refusal to employ that person or because of the termination of that person's employment. Coverage also does not apply if malicious prosecution, coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination, sexual misconduct, or similar employment-related practices, policies, acts, or omissions directed towards that person cause the personal and advertising injury.

In addition, there is no coverage for personal and advertising injury to an immediate member of the family of that person described above as a consequence of the employment-related practices injury as described above.

When the injury occurs does not impact the application of this exclusion. The injury is excluded if employment-related practices occurred before, during, or after that person’s employment.

This exclusion applies regardless of the relationship the insured has to the injured party. It applies even if the insured has an obligation to reimburse a third party.

Related Court Case: Wrongful Termination Covered, Defamation Excluded

Related Article: BP 0623–Employment Practices Liability–Claims Made Basis

c. War and Warlike Action

There is no coverage for any loss or damage caused directly or indirectly by any of the following:

d. Intentional Acts

Personal or advertising injury that the insured expects, directs, or intends is excluded. There is an important exception. This exclusion applies only if the insured either committed the act or directed others to commit the act AND the insured knew that the act would result in personal or advertising injury.

e. Criminal Acts

Coverage does not apply when a criminal act that the insured either commits or directs causes personal and advertising injury.

 

Example: Lyle and Pat, his partner, decide to stage a kidnap as a joke on one of their competitors. With Lyle in the driver’s seat, Pat grabs Felix as he walks by. Lyle and Pat then call Felix’s office and demand that it issues a statement to the effect that Lyle and Pat’s business is better than theirs as a precondition to freeing Felix. After being released, Felix sues Lyle and Pat. Coverage does not apply because kidnapping is a criminal offense.

 

f. Contractual Liability

There is no coverage for personal and advertising injury liability that the insured assumes in a contract or agreement. The only exception is that if there would have been liability without the contract or agreement coverage continues to apply.

g. Publication of False Information and Publication Prior to the Policy Period

There is no coverage if information that an insured knew was false is published orally or in writing by that insured or at its direction. In addition, coverage does not apply to material published orally or in writing prior to the policy period.

Example: Millie is a sales representative who calls on both Clay and Liston. While visiting Clay’s, she tells Rita that Jennifer is interviewing at Liston’s. Clay fires Jennifer because Rita told Jennifer's boss about the interview. Jennifer sues Millie and Millie’s company. The insurance company denies coverage when it learns that Millie knew that Rita was not interviewing.

 

Coverage does not apply to material that is published, either orally or in writing, prior to the policy period.

 

Example: Let’s change the example above. While at Clay's, she tells Rita that Jennifer is interviewing at Liston’s. Clay fires Jennifer because Rita told Jennifer's boss about the interview. Jennifer sues Millie and Millie’s company. However, this time Rita is telling the truth. However, the insurance company still denies coverage when it learns that Millie gave this same information to Jennifer’s boss four weeks earlier during the prior policy period.

 

h. Breach of Contract

Coverage does not apply if a breach of contract causes a personal and advertising injury. The single exception is when it is a breach of an implied contract that relates directly to the named insured's advertisement.

 

Example: Preston has a great idea for an advertisement and mentions it to Willis at a party. Willis agrees with Preston's assessment. Preston sees an advertisement using his great idea two years later. He discovers that Willis now works at the company using the advertisement and sues it for breach of contract. Coverage applies since the contract was, at most, implied.

 

i. Quality of Goods, Products, or Services

Claims alleging that products, services or goods do not conform to the named insured advertised quality or performance are not covered.

Related Court Case: Advertising Injury Coverage Held Not Applicable to Misleading Investment Advice

j. Excluded Business Operations

The insurance company does not pay for personal and advertising injury that arises from offenses committed by an insured engaged in any of the following businesses:

However, this exclusion does not apply to the following offenses:

Placing advertisements and related materials on the Internet does not necessarily mean the insured is in the business of advertising or publishing.

k. Incorrect Pricing

There is no coverage if the named insured’s advertisement states the incorrect prices of goods, products, or services.

l. Pollution

This is a total pollution exclusion. It does not have any of the exceptions in the corresponding exclusion under Coverage L–Bodily Injury Liability and Property Damage Liability. Personal and advertising injury that arises from the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, escape, or emission of pollutants is excluded. In addition, there is no coverage for loss, cost, or expense for either of the following:

Note: While it is difficult to imagine personal or advertising injury that arises from pollutants, the pollution exclusion is included just in case there is any way to exploit the coverage.

Related Court Case: Pollution Exclusion Not Applicable to Personal Injury Claim

m. Infringement of Intellectual Property Rights

Coverage does not apply to personal and advertising injury that arises out of violating intellectual property rights of others. Examples of such rights are trademark, trade secrets, patent rights, and copyright but this exclusion is not limited to just these.

There is an exception. Coverage applies when such infringement takes place within the named insured’s advertisement.

n. Internet Social Media Sites

There is no coverage for personal and advertising injury that arises from electronic chat rooms, bulletin boards, gripe sites, blogs, social networking sites, or other electronic forums that the insured hosts, owns, controls, or has the authority to update, or manage.

Note: This exclusion does not apply to an insured who makes comments on another party’s forum.

 

Examples:

Scenario 1: Kirby sells musical instruments. To encourage customer loyalty and instill a sense of community, he sets up a chat room for customers to discuss music. While Kirby monitors the chat room, he allows it to be fairly open. In one of the forums, a user utters some defamatory statements about another company. The defamed company sues Kirby for setting up the chat room where the remarks were made. There is no coverage in this case.

Scenario 2: Instead of Kirby controlling the site, his friend Martin controls the site. One day, Kirby makes some defamatory statements about a competing company. That company sues Martin and Kirby. The insurance company will defend Kirby.

 

o. Other Names and Products

Coverage does not apply if names or products of others are listed on the named insured's website without permission. There is also no coverage if the named insured uses those names or products in its e-mail address, domain name, or metatags with the intent to mislead potential customers of others.

Note: Getting a website on the Internet is easy. Getting customers to that website is the hard part but there are many ways to do so legally.

Related Court Case: Carmaker's Website Features Qualify As Advertising Injury

p. Information Distribution and Recording Violations

Coverage does not apply to personal and advertising injury due to actual or alleged direct or indirect violations of any of the following:

o    Recording

o    Collecting

o    Transmitting

o    Communicating

o    Sending

o    Disposing of

o    Distributing material

SUPPLEMENTAL PAYMENTS

1. Covered Expenses

The insurance company pays certain costs and expenses when it investigates or settles claims or defends suits against an insured. They are as follows:

a. Costs that are related to a suit and that are taxed against the insured. However, attorney fees and expenses are specifically not covered.

Note: These are not the attorney fees of those defending on behalf of the insurance companies. These are the attorney fees and expenses that the court hearing the case specifically taxes against the insured.

b. All expenses the insurance company incurs

c. Up to $250 per day in lost earnings when the insured must be away from work at the insurance company's request

Note: The insurance company must ask the insured to take the time off. It does not pay anything if the person voluntarily takes the time off or if another party asks the insured to take time off.

d. Reasonable and necessary expenses the insured incurs when the insurance company asks it to help investigate the claim or defend the suit

 

Example: D&L sues PT. The insurance company that represents PT asks Craig to testify at the trial. Craig lives just minutes away from the courthouse but decides to stay at a plush hotel adjacent to the courthouse the night before. The $300 room bill he submits to the insurance company will probably be denied because it was unnecessary. If the trial were at a distant location, the company would probably pay the bill, along with Craig's transportation expenses.

 

e. Pre-judgment interest against the insured that is awarded on the part of the judgment the insurance company pays is covered. If the insurance company offers to pay its full limit, it does not pay pre-judgment interest for the period of time after it makes the offer.

f. Interest that accrues on the entire amount of a judgment, not just the insurance company’s portion of it. This starts when the judgment is entered and ends when the insurance company pays its portion of the judgment, even if the other parties have not paid their portion.

g. Appeal bonds and bonds to release attachments are common requirements in court proceedings. The insurance company pays the costs of such bonds. However, it pays only costs for the bond up to the limit of insurance. The company is not required to supply the bonds.

h. Up to $500 toward the cost of a bail bond that is required of an insured. This applies only when an accident or traffic violation arises out of using a vehicle that is covered for bodily injury under Coverage L. The company is not required to supply the bonds.

 

Example: Michael and Norman work at the ice skating rink. They are bored and hungry, but the roads are icy. They decide to drive the Zamboni machine used to clear the ice rink to the local fast food restaurant drive thru. They make it to the drive thru, place and receive their orders, and are on their way back when they strike an oncoming car. They are arrested, and their boss posts a bond to release them from jail and to release the Zamboni from the impound lot. The cost of the bail bonds is covered.

2. Payments

The payments made in this section are in addition to the limits for the Commercial Liability Coverages.

3. Indemnitees (06 12 addition)

This supplemental payment item explains the circumstances under which the insurance company pays the defense costs for an indemnitee as part of Supplemental Payments.

a. The insurance company will do all the following:

b. However, the insurance company performs the acts in paragraph a. above only if all the following conditions are met:

Such payments are not considered damages for bodily injury and property damage and do not reduce the limits if these conditions are met. This is regardless of the provisions of Coverage L Exclusion 2. e. 2.

The insurance company’s obligation to both defend an insured’s indemnitee and to pay its costs of defense and litigation as Supplemental Payments ends when either of the following takes place:

Note: If an indemnitee does not agree to the terms in this section, the insurance company is still obligated to defend it. However, all costs it incurs to do so are within the limits of insurance. This means the costs reduce the amount available to pay for coverage.

WHAT MUST BE DONE IN CASE OF LOSS

These are the named insured's obligations if a loss occurs.

1. Notice

a. The named insured is responsible to make sure the insurance company is aware of any occurrence or offense that could potentially result in a Commercial Liability claim. As soon as an insured is aware of a situation that may result in a Commercial Liability claim, the named insured is also responsible for notifying the insurance. The named insured is not required to go overboard in notification but must do so as soon as is practicable. Notice to the agent is the same as notice to the insurance company.

b. A notice is not a complete loss explanation. Instead the notice must only provide sufficient information for the insurance company to begin its investigation. The notice must provide the policy number, name of the insured and the names and addresses of all known and potential claimants and witnesses. It must also provide information regarding what happened. This means the time, the place and the circumstances surrounding the occurrence or offense including the situation that might cause a claim to arise must be provided.

Related Court Case: Ten Year Delay of Claim Relieved Insurer of Defense and Indemnification of Housing Authority

2. Cooperation

Cooperation is required of not only the named insured but also all other insured who are involved with an offense or an occurrence. This cooperation with the insurance company is required during the investigation, settlement, and defense of a suit.

Related Court Case: Insured Did Not Fail to Cooperate

3. Volunteer Payments

If the named insured voluntarily makes any payments or assumes any expenses without the insurance company's express approval, it does so at its own expense. The only exception is for first aid administered to others at the time of bodily injury.

Note: While the insurance company does not reimburse the named insured for voluntary payments it made, it also does not void coverage because the named insured made such payments.

4. Other Duties

When a claim is made, or a suit is brought against any insured, the named insured and that insured involved in the claim must do all of the following:

a. Send copies of all legal papers, demands, and notices to the insurance company. Only those that relate to a particular claim or suit must be sent but they must be sent promptly.  

b. Give the insurance company written authorization for them to obtain records and whatever other information that is legally available based on such authorization.

Note: The material available may vary based on state law. Authorization is not required until the insurance company requests it.

c. Cooperate with and help the insurance company when they ask for help in doing the following:

HOW MUCH WE PAY

This section explains how the limits of insurance are paid.

1. Limits

The limits of insurance on the declarations are the most paid, regardless of the number of insureds, parties that sustain injury or damage, claims made, or suits brought.

When the insurance company pays claims under Coverage M–Medical Payments it cannot be interpreted as an admission of liability under other coverages.

 

Example: Clevon was getting his dog from the vet’s office. He slips and falls on the sidewalk leading into the Veterinary Clinic. The clinic's insurance company pays Clevon’s medical expenses under Coverage M. Clevon then sues the clinic. The insurance company investigates and informs Clevon that his fall was due to his tripping over his own shoelaces, not because of the clinic’s negligence. As a result, the company does not pay more than the medical expenses already paid.

 

2. General Aggregate Limit

The General Aggregate Limit is the most paid for all non- products/completed work hazard losses. This is the sum of the following:

Note: Once the General Aggregate Limit is used up, no limits remain for any additional claims or suits for covered occurrences or offenses during the policy year except those losses covered under the Products/Completed Work Hazard.

 

Example: Genesse's General Aggregate Limit is $600,000. Two personal and advertising injury liability offenses amount to $400,000 and a medical expense loss adds another $10,000 to the total. $190,000 remains to apply to any additional losses during the policy year ($600,000 - $400,000 - $10,000 = $190,000).

 

3. Products/Completed Work Hazard Aggregate Limit

The Products/Completed Work Hazard Aggregate Limit is the most paid for all losses considered products/completed work hazard that occur during the policy year. Once the Products/Completed Work Hazard Aggregate Limit is used up, no limits remain for any additional products/completed work claims or suits for occurrences during that policy period. All other limits are unaffected.

Related Court Case: Aggregate Limit Held Applicable to Products and Completed Operations Injuries Combined

 

Example: Continuing the example above, Genesse's Products/Completed Work Hazard Aggregate Limit is also $600,000. It receives a demand for $300,000 for a products loss. Because this is the first products/completed work loss for the year, $600,000 is available. If there is another loss during the policy period, only $300,000 is available to apply to it.

 

4. Each Occurrence Limit

The Each Occurrence Limit is subject to the General Aggregate Limit and the Products/Completed Work Hazard Aggregate Limit. It is the most paid for all damages due to a bodily injury or property damage in a single occurrence, plus the medical expenses under Coverage M. It is also all damages due to personal and advertising injury to a single person or organization.

 

Example: Genesse's occurrence limit is $300,000. When a $500,000 judgment due to a personal and advertising injury is awarded, the most the insurance company pays is $300,000. However, the amount of its liability is further capped because only $190,000 of the General Aggregate Limit remains.

 

5. Property Damage to Short-Term Rented Premises Limit

The limit for property damage to short-term rented premises is $50,000 for each occurrence. However, any payment made is subject to the Each Occurrence Limit. Higher limits are available. This limit does not apply to damages covered under Coverage O–Fire Legal Liability.

 

100_4147

Example: Magnificent Miles rents out the ballroom at the Hotel Grand for an evening of celebration. Unfortunately, a battle of wills turns into a terrible occurrence. Fifteen clients are injured and flying debris damages the ballroom walls, ceiling, and floors. The hotel presents a claim for $25,000 which is well within the limit for this coverage, but the bodily injury claims have already exceeded the occurrence limit. As a result, this claim is denied.

 

6. Coverage O–Fire Legal Liability Limit

The most paid for property damage covered under Coverage O–Fire Legal Liability is $50,000. However, any payment made is subject to the Each Occurrence Limit. Higher limits are available. An unusual feature is that while Coverage O limit is subject to the each occurrence limit it is not subject to the General Aggregate Limit or the Products/Completed Work Hazard Aggregate Limit.

 

Example: Genesse sustains a $30,000 fire legal liability loss. While the General Aggregate Limit has been exhausted by paying prior claims, this loss is covered and paid in full because Fire Legal Liability is not subject to the General Aggregate Limit.

 

7. Coverage M–Medical Payments Limit

The Coverage M–Medical Payments Limit is the most paid under Coverage M for all medical expenses because of bodily injury that any one person sustains. It is important to note that the Coverage M does not state that it is subject to either the Occurrence Limit or the Aggregate limit.

 

Example: Chris asks Chrissie to marry him just as the flaming Cherries Jubilee arrives at their table. When Chrissie jumps up to hug Chris, the flaming dessert tips over onto both of them. Chris and Chrissie each have the entire medical payments limit available to pay for their injuries.

 

8. General Aggregate Limit and Products/Completed Work Hazard Aggregate Limit

The General Aggregate Limit and the Products/Completed Work Hazard Aggregate Limit are annual aggregates. They apply separately to each consecutive 12-month period starting with the policy’s inception date. They also apply to any policy period of less than 12 months unless the Commercial Liability Coverage was extended after it was written. Any such extension is considered part of the last preceding period for purposes of determining the appropriate aggregate.

 

Example: Genesse's policy is for a three-year term, running from 01/01/18 to 01/01/21. The losses in the examples occurred during the 01/01/18 to 11/01/19 period. The full aggregate limits are restored and are available for new losses on 01/01/19.

 

ADDITIONAL CONDITIONS

These apply to both the named insured and the insurance company in the event of loss.

1. Bankruptcy

The insurance company is not relieved of its obligations if an insured declares bankruptcy or becomes insolvent.

2. Insurance under More Than One Policy

These conditions apply to all coverages except Coverage M–Medical Payments.

a. This coverage is primary, subject to the exceptions in 2. c. below. The insurance company's liability is not reduced because excess coverage is available.

b. If any other insurance is also primary, the companies share the loss in one of two ways. The first is contribution by equal shares. With this approach, the insurance company pays equal amounts with all other companies that insure on the same basis until the lowest limit on any one policy is used up or the loss is paid in full. The remaining companies pay any part of the loss that remains in equal shares until the policy with next lowest limit policy is used up or the loss is paid in full. This continues until all limits are used up or the loss is paid in full.

 

Example: Company A's limit of insurance is $300,000, Company B's is $200,000, and Company C's is $100,000. Each policy is written on a primary basis and Company A’s policy requires contribution by equal shares. The covered loss amount is $500,000. Each company pays $100,000 for a total payout of $300,000. At this point, Company C is no longer involved because its limit is used up. Company A and B then each pay an additional $100,000 to complete the loss payment. The result is that Company A pays $200,000, Company B pays $200,000 and Company C pays $100,000.

 

If contribution by equal shares is not required, the companies share based on the proportion that each company’s limit bears to the total limits available to pay the loss.

 

Example: Use the limits and companies from the example above. Company A pays 300/600 X 500,000 = $250,000, Company B pays 200/600 X 500,000 = $166,667 and Company C pays 100/600 X 500,000 = $83,333.

 

c. This insurance is excess over any other insurance in very specific situations:

Note: Extended coverage is an old insurance term that refers to certain specified perils.

d. If this insurance is excess

e. Any other insurance coverage that is not described in 2.c. above and that was not specifically purchased as excess coverage pays for any remaining loss on a shared basis with this insurance.

Related Court Case: Other Insurance Clauses Do Not Cancel Each Other Out

3. Knowledge of Bodily Injury or Property Damage

It is important to know exactly when an insured is considered to be aware of bodily injury and property damage because the timing of such knowledge determines the policy that responds to a loss. Coverage under this policy does not apply to any bodily injury or property damage loss that occurred and was known to have occurred before the policy period. A loss is considered known at the earliest of the following:

Note: The first two items above are relatively simple but the last may be more difficult. It is difficult to define what “aware” means. Must the designated insured develop a cause-and-effect understanding that the event witnessed will naturally lead to bodily injury or property damage?

 

Example: Golden Hills Flour’s policy period is 1/1/18-1/1/19. Jill purchased flour on October 15. She uses the flour starting that day and finishes using it with her Christmas cookie baking. Jill gives cookies to many friends and is surprised when she is notified of illnesses that appear to be related to the cookies. They are tested, and it is discovered that the flour was contaminated. Jill notified the grocery where she purchased the flour on December 27, but they do not notify Golden Hill’s until January 2. Because Golden Hill’s first notice of bodily injury is January 2, the current policy period will respond. Had the notice been received on December 31, only the prior policy period would respond.

 

4. Premium

When the premium on the declarations is a deposit, it is considered only an estimate which means that it is not final. At the end of the audit or policy period, the insurance company will perform an audit and then calculate the final premium. The audit period, if not the policy period, must be on the declarations or stated on a separate endorsement.

When the calculated premium is more than the deposit premium, the insurance company bills the named insured for the difference. However, it returns the difference to the named insured when the calculated premium is less.

The insurance company relies on the named insured to provide the information needed to complete the audit. As a result, the named insured must maintain needed records. The named insured is required to send copies of the records to the company at the end of the audit period or when the insurance company asks for them. When additional premium is due, an invoice will be sent to the named insured and the date on that invoice is the due date.

5. Separate Insureds

The policy may have many different insureds. This coverage applies equally and separately to each one. The number of insureds does not affect the limits in How Much We Pay.

6. Subrogation

The insurance company has the right to demand that an insured assign its rights of recovery to the company after it pays a loss. The insured must not do anything after the loss to impair those rights. The only exception is that this condition does not apply to Coverage M–Medical Payments.

Note: An insured may waive its rights of recovery against others in writing before a loss takes place but not after.

 

Example: Ben owns a building that has numerous tenants. Paula, the primary tenant, causes a fire. Because Ben and Paula do not have a written lease, there is no cross waiver of subrogation clause found in most written leases. However, they have always had an unwritten understanding that neither would sue the other. Because they do not have a written agreement, the insurance company has the right to pursue a cause of action against Paula and Ben could lose his coverage if he does anything to impede such an action.

 

7. Suit against Us

No lawsuit may be brought against the insurance company unless both of the following apply:

The insurance company does not pay any injury or damage that Commercial Liability Coverage does not insure or that exceeds the limit of insurance that applies.

The insurance company cannot be brought into any action taken to determine the liability of an insured.

Note: This means the insurance company cannot be named along with an insured in a court action.

 

NUCLEAR ENERGY LIABILITY EXCLUSION

This exclusion has two parts. The first is the actual exclusion. The second is eight definitions used with only this exclusion.

1. Exclusion

a. There is no coverage for the following bodily injury or property damage:

 

Example: Lillian wants to build on a site formerly used to enrich uranium. The United States Government previously removed all nuclear material waste and cleaned the site, but Lillian is still concerned. She enters into an agreement where the United States government agrees to indemnify her for any liability that results from the nuclear aspects of the property due to abandoned nuclear material. The parents of children who played near the site sue her 20 years later for their alleged injuries due to the nuclear properties. This policy does not respond, and Lillian turns the case over to the United States government.

 

b. Coverage M–Medical Payments does not apply to bodily injury that results from the hazardous properties of nuclear material and that arises from any person or organization operating a nuclear facility.

c. There is no coverage for bodily injury or property damage that results from the hazardous properties of nuclear material if:

2. Definitions

The following eight definitions apply to only this Nuclear Energy Liability Exclusion:

a. Hazardous Properties

This includes radioactive, toxic, or explosive properties but is not limited to them

b. Nuclear Material

This is source material, special nuclear material, or by-product material. These are all defined terms within the Atomic Energy Act of 1954.

c. Source Material, Special Nuclear Material, and By-product Material

These terms have the meanings that the Atomic Energy Act of 1954 gives them.

d. Spent Fuel

This is any solid or liquid fuel element or component that has been used or has been exposed to radiation in a nuclear reactor.

e. Waste

This is waste material that contains by-product material. By-product material does not include tailings or wastes produced by extracting or concentrating uranium or thorium from any ore processed primarily for its source material content. Waste also includes any waste material that results when any person or organization operates any nuclear facility included in the first sentence of the definition of nuclear facility below.

f. Nuclear Facility

This is a nuclear reactor and equipment designed or used to separate uranium or plutonium isotopes or for spent fuel processing, utilization, or waste handling, or processing or packaging. It also includes equipment or devices used in special nuclear material processing, fabricating, or alloying. This is subject to the total amount of such material at any time consisting of (or containing not more than) 25 grams of plutonium or uranium-233 (or any combination thereof) or more than 250 grams of uranium-235. It also includes any structure, basin, excavation, premises, or place prepared or used to store or dispose of waste. This includes sites where all such operations are conducted, and all premises used for such operations.

g. Nuclear Reactor

This is any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction. It is also used to contain a critical mass of fissionable material.

h. Property Damage

This is all forms of radioactive contamination of property.

Note: The Nuclear Energy Liability Exclusion is an elaborate and extensive exclusion of incidents and materials related to nuclear energy of every kind and description. It contains its own set of related definitions. The intent is to exclude any bodily injury or property damage covered by any nuclear liability insurance policy and to exclude coverage for companies required to maintain financial protection by any of a number of federal laws and acts related to nuclear energy. It excludes all medical payments of any kind and excludes nuclear discharge, leaks, waste, or the work performed at any nuclear facility.

It is unlikely that many businesses eligible for the AAIS Businessowners Policy will be involved with or exposed to any nuclear issues, with the possible exception of medical offices and laboratories.

BP 0100–BUSINESSOWNERS STANDARD POLICY ANALYSIS

This section of the analysis identifies only the differences between BP 0200–AAIS Businessowners Special Policy and BP 0100–AAIS Businessowners Standard Policy Property Coverages. Everything else is identical in both policies.

Property Coverages

ADDITIONAL DEFINITIONS

BP 0100 does not define Specified Perils because it does not use that term.

ADDITIONAL PROPERTY EXCLUDED AND LIMITATIONS

This section is not in BP 0100. However, parts of it are in Perils Excluded.

ADDITIONAL COVERAGES

BP 0100 does not include Collapse, Lock and Key Replacement, and Tearing Out and Replacing. All other coverages are identical except that the Limited Fungus and Related Perils coverage in BP 0100 does not include collapse that hidden decay causes.

EXTENSIONS OF COVERAGE

BP 0100 is nearly identical to BP 0200, except where exclusions are removed that do not apply to it. This neither broadens nor restricts coverage but simply matches the coverage to the policy.

COVERAGE C–LOSS OF INCOME

BP 0100 is nearly identical to BP 0200. However, BP 0200 has an additional restriction that eliminates perils that apply to only computers or hardware. BP 0100 does not have any perils that apply to only computers or hardware. As a result, this restriction is not necessary because it does not affect coverage.

PERILS COVERED

BP 0100 covers risks of direct physical loss or damage caused by a listed peril. BP 0200 provides coverage for risks of direct physical loss or damage without listing the perils. The only losses that BP 0200 does not cover are those limited or excluded. This is the primary difference between the two. BP 0100 covers 12 perils, as follows:

a. Explosion

Coverage applies if an explosion causes loss or damage. Gas or fuel in a firebox, combustion chamber, or flue that explodes is considered an explosion although there are many other types of explosion. Loss or damage that occurs when a pressure release device ruptures, bursts, or operates is not covered even though it might look like an explosion. Similarly, when water causes contents to expand in a building or structure to the point of its rupture or bursting, that is also not covered under this peril.

b. Fire or Lightning

Coverage applies when fire or lightning causes loss or damage.

c. Riot or Civil Commotion

Loss or damage caused by riot or civil commotion is covered. Looting and pillaging that occurs at the same time and place as the riot or civil commotion is also covered. Coverage also applies to loss or damage caused by employees striking against either the owner or a tenant of the designated premises. There is no requirement that the employees be the named insured’s employees.

d. Sinkhole Collapse

Loss or damage that sinkhole collapse causes is covered.

The Businessowners Policy Definitions section defines sinkhole collapse to not include the land’s value, the cost to fill the sinkhole, or any collapse into a man-made cavity instead of one that occurs naturally. This means that there is no coverage if a structure collapses into a deserted coal mine because a coal mine is a man-made cavity.

e. Smoke

Only sudden and accidental loss or damage that smoke causes is covered.

f. Sonic Boom

Coverage applies to loss or damage that sonic boom causes.

g. Sprinkler Leakage

Four types of sprinkler leakage loss or damage are covered:

This peril defines a sprinkler system to include both automatic fire protection systems and non-automatic fire protection equipment supplied from the sprinkler system.

h. Transportation

Loss or damage to covered property in transit is covered. Collision, derailment, or overturn of vehicles, stranding or sinking of vessels, or collapse of bridges, culverts, piers, wharves, or docks must cause the loss or damage.

i. Vandalism

Willful and malicious damage to, or destruction of, the described premises is covered. Theft is excluded. However, coverage applies to intentional damage that burglars cause when they either break into a building or break out of it.

j. Vehicles and Aircraft

There is coverage for loss or damage caused by physical contact of aircraft, objects falling from aircraft or vehicles, or objects thrown by vehicles with covered property. Aircraft is broadened to include spacecraft and self-propelled missiles. The one exception is that vehicle damage caused by the named insured’s owned or leased vehicles or by vehicles that are operated in the course of the named insured business is not covered.

k. Volcanic Action

Coverage applies to loss or damage caused by volcanic action. All losses that occur within a 168-hour time period are considered one loss.

l. Windstorm or Hail

Loss or damage caused by windstorm or hail is covered, subject to three exceptions. There is no coverage for the following:

PERILS EXCLUDED

This section of BP 0100 is identical to BP 0200 except for exceptions that BP 0200 provides. BP 0200 exempts computers from the Earth Movement, Fungus or Related Perils, Utility Failure, and Water exclusions while BP 0100 does not. BP 0200 exempts collapse caused by hidden decay from the Fungus or Related Perils exclusion while
BP 0100 does not.

BP 0100 does not have 10. Weather because the named perils form is not to be construed to provide any coverage for weather.

ADDITIONAL EXCLUSIONS

BP 0100 has 15 exclusions. BP 0200 has 19. This does not mean that BP 0100 is broader. It means that BP 0200 is broader and must have additional exclusions to define the coverage it provides. BP 0200 has seven exclusions that are not in BP 0100. BP 0100 has four exclusions that are not in BP 0200.

a. The Animals, Collapse, Pollutants, Seepage, Settling, Cracking, Shrinking, Bulging or Expanding, Temperature/Humidity, and Voluntary Parting Exclusions in BP 0200 are not in BP 0100.

b. The following exclusions are in both policies but with some differences:

This is Explosion in BP 0200. BP 0100 does not include loss or damage caused by gas or fuel in a firebox, combustion chamber, or flue that explodes.

BP 0100 does not have the exception that is in BP 0200. This exception covers loss or damage caused when a covered peril damages the air conditioning system that services the computer system and causes either contamination or deterioration.

BP 0100 does not have BP 0200’s exception for computers.

BP 0100 does not have BP 0200’s exception for computers.

BP 0100 does not have BP 0200’s exception for computer hardware.

BP 0100 does not have BP 0200’s exception for computers.

BP 0100 does not have BP 0200’s exception for computers.

BP 0100 does not have BP 0200’s exception for damage to computer hardware that mechanical breakdown causes.

c. The following additional exclusions are in only BP 0100.

This is identical to Missing Property in BP 0200’s Additional Property Excluded and Limitations.

If water pipes that do not make up part of a sprinkler system burst or rupture, coverage does not apply to any resulting loss or damage. However, coverage applies to bursting or rupture that a covered peril insures.

If water or steam discharges or leaks because a system or appliance cracks or breaks, coverage does not apply to the resulting damage unless a covered peril causes the cracking or breaking. This does not apply if the sprinkler system cracks or breaks.

OPTIONAL PROPERTY COVERAGES

BP 0100 and BP 0200 both have three optional coverages. BP 0100 does not provide Money and Securities Optional Coverage. BP 0100 provides Burglary and Robbery Coverage instead. The other Optional Coverages are identical.

Burglary and Robbery Coverage

Note: It is important to remember that BP 0100 does not cover theft. As a result, this Optional Coverage is used to provide burglary and robbery coverage for money and securities as well as business personal property.

a. Definitions

The following definitions apply to only this Optional Coverage:

b. Coverage

Coverage applies to direct physical loss to the named insured's business personal property caused by burglary, robbery, or safe burglary in the described building. It also applies to robbery of a messenger outside the building.

Note: The word is building, not premises. There is an important difference.

c. Property Not Covered

Property Not Covered 8. Money and Securities does not apply to this optional coverage. This means that this item covers money and securities.

d. Extensions of Coverage:

The named insured’s business personal property under an armored vehicle carrier’s control is covered for burglary or robbery as though it is still in the described building.

In case of a covered burglary loss, the insurance company pays any necessary expense to repair or replace exterior or interior door locks and keys. However, only the doors and locks at the premises where the loss occurred are covered. There must be actual property damage or the named insured’s keys must have been stolen. Payment is limited to $1,000. There is no deductible.

e. Exclusions and Limitations

Coverage is limited to a $2,500 limit in any one occurrence that involves theft of furs or fur garments.

Note: Furs are subject to the same limitation in BP 0200.

Coverage is limited to a $2,500 limit in a single occurrence that involves theft of jewelry, watches, watch movements, jewels, pearls, and precious or semi-precious stones. This limitation also applies to bullion, gold, silver, other precious alloys or metals, or items that consist primarily of precious metals. It does not apply to jewelry or watches worth $100 each or less.

Note: This property is subject to the same limitation in BP 0200.

There is no coverage for lottery tickets, money, or securities lost or damaged in an actual or attempted burglary within the described building.

Note: This means that money and securities lost in a robbery in the building is covered but not a burglary.

Coverage is limited to a $2,500 limit in any one occurrence that involves theft of patterns, dies, molds, models, or forms.

Note: This property is subject to the same limitation in BP 0200.

There is no coverage if property is lost from an unattended vehicle, unless there are visible signs of forced entry into a securely locked compartment in the vehicle.

Note: This same limitation applies to off-premises property in in BP 0200.

f. Coverage Limit

The Burglary and Robbery coverage limit on the declarations is the most paid for loss caused by actual or attempted burglary, robbery, or safe burglary as this Optional Coverage provides.