ISO COMMERCIAL PROPERTY PROGRAM ARCHIVE

(June 2019)

This document is a repository of articles and analyses that relate to earlier editions of the above captioned program.

Related Article: CP 00 10–Building and Personal Property Coverage Form Analysis

Archive Index
Comparisons	CP 00 10–Building and Personal Property Coverage Form Comparison: ’91 edition vs. ‘95 edition
Comparisons	CP 00 10–Building and Personal Property Coverage Form Comparison: ‘95 edition vs. ‘00 edition
Comparisons	CP 00 10–Building and Personal Property Coverage Form Comparison: ’00 edition vs. ’02 edition
Comparisons	Compare: ISO Building and Personal Property Coverage Form: 2002 edition to the 2007 edition
Comparisons	Commercial Property Causes of Loss Forms Comparison: '00 edition
Comparisons	Commercial Property Causes Of Loss Forms Comparison: ‘02 edition
Comparisons	Compare: ISO Commercial Property Program Causes Of Loss Forms: ’07 edition
Analysis	CP 00 10–Building and Personal Property Coverage Form Analysis (06 95 edition)
Analysis	CP 00 10–Building and Personal Property Coverage Form Analysis (04 02 edition)
Analysis	CP 00 10–Building and Personal Property Coverage Form Analysis (06 07 edition)
Analysis	Basic, Broad, and Special Causes of Loss Forms Analysis (04 02 edition)
Analysis	Basic, Broad, and Special Causes of Loss Forms Analysis (06 07 edition)
Analysis	Basic, Broad and Special Cause of Loss Forms Analysis (10 12 edition)
Special Analysis	Pre-2000 Edition Glass Coverage Form
Analysis	Available Endorsements and Their Uses (06 07 edition)
Analysis	CP 10 32–Water Exclusion Endorsement (08 08 edition)

CP 00 10–Building And Personal Property Coverage Form Comparison: ‘91 edition vs. ‘95 edition

The following compares the ‘91 edition of the Building and Personal Property Coverage Form (CP 00 10) to the ‘95 edition. The vast majority of differences are editorial in nature, having minimal impact on how risks were covered or rated.

CHANGES To A. COVERAGE

1. In the ‘91 edition, Covered Property was defined as “the following types of property for which a Limit of Insurance is shown in the Declarations.” The ‘95 edition clarified that Covered Property “means the type of property described in this section, A.1., and limited in A.2., Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of property.”

2. A second editorial change was made to subsection 1.a(1) and (2) with respect to what is considered building. The old wording indicated permanently installed fixtures, machinery and equipment, and outdoor fixtures. However, by definition, fixture already means permanently installed so it was redundant. The ’95 Coverage Form was changed to: “(2) Fixtures, including outdoor fixtures: (3) Permanently installed: (1) Machinery and (b) Equipment.”

3. Under paragraph 2 regarding Property Not Covered, item j, Bulkheads was added to that item along with the previous exclusions of pilings, piers, wharves, or docks.

4. Paragraph 2. Property Not Covered, item l was clarified to mention that retaining walls that are not a part of a building described in the Declarations are not covered. In the ’91 form, it stated that the retaining walls that were not a part of the building described in the Declarations were ineligible for coverage.

5. An additional item, satellite dishes, was added under paragraph 2., Property Not Covered, item p. This is a clarification to exclude satellite dishes with other radio or TV antennas and towers already barred from coverage. Note, however, that under Coverage Extensions, coverage for property in or on the building, in the open, or in or on a vehicle while within 100 feet of the premises, was added back when 80% or higher coinsurance existed.

This coverage extension is not available under Builders Risk, so all antennas and satellite dishes need to be added to the policy by endorsement to include this coverage during construction.

6. Under paragraph 4, Additional Coverages, item b. Preservation of Property, the time limit was increased from 10 to 30 days from the date of the original loss, for damage to property that must be removed because of a covered loss.

7. Paragraph 5, Coverage Extensions, item a. 1 (b) and 2, Newly Acquired or Constructed Property, was modified. Previously, the coverage for buildings was limited to 25% of the building limit with a $250,000 maximum. Coverage for personal property was 10% of the business personal property limit, or a $100,000 maximum. The change eliminated the percentage limitation. Therefore, free coverage was granted for businesses having less than $1,000,000 in building or business personal property.

8. Paragraph 5, Coverage Extensions, item c. Valuable Papers and Records. The Limit of Insurance was increased from $1,000 to $2,500 unless a higher limit is shown in the Declarations.

9. Paragraph 5, Coverage Extensions, item d. Property Off Premises. Property temporarily away from premises you do not own or control, excluding property in vehicles or in the care of salespeople or at fairs or exhibitions, was doubled from $5,000 to $10,000.

CHANGES To B. EXCLUSIONS

The only change to this section was to the section’s title from Exclusions to EXCLUSIONS AND LIMITATIONS.

CHANGES To C. LIMITS OF INSURANCE

Under item 2, Debris Removal, the additional amount available over the 25% was been increased from $5,000 to $10,000.

CHANGES To D. DEDUCTIBLE

1. The wording was amended in the ’95 edition to state: “When the occurrence involves loss to more than one item of covered property and more than one Limit of Insurance applies, the deductible will reduce the total amount of loss payable if loss to at least one item is less than the sum of (1) the Limit of Insurance applicable to that item, plus (2) the deductible.”

2. Two examples were added in ’95. Both examples are consistent with the application of the coverage part’s deductible. If the limit and loss are $10,000 and the deductible is $250, then the loss payment is $9,750. If the limit is $10,000, the loss is $10,251, and the deductible is $250, then the loss payment is $10,000. There is no coverage or rating change.

CHANGES To E. LOSS CONDITIONS

1. Regarding paragraph 3, Duties in the Event of Loss or Damage, under sub-paragraph 4, wording was added. The ’95 edition states that if the insured makes repairs to preserve covered property after an eligible loss, and those repairs are subsequently damaged, the insurer will pay for the subsequent damage to those repairs, but only if caused by an eligible cause of loss.

Example: Damage to a temporary roof from a second tornado would be covered. However, if a tornado is followed by an earthquake and the quake damages the temporary roof, the roof damage would not be covered (in an unendorsed property policy).

Another important note is that, should the original damage result from an ineligible cause of loss, the insured must take steps to preserve the property or any subsequent loss will not be covered. The policy says that, where feasible, set the damaged property aside and in the best possible order for examination. Preserve the property and the evidence. This change resulted in some modification of coverage.

2. Under paragraph 4, Loss Payment, the sub-paragraphs were renumbered and the wording of the condition was rearranged to make the intent clearer. The major change was a revision that reflects the days before simplified policy wording. It mentions that repair or replacement using property of like, kind and quality does not include any cost increase attributable to the enforcement of any ordinance or law.

3. The entire paragraph 6, Vacancy, was substantially revised. In the ’91 edition, vacancy existed when the building did not contain enough business personal property to conduct customary operations. In the ’95 edition, three circumstances of vacancy are defined. It has the same language as the ’91 version for tenants. A major change was made for insureds who are building owners. If 70% or more of the total square footage of the building is not rented or 70% or more is not used to conduct customary operations, it is considered vacant. Buildings under construction or renovation are not considered vacant. Several causes of loss are ineligible for coverage when the property is vacant (as defined above) for more than 60 days. The excluded causes are:

· vandalism,

· sprinkler leakage (unless protected against freezing),

· building glass damage,

· water damage,

· theft, and damage from attempted theft.

For other causes of loss that occur during vacancy, a 15% penalty applies.

Example of when the vacancy revision results in broader coverage: A strip mall is 10% occupied but another 30% is rented. The renter has filed for bankruptcy and is not operating the business but the lease has not been broken. Technically, 40% of the building is rented; therefore less than 70% is vacant and the building is not considered vacant in the ’95 edition vacancy definition.

Examples of when the change either Limits Coverage or makes Coverage Questionable:

· 40% of the floors above the full basement and sub-basement are rented, but counting the basements, only 10% of the entire building is rented. The limitation would apply to the building owner, but not the tenant as long as the tenant is conducting customary operations.

· The anchor store declares bankruptcy and breaks the lease. Two other mall stores are still operating, but only 20% of the building is now rented. The owner of the building is affected by the limitation.

· The building is a behemoth and expensive to heat. Through intelligent “reengineering” of staff and processes, the business is operating profitably in 25% of the square footage of the building. The rest of the building is dormant for the present and no renovation is planned unless business increases and an expansion are needed.

· What is the definition of “under renovation”? How active must the renovation be?

· Building has completed construction, but no there are tenants yet. Limitations will apply.

4. Under Loss Conditions, paragraph 7, Valuation, has two clarifications.

(1) "The cost of building repairs or replacement does not include the increased cost attributable to enforcement of any ordinance or law regulating the construction, use or repair of any property."

(2) The following is added: "However, the following property will be valued at the actual cash value even when attached to the building:

· awnings or floor coverings,

· appliances for refrigerating, ventilating, cooking, dishwashing, or laundering,

· outdoor equipment or furniture.”

CHANGES To F. ADDITIONAL CONDITIONS

1. Paragraph 1, Coinsurance was amended to clarify the example by adding the following: "The minimum amount of insurance to meet your coinsurance requirement is $200,000 ($250,000 x 80%). Therefore, the Limit of Insurance in this example is adequate and no penalty applies. We will pay no more than $39,750 ($40,000 amount of loss, minus the deductible of $250).”

2. Under Paragraph 2., mortgage holder was changed to mortgageholder and "statement of loss" was replaced with "proof of loss."

CHANGES To G. OPTIONAL COVERAGES

1. In paragraph 3, Replacement Cost was clarified to explain that replacement of damaged or destroyed property with property of like, kind and quality does not include increased cost of repair or reconstruction caused by the enforcement of any ordinance or law. A second change renames “property of others” to “personal property of others.”

CP 00 10–Building And Personal Property Coverage Form Comparison: ’95 edition vs. ‘00 edition

The CP 00 10 has been revised to clarify a number of issues that either cause confusion or are subject to misinterpretation. It has also been enhanced. The latest edition of the form provides coverages that are becoming more common in the insurance marketplace. The policy offers broader coverage due to the following changes:

1. Increased Cost of Construction (Additional Coverages – Section A.4)

2. Newly Acquired Personal Property Coverage Extension (Coverage Extension-Section A.5)

3. Property Off Premises (Coverage Extensions – Section A.5)

4. Non owned Detached Trailers (Coverage Extensions – Section A.5)

5. Extension of Replacement Cost to Personal Property of Others (Optional Coverage–Section G)

6. Replacement Cost for Improvements and Betterments (Optional Coverage – Section G)

Items Subject to Extensive Clarification

Debris Removal Additional Coverage (Additional Coverages – Section A.4)

Limit of Insurance (Limits of Insurance – Section C)

Deductible (Deductible – Section D)

Vacancy Loss Condition (Loss Conditions - Section E)

Replacement Cost (Optional Coverages – Section G)

Items With Minor Clarifications

Mainly lead-in language and paragraph reconstruction:

· Loss Payment (Loss Conditions – Section E)

· Optional Coverages (Optional Coverages – Section G)

Per the form’s vendor, there have been no intentional reductions of coverage within the forms. However, whenever clarifying language is provided, an ambiguity is removed. Elimination of ambiguity could be construed as creating a more restrictive policy, since an ambiguous policy will be interpreted in favor of the party that did not construct the contract – in almost all cases, the insured. The broader features should be helpful to insureds and agents. These changes should reduce the need to customize the policy by adding endorsements. Most insureds will find all of the features useful in their normal course of doing business.

Non-Owned Detached Trailers

This coverage provides $5,000 in coverage for a trailer that is left at an insured location. Since the practice of leaving a trailer loaded with inventory at the customer’s site is becoming more common, the need to provide coverage for the trailer has been recognized. One might argue that such trailers should be insured by their owners. However, there remains an equally valid position that the insured, by having the trailer in their care, custody or control, has an obligation to provide coverage. This Coverage Extension helps bridge the gap by providing the $5,000 coverage but as EXCESS over any other insurance that is available, even if not collectible.

Increased Cost of Construction Additional Coverage

This extension provides a very limited amount of coverage (five percent of the limit of insurance or $10,000, whichever is less) but this little bit can help a lot after a loss when the insured discovers that the loss amount is increased because of the enforcement of building laws. Many insureds are unaware of ordinances that can significantly impact any partial loss. The result is that most insureds never purchase this coverage as a separate option. This new coverage extension, though limited, is in an amount that will provide some relief for those surprises. If increased limits are desired, the insured can purchase Coverage C on the Ordinance or Law Coverage Endorsement (CP 04 05).

Replacement Cost Valuation

A very popular feature with insureds now includes two significant items that were only permitted to be settled on an ACV basis – Improvements and Betterments and Personal Property of Others. This gap of coverage could significantly impact any loss payment and severely impact the insured’s ability to return to full operation. This edition recognizes the needs and satisfies them with appropriate restrictions to maintain the integrity of the coverage.

Newly Acquired or Construction Property Coverage Extension

The above option has been broadened in several significant ways:

1. The 30 day time period starts with the start of construction of COVERED PROPERTY. So if the policy has not been extended to include foundations, the time period will not start until building starts on top of the foundation.

2. The previous coverage would only cover Business Personal Property at locations that were newly acquired or constructed. This revision provides coverage for Business Personal that is newly acquired without regard to the acquisition or the construction structure or location. This significantly enhances this coverage since there is now coverage for Business Personal Property that is newly acquired at:

a. Newly constructed or acquired buildings at the insured premises

b. At any described building on the policy.

c. Newly constructed or acquired buildings other than the insured premises

3. There are limitations to clarify that this is not for temporary situations.

Property Off-premises

The revised extension now includes stock, property at a storage location that is leased mid-term and property at fairs, trade shows and exhibitions. This change is a major improvement for the insured since the coverage finally lives up to its name.

Debris Removal Additional Coverage

The following clarification really improves the readability of the Coverage Form. Although the coverage is not changed, it is now much easier to find and to understand. In earlier editions a lot of page-flipping was required to fully understand the coverage being offered. Now everything you need to know is in one section of the Commercial Property Coverage form. Just to be sure that the insured understands what is meant by debris removal, a loss example has been provided.

Limit of Insurance

The policy’s insurance limit wording is now much more concise and easier to comprehend thanks to the removal of all reference to Debris Removal.

Vacancy Loss Condition

This important condition has been changed to explain that 31% or more of a building must be occupied if it is not to be considered vacant. The previous wording stated that 70% or more of the building must be vacant. This is not a real change, just a half full/half empty look at the explanation of vacant.

Deductible

The policy deductible wording was revised to help clarify how deductible works with the coinsurance loss condition and also to clarify that the deductible is an occurrence deductible, not a per item deductible.

Replacement Cost

This provision was modified to clarify that there is no requirement to build at the same premises after a loss. This provides an insured suffering a loss with greater flexibility in recovering from the occurrence.

CP 00 10–BUILDING AND PERSONAL PROPERTY COVERAGE FORM COMPARISON: ‘00 EDITION VS. ‘02 EDITION

The latest revision of the ISO Building and Personal Property Coverage Form is officially presented as a clarification of intent. However, considering the restrictive language, especially in certain jurisdictions, it represents a reduction in coverage. The changes are as follows:

Property not covered

Coverage has been expanded to include Electronic data. Electronic data includes almost anything that is stored or could be stored in a computer.

Property not covered

The cost to research valuable papers has been significantly increased to list the type of items that are considered valuable papers but not to limit the definition.

Additional Coverages – Increased Cost of Construction

This feature is more limited than in the past. In the latest edition, it does not provide coverage for any ordinance that has to do with mold. This is grouped with the pollution exclusion.

Valuable Papers and Records –Cost of Research

This supplemental protection has been eliminated and replaced by Valuable Papers and Records (Other than Electronic Data). While the name may look the same, the coverage is very different and restricted. The newer version eliminates all coverage for Valuable Papers that are in an electronic data form.

The limit for this coverage is $2,500 but it can be increased on the Schedule. Remember this is NOT the same as the Valuable Papers Coverage offered on Inland Marine. The explanation of the determining the value of such a loss has been moved from the valuation section of the policy to the extension. This change does add clarity.

Electronic Data

This has been added as an Additional Coverage. However, it is being added in a very limited fashion. The coverage does not match the cause of loss form that is attached. It does provide some virus protection but even that is limited. In addition, the limit is $2,500 that is to cover ALL LOSSES AT ALL LOCATIONS that occur during a POLICY YEAR. The same limit applies if there is one location or 100 locations.

Fungus

A final change is that the latest revision adds a definition of the word fungus. This matches the definition used in all other Insurance Services Office forms.

COMPARE: ISO BUILDING AND PERSONAL PROPERTY COVERAGE FORMS: 2002 EDITION TO THE 2007 EDITION

INTRODUCTION

The 06 07 edition of the Insurance Services Office (ISO) Commercial Property Program was filed in most states with an effective date of November 2008. This edition has several significant changes. The summary that follows highlights them.

CP 00 10–ISO BUILDING AND PERSONAL PROPERTY COVERAGE FORM

Changes to A. Coverage

2. Property Not Covered

Outdoor signs are removed from item 2.q. as property not covered.

4. Additional Coverages

c. Fire Department Service Charge

The $1,000 limit can be increased.

5. Extensions Of Coverage

e. Outdoor Property

All reference to signs is removed because signs are no longer considered property not covered.

Changes to C. Limits of Insurance

The limit of insurance for signs is increased to $2,500 from $1,000. The limit applies to both attached and detached signs.

Changes to E. Loss Conditions

4. Loss Payment

Paragraph h. is added. It explains how to adjust losses to a party wall that belongs to the insured and another party.

Note: A party wall separates two buildings but both buildings share it.

CP 10 30–CAUSES OF LOSS–SPECIAL FORM

Exclusion 1

e. Utility Services

This exclusion has a number of important changes:

• Communication and water are added as specifically listed utility services.
• The definition of communication includes Internet, cellular, satellite, and similar services.
• Power surge that results from power failure is excluded.
• Coverage is excluded even if the utility services equipment that fails is on the insured premises.
• This exclusion now applies to business income and extra expense coverage.

g. Water

CP 10 32–Water Exclusion Endorsement is a mandatory endorsement that replaces g. Water. This was introduced with a 08 08 edition date but is listed here because it is significant.

a. Artificially Generated Power

This exclusion is expanded. It lists magnetic and electromagnetic energy in addition to electricity. Cellular, satellite, and similar services are added as disrupted devices not covered.

k. Collapse

This exclusion is rewritten to clarify what is actually excluded. Previous editions required reading the exclusion in conjunction with the section on Additional Coverage–Collapse to fully understand it. It is now an exclusion that stands on its own but without any change in coverage intent.

Exclusion 4

a. Business Income (And Extra Expense) Coverage Form, Business Income (Without Extra Expense) Coverage Form, and Extra Expense Coverage Form

The utility services exclusion (formerly item (1)) is deleted. However, this does not mean utility services are covered. This exclusion was eliminated because item 1.e. Utility Services now applies to business income and extra expense. The lead in language to exclusion 1.e. means that this exclusion is now more restrictive than the old one.

Exclusion 5–Additional Exclusion

A Loss or Damage to Products exclusion is added. It excludes loss or damage to any product that occurs because of any error or omission made throughout the life of a product (including while at outsourced locations).

Additional Coverage–Collapse

This coverage is completely rewritten to be clearer. There are no significant changes within the wording but it uses additional paragraphs that utilize an easier-to-read sentence structure.

Commercial Property Causes Of Loss Forms Comparison: '00 edition

The following chart is a comparison of the Cause of Loss forms available under the '00 edition of the ISO Commercial Property Program.

Commercial Property Causes of Loss Forms Comparison: '00 edition
Covered Cause of Loss	CP 10 10 Basic	CP 10 Broad	CP 10 30 Special
Fire	Covered	Covered	Covered
Lightning	Covered	Covered	Covered
Explosion	Covered	Covered	Covered
Wind and hail	Covered	Covered	Covered
Smoke	Covered	Covered	Covered
Aircraft/vehicle	Covered	Covered	Covered
Riot or civil commotion	Covered	Covered	Covered
Vandalism	Covered	Covered	Covered
Sprinkler leakage	Covered	Covered	Covered
Sinkhole/collapse	Covered	Covered	Covered
Volcanic action	Covered	Covered	Covered
Falling objects	Not Covered	Covered	Covered
Weight of ice/snow	Not Covered	Covered	Covered
Water damage	Not Covered	Covered	Covered
Risks of direct physical loss unless excluded or limited	Not Covered	Not Covered	Covered
Exclusions
Ordinance or law	Excluded	Excluded	Excluded
Earth movement	Excluded	Excluded	Excluded
Governmental action	Excluded	Excluded	Excluded
Nuclear hazard	Excluded	Excluded	Excluded
Utility services	Excluded	Excluded	Excluded
War/military action	Excluded	Excluded	Excluded
Water	Excluded	Excluded	Excluded
Electric arcing	Excluded	Excluded	Excluded
Delay, loss of market	N/A	N/A	Excluded
Smoke from agricultural or industrial smudging	N/A	N/A	Excluded
Wear and tear	N/A	N/A	Excluded

Exclusions (continued)	CP 10 10 Basic	CP 10 Broad	CP 10 30 Special
Rust and latent defects	N/A	N/A	Excluded
Smog	N/A	N/A	Excluded
Settling, cracking	N/A	N/A	Excluded
Critter infestation	N/A	N/A	Excluded
Mechanical breakdown	N/A	N/A	Excluded
Marring/scratching	N/A	N/A	Excluded
Steam boiler explosion	N/A	N/A	Excluded
14 day water seepage	N/A	N/A	Excluded
Non maintained frozen systems	N/A	N/A	Excluded
Dishonest act by insured	N/A	N/A	Excluded
Trick or fraud	N/A	N/A	Excluded
Prop in open rain damage	N/A	N/A	Excluded
Collapse	N/A	N/A	Excluded
Pollutant discharge	N/A	N/A	Excluded
Neglect to save and preserve	Excluded	Excluded	Excluded
Weather conditions	N/A	N/A	Excluded
Acts or decisions	N/A	N/A	Excluded
Faulty, inadequate or defective planning, design, materials or maintenance	N/A	N/A	Excluded
Special Exclusions	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Business Income - Utility services	Excluded	Excluded	Excluded
Business Income - Finished stock	Excluded	Excluded	Excluded
Business Income - TV antenna	Excluded	Excluded	Excluded
Business Income – Delay	Excluded	Excluded	Excluded
Leasehold interest - Ordinance exception	Included	Included	Included
Leasehold interest - Lease cancellation	Excluded	Excluded	Excluded
Leasehold interest - License cancellation	Excluded	Excluded	Excluded
Leasehold interest - Consequential loss	Excluded	Excluded	Excluded
Legal Liability - Ordinance exception	Included	Included	Included
Legal Liability - Govt. action exception	Included	Included	Included
Legal Liability – Nuclear exception	Included	Included	Included
Legal Liability - Utility exception	Included	Included	Included
Legal Liability - War exception	Included	Included	Included
Legal Liability – Contractual exception	Excluded	Excluded	Excluded
Legal Liability – Nuclear Hazard exception	Excluded	Excluded	Excluded

Limitations	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Steam boilers	N/A	N/A	Limitation
Hot water boilers	N/A	N/A	Limitation
Interior damage without exterior damage	N/A	N/A	Limitation
Material not attached building	N/A	N/A	Limitation
Inventory shortage	N/A	N/A	Limitation
Unauthorized transfer	N/A	N/A	Limitation
Valuable papers	N/A	N/A	Limitation
Animals	Limitation	Limitation	Limitation
Fragile Items	N/A	N/A	Limitation
Non-owned builders, machinery	N/A	N/A	Limitation
Theft of – Furs	N/A	N/A	Limitation
Theft of – Jewelry	N/A	N/A	Limitation
Theft of - Patterns/dies	N/A	N/A	Limitation
Theft of - Stamps/tickets	N/A	N/A	Limitation
Repair of fire extinguishing devices	N/A	N/A	Limitation
Additional Coverage	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Collapse	Not Covered	Not Covered	Covered
Property in transit	Not Covered	Not Covered	Covered up to $ 5,000
Cost to tear out and replace parts of the building to repair system water damage	Not Covered	Not Covered	Covered
Incidental expenses involved with glass repair	Not Covered	Not Covered	Covered
Definitions	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Specified causes of loss	N/A	N/A	Defined

COMMERCIAL PROPERTY CAUSES OF LOSS FORMS COMPARISON: ’02 EDITION

The following chart is a simple comparison between the three causes of loss forms available with the April 2002 edition of the Insurance Services Office (ISO) Commercial Property Program.

Commercial Property Causes of Loss Forms Comparison: 02 edition
Covered Causes of Loss	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Fire	Covered	Covered	Covered
Lightning	Covered	Covered	Covered
Explosion	Covered	Covered	Covered
Wind and hail	Covered	Covered	Covered
Smoke	Covered	Covered	Covered
Aircraft/vehicle	Covered	Covered	Covered
Riot or civil commotion	Covered	Covered	Covered
Vandalism	Covered	Covered	Covered
Sprinkler leakage	Covered	Covered	Covered
Sinkhole/collapse	Covered	Covered	Covered
Volcanic action	Covered	Covered	Covered
Falling objects	Not Covered	Covered	Covered
Weight of ice, sleet and snow	Not Covered	Covered	Covered
Water damage	Not Covered	Covered	Covered
Risks of direct physical loss unless excluded or limited	Not Covered	Not Covered	Covered
Exclusions	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Ordinance or law	Excluded	Excluded	Excluded
Earth movement	Excluded	Excluded	Excluded
Governmental action	Excluded	Excluded	Excluded
Nuclear hazard	Excluded	Excluded	Excluded
Utility services	Excluded	Excluded	Excluded
War and military action	Excluded	Excluded	Excluded
Water	Excluded	Excluded	Excluded
Fungus	Excluded	Excluded	Excluded
Electric arcing	Excluded	Excluded	Excluded
Delay, loss of market, etc.	N/A	N/A	Excluded
Smoke from agricultural or industrial smudging	N/A	N/A	Excluded
Wear and tear	N/A	N/A	Excluded

Exclusions (continued)	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Rust and latent defect	N/A	N/A	Excluded
Smog	N/A	N/A	Excluded
Settling, cracking, shrinking	N/A	N/A	Excluded
Animal infestation	N/A	N/A	Excluded
Mechanical breakdown	N/A	N/A	Excluded
Marring, scratching	N/A	N/A	Excluded
Steam boiler explosion	N/A	Excluded	Excluded
14 day water seepage	N/A	Excluded	Excluded
Non-maintained frozen systems	N/A	N/A	Excluded
Dishonest acts by insured	N/A	N/A	Excluded
Trick, fraud or deceit	N/A	N/A	Excluded
Property in the open/rain damage	N/A	N/A	Excluded
Collapse	N/A	N/A	Excluded
Pollutant discharge	N/A	N/A	Excluded
Neglect to save and preserve property	Excluded	Excluded	Excluded
Weather conditions	N/A	N/A	Excluded
Acts or decisions	N/A	N/A	Excluded
Faulty, inadequate or defective planning, design, materials or maintenance	N/A	N/A	Excluded
Special Exclusions	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Business Income–Utility services	Excluded	Excluded	Excluded
Business Income–Finished stock	Excluded	Excluded	Excluded
Business Income–TV antenna	Excluded	Excluded	Excluded
Business Income–Delay	Excluded	Excluded	Excluded
Leasehold interest–Ordinance exception	Included	Included	Included
Leasehold interest–Lease cancellation	Excluded	Excluded	Excluded
Leasehold interest–License cancellation	Excluded	Excluded	Excluded
Leasehold interest–Consequential loss	Excluded	Excluded	Excluded
Legal Liability–Ordinance exception	Included	Included	Included
Legal Liability–Government action exception	Included	Included	Included
Legal Liability–Nuclear exception	Included	Included	Included
Legal Liability–Utility exception	Included	Included	Included
Legal Liability–War exception	Included	Included	Included
Legal Liability–Contractual exception	Excluded	Excluded	Excluded
Legal Liability–Nuclear hazard exception	Excluded	Excluded	Excluded
Steam boilers	N/A	N/A	Limitation
Special Exclusions (continued)	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Hot water boilers	N/A	N/A	Limitation
Interior damage without exterior damage	N/A	N/A	Limitation
Property not attached to building	N/A	N/A	Limitation
Inventory shortage	N/A	N/A	Limitation
Unauthorized transfer	N/A	N/A	Limitation
Animals	Limitation	Limitation	Limitation
Fragile items	N/A	N/A	Limitation
Non-owned builders, machinery, etc.	N/A	N/A	Limitation
Theft of furs	N/A	N/A	Limitation
Theft of jewelry	N/A	N/A	Limitation
Theft of patterns, dies, etc.	N/A	N/A	Limitation
Theft of stamps, tickets, etc.	N/A	N/A	Limitation
Repair of fire extinguishing devices	N/A	N/A	Limitation
Additional Coverage	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Collapse	Not Covered	Covered	Covered
Limited fungus	Covered up to $15,000	Covered up to $15,000	Covered up to $15,000
Property in transit	Not Covered	Not Covered	Covered up to $5,000
Cost to tear out and replace parts of the building to repair system water damage	Not Covered	Not Covered	Covered
Incidental expenses involved with glass repair	Not Covered	Not Covered	Covered
Definitions	CP 10 10 Basic	CP 10 20 Broad	CP 10 30 Special
Fungus	Defined	Defined	Defined
Specified Causes of Loss	N/A	N/A	Defined

COMPARE: ISO COMMERCIAL PROPERTY PROGRAM CAUSES OF LOSS FORMS: 07 EDITION

This chart is a simple comparison between the three causes of loss forms available with the 06/07 edition of the Insurance Services Office (ISO) Commercial Property Program.

Commercial Property Program Causes of Loss Forms Comparison
Covered Causes Of Loss	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Fire	Covered	Covered	Covered
Lightning	Covered	Covered	Covered
Explosion	Covered	Covered	Covered
Wind and hail	Covered	Covered	Covered
Smoke	Covered	Covered	Covered
Aircraft/vehicle	Covered	Covered	Covered
Riot or civil commotion	Covered	Covered	Covered
Vandalism	Covered	Covered	Covered
Sprinkler leakage	Covered	Covered	Covered
Sinkhole/collapse	Covered	Covered	Covered
Volcanic action	Covered	Covered	Covered
Falling objects	Not Covered	Covered	Covered
Weight of ice, sleet and snow	Not Covered	Covered	Covered
Water damage	Not Covered	Covered	Covered
Risks of direct physical loss unless excluded or limited	Not Covered	Not Covered	Covered
Exclusions	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Ordinance or law	Excluded	Excluded	Excluded
Earth movement	Excluded	Excluded	Excluded
Governmental action	Excluded	Excluded	Excluded
Nuclear hazard	Excluded	Excluded	Excluded
Utility services	Excluded	Excluded	Excluded
War and military action	Excluded	Excluded	Excluded
Water	Excluded	Excluded	Excluded
Fungus	Excluded	Excluded	Excluded
Electric arcing	Excluded	Excluded	Excluded
Delay, loss of market, etc.	Not Covered	Not Covered	Excluded
Smoke from agricultural or industrial smudging	Not Covered	Not Covered	Excluded
Wear and tear	Not Covered	Not Covered	Excluded
Exclusions (continued)	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Rust and latent defect	Not Covered	Not Covered	Excluded
Smog	Not Covered	Not Covered	Excluded

Exclusions (Continued)	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Settling, cracking, shrinking	Not Covered	Not Covered	Excluded
Animal infestation	Not Covered	Not Covered	Excluded
Mechanical breakdown	Not Covered	Not Covered	Excluded
Marring, scratching	Not Covered	Not Covered	Excluded
Steam boiler explosion	Excluded	Excluded	Excluded
14 day water seepage	Excluded	Excluded	Excluded
Non-maintained frozen systems	Not Covered	Not Covered	Excluded
Dishonest acts by insured	Not Covered	Not Covered	Excluded
Trick, fraud or deceit	Not Covered	Not Covered	Excluded
Property in the open/rain damage	Not Covered	Not Covered	Excluded
Collapse	Not Covered	Not Covered	Excluded
Pollutant discharge	Not Covered	Not Covered	Excluded
Neglect to save and preserve property	Excluded	Excluded	Excluded
Weather conditions	Not Covered	Not Covered	Excluded
Acts or decisions	Not Covered	Not Covered	Excluded
Faulty, inadequate or defective planning, design, materials or maintenance	Not Covered	Not Covered	Excluded
Special Exclusions	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Business Income–Finished stock	Excluded	Excluded	Excluded
Business Income–Television antenna	Excluded	Excluded	Excluded
Business Income–Delay	Excluded	Excluded	Excluded
Leasehold interest–Ordinance exception	Included	Included	Included
Leasehold interest–Lease cancellation	Excluded	Excluded	Excluded
Leasehold interest–License cancellation	Excluded	Excluded	Excluded
Leasehold interest–Consequential loss	Excluded	Excluded	Excluded
Legal Liability–Ordinance exception	Included	Included	Included
Legal Liability–Government action exception	Included	Included	Included
Legal Liability–Nuclear exception	Included	Included	Included
Legal Liability–Utility exception	Included	Included	Included
Legal Liability–War exception	Included	Included	Included
Legal Liability–Contractual exception	Excluded	Excluded	Excluded
Legal Liability–Nuclear hazard exception	Excluded	Excluded	Excluded
Loss of Damage to Products	Not Covered	Not Covered	Excluded
Steam boilers	Not Covered	Not Covered	Limitation
Hot water boilers	Not Covered	Not Covered	Limitation
Interior damage without exterior damage	Limitation within coverage	Limitation within coverage	Limitation

Special Exclusions (continued)	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Building material not attached to building	Limitation within coverage	Limitation within coverage	Limitation
Inventory shortage	Not Covered	Not Covered	Limitation
Unauthorized transfer	Not Covered	Not Covered	Limitation
Animals value limited to death or destruction	Limitation	Limitation	Limitation In addition, cause of loss is limited to only specified cause of loss.
Fragile items	Not Covered	Not Covered	Breakage must be due to specified cause of loss.
Non-owned builders, machinery, etc.	Not Covered	Not Covered	Loss must be due to a specified cause of loss.
Theft of furs	Not Covered	Not Covered	Limitation
Theft of jewelry	Not Covered	Not Covered	Limitation
Theft of patterns, dies, etc.	Not Covered	Not Covered	Limitation
Theft of stamps, tickets, etc.	Not Covered	Not Covered	Limitation
Repair of fire extinguishing devices	Limitation within coverage	Limitation within coverage	Limitation
Additional Coverage	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Collapse	Not Covered	Covered	Covered
Limited fungus	Covered up to $15,000	Covered up to $15,000	Covered up to $15,000
Property in transit	Not Covered	Not Covered	Covered up to $5,000
Cost to tear out and replace parts of the building to repair system water damage	Coverage only if automatic sprinkler system	Covered within water damage cause of loss	Covered
Incidental expenses involved with glass repair	Not Covered	Not Covered	Covered
Definitions	CP 10 10–Basic	CP 10 20–Broad	CP 10 30–Special
Fungus	Defined	Defined	Defined
Specified Causes Of Loss	N/A	N/A	Defined

CP 00 10–BUILDING AND BUSINESS PERSONAL PROPERTY FORM COVERAGE ANALYSIS (06 95 EDITION)

The Coverage Form begins by explaining that throughout the policy, there are various provisions that will restrict coverage. It is cautioned that the policy must be read very carefully in order to obtain a complete picture of the entire scope of rights and duties of and to the insured, as well as to accurately identify what is and is not covered by this Coverage Form.

"You" and "Your" define who is being insured. "You" and "Your" are the persons or organizations named in the Declarations Page and identified as insureds. Therefore, it is critical that all insureds be positively identified. If a business should purchase, sell, or create new entities during the course of the policy period, it is imperative that these new entities be added. Using et al, or all entities that may be acquired during the policy period, or similar omnibus language is not acceptable. Define each covered entity and add or delete as necessary during the policy period.

"We", "us", and "our" are the insurance company providing coverage.

A. COVERAGE

Covered are direct physical losses of or damage to covered property as long as they are at the premises described in the Declarations and the loss is covered by a peril or cause of loss protected against in the attached Cause of Loss Form.

1. Covered Property

When used in this Coverage Form, the property described in this section and limited in the section on Property Not Covered, is covered as long as a Limit of Insurance is also shown in the Declarations Page for the type of property described.

a. Building is the building or structure described in the Declarations and includes:

· completed additions,

· fixtures (which now include outdoor fixtures),

· permanently installed machinery and equipment,

· personal property owned by the insured and used to service or maintain the building or premises, such as: fire extinguishing equipment, outdoor furniture, floor coverings, and appliances used for refrigeration, ventilation, cooking, dishwashing, or laundering.

When not covered by other insurance, an addition under construction, as well as any alteration or other structural repair is covered. This includes material, equipment, supplies, and temporary structures on or within 100 feet of the premises used while making additions, alterations, or repairs to the building or structure.

To illustrate what is considered to be a building, not only is the structure covered, but also outdoor lighting fixtures, the building security alarm system, lawn mowing equipment, ladders, tools, and any other personal property that services the building. This is an important point to take note of as the Limit of Insurance selected by the insured must be adequate to meet the coinsurance condition discussed later in this analysis. Therefore, the insured must be careful in the computation of that building limit to make sure it is adequate by including all the items covered as building.

(06-95 changes: Editorial changes were made to remove the words permanently installed from fixtures and outdoor property because the word fixture means permanently installed. No impact on coverage or rating.)

b. Business Personal Property is covered when a Limit of Insurance is shown in the Declarations. The following is covered under the Business Personal Property Coverage Form, as long as it is not otherwise excluded or limited and it is in the building at the indicated premises; or if outside, it must be in the open or in a vehicle, either of which must be within 100 feet of the premises (Note: This does not say 100 feet of the building but rather 100 feet of the premises. Black's Law Dictionary clarifies that a premises is considered to be the building and the surrounding owned land.):

· furniture and fixtures,

· machinery and equipment,

· stock,

· all other personal property owned by the insured and used for business,

· labor, materials, or services furnished or arranged by the insured on the personal property of others,

· if the insured is a tenant, the insured's interest in any improvements and betterments made by the insured, that are part of the property or structure or that the insured has acquired or made at the insured's expense but that cannot be legally removed (note, the sub-paragraph defines improvements and betterments as fixtures, alterations, installations, or additions),

· any leased personal property the insured has a contractual responsibility for (Endorsement CP 14 60—allows the insured to amend the definition of covered property to include leased property).

c. Personal Property of Others is covered under the following two circumstances, but only for the account or benefit of the owner of the property:

· if the personal property of others is in the insured's care, custody, or control,

· if it is in the building at the indicated premises; or if outside, it must be in the open or in a vehicle that is within 100 feet of the premises.

Much discussion surrounds coverage for the property of others in the insured's care, custody, or control. Although some coverage is allowed the insured under this item of the Building and Business Personal Property Coverage Form, this is a limited type coverage that, again, only protects the interest of the actual property owner.

Any labor, parts, time, or other resources committed to the property by the insured are not covered. Based on other coverage form provisions such as coinsurance and valuation, the amount available by this insurance may not be adequate to cover the owner's financial interest or amount of loss, nor the exposure faced by the insured. Therefore, it may be necessary to consider purchasing Bailees' Inland Marine Coverage under these circumstances.

2. Property Not Covered

The kinds and types of property that are not covered by this unendorsed coverage form are:

· accounts, bills, currency, deeds, food stamps, evidences of debt, money, notes, or securities (Clarification is made in the policy that Lottery Tickets held for sale are not considered securities.),

· animals, unless owned by others or boarded by the insured. Animals owned by the insured are only considered to be "stock" if they are inside the building(s),

· automobiles held for sale,

· bridges, roadways, walks, patios, or other paved surfaces,

· contraband or any property involved in or in the course of illegal transportation or trade,

· cost of excavations, grading, backfilling, or filling,

· foundations below the lowest basement floor or the surface of the ground when there is no basement,

· land (a clarification is made that land also includes the land the property is located on), water, grown crops, or lawns,

· personal property while airborne or waterborne,

· bulkheads, pilings, piers, wharves, or docks,

(06-95 changes: Adds the word bulkhead to Property Not Covered to clarify the form’s coverage intent.)

· property insured or covered under another coverage form in this or any other policy, or more specifically described or covered elsewhere. When this occurs, this policy is excess (whether or not that insurance is collectable),

· retaining walls not part of a covered building,

· underground pipes, flues, or drains,

· cost to research, replace, or restore information on valuable papers or records or electronic and magnetic media (except as provided for the Coverage Extensions),

· vehicles or self-propelled machines including aircraft and watercraft, that is licensed for use on public roads or operated principally away from the described premises.

Excluded from this exclusion (and therefore covered), are vehicles or self-propelled machines that are manufactured, processed, or warehoused by the insured, those other than autos that the insured holds for sale, and rowboats and canoes out of the water at the described premises.

· the following types of property outside of buildings are not covered unless provided for in Coverage Extensions or described with a limit in the Declarations or otherwise endorsed to the policy: grain, hay, straw, crops, fences, radio or TV antennas, and satellite dishes including lead-in wires, masts, and towers, signs not attached to buildings, and trees, shrubs, or plants.

(06-95 changes: To Property Not Covered, adds the word satellite dish. Under Coverage Extensions, coverage is added back for property located in or on the building, in the open or in or on a vehicle within 100 feet of the premises. However, to apply, either a coinsurance percentage of 80% or higher or a value reporting plan must be in effect. This coverage extension is not available under Builders Risk, so all antennas and satellite dishes need to be added to the policy by endorsement to include the coverage during construction.)

Several endorsements are available to add or schedule additional types of property as covered under this coverage form. Listed below are a few that may be considered. For insurers and brokers that have access to coverage for a variety of difficult property situations, refer to the section for Property in The Insurance Marketplace, published by The Rough Notes Company, Inc.

3. Covered Causes of Loss

Reference is made to the Cause of Loss Form or Forms attached to the policy and shown in the Declarations. In addition, numerous endorsements are available to increase, restrict and clarify the causes of loss provided. Listed below are a few that may be considered.

· CP 10 33—Theft Exclusion

· CP 10 35—Watercraft Exclusion

· CP 10 37—Radioactive Contamination

· CP 10 40—Cause of Loss Earthquake Form

· CP 10 55—Vandalism Exclusion

· CP 10 70—Pier and Wharf Additional Covered Causes of Loss

4. Additional Coverages

Four additional coverages are provided at no additional cost but do not increase the Limits of Insurance that are stated in the Declarations. They include:

a. Debris Removal—Covered are the expenses incurred to remove debris of covered property that is caused by or results from a covered cause of loss that occurs during the policy period. In order for these expenses to be covered, however, the insured must notify the insurer in writing, within 180 days of the occurrence of the direct physical loss or damage.

The maximum amount available for this Additional Coverage is 25% of the amount that the insurer pays for the direct physical loss or damage to covered property, plus the deductible stated in the policy that applies to that loss or damage. However, the maximum or limitation is not applicable to any Debris Removal Amount that is specifically scheduled in the Limits of Insurance in the Policy Declarations.

Excluded from Coverage for Debris Removal, is any cost to extract "pollutants" from either land or water, or to remove, restore, or replace any polluted land or water. However, note Additional Coverage d below, which provides this coverage with a limit cap and certain conditions.

(06-95 changes: Should the debris removal expense exceed the 25% limitation, an additional $10,000 is available (was $5,000).

An endorsement is available to increase, enhance, or clarify this coverage called CP 14 15—Debris Removal Additional Limit of Insurance.

b. Preservation of Property—Should it become necessary to remove covered property from a covered premises in order to protect or preserve it from an eligible peril, coverage will apply to that property while it is being moved, as well as while it is being temporarily stored at another location, for 30 days after the property is first moved.

Example: When a tornado demolishes the insured's building, the property that the insured is able to salvage and place in storage until the building is rebuilt and operations resumed is now covered for up to 30 days at the temporary storage facility. If storage is needed for more than 30 days, the insured should consider adding the storage location as an additional location to the insurance policy.

(06-95 changes: Increased the time limit from 10 to 30 days from the date of original loss for damage to property removed after a covered loss.)

c. Fire Department Service Charge—Should it become necessary to call a fire department to protect or save covered property from a covered cause of loss, up to $1,000 is available, without deductible, for fire department service charges assessed against the insured because of any contract or agreement made by the insured prior to loss or that may be required by a local ordinance.

d. Pollutant Clean Up and Removal—Covered is expense to extract "pollutants" from land or water at the covered premises if the discharge, dispersal, seepage, migration, release, or escape of the "pollutants" was caused by or resulted from a covered cause of loss. The occurrence must have occurred during the policy period and must be reported to the insurer within 180 days of the date that the covered cause of loss occurred.

Excluded from this coverage are any costs to test for, monitor, or assess the existence, concentration of, or effects of "pollutants." Note, however, that testing that is performed in the course of the actual extraction of the "pollutants" from the land or water is covered.

Example: A fire occurs at an insured's home and it explodes. The explosion releases fuel into a nearby waterway; there is coverage up to the stated limit. However, when another fuel tank leaks because of improper maintenance, there is no coverage. In either case, the cost to test for the existence of pollutants is not covered. In the first example, however, any testing needed to determine that the pollutants have been adequately removed after a covered pollution clean up loss would be covered up to the policy cap.

This coverage is capped at a maximum limit of $10,000 for any one location, for all covered expenses, for all covered causes of loss, in each separate 12 month policy period. In other words, the amount of coverage available is up to $10,000 per policy period, per premises, for all covered causes of loss. An endorsement is available to increase, enhance, or clarify this coverage called CP 04 07—Pollutant Clean Up and Removal Additional Aggregate Limit of Insurance.

5. Coverage Extensions

The following five Coverage Extensions apply, unless otherwise provided for in the Coverage Form, to personal property that is in the building at the indicated premises; or if outside, it must be in the open or in a vehicle that is within 100 feet of the premises; and when either an 80% or better coinsurance or a Value Reporting Form is used, however, the Additional Condition regarding coinsurance does not apply to any of these extensions.

It should also be noted that the Extensions are additional amounts of coverage that are provided above the stated Limits of Insurance.

a. Newly Acquired or Constructed Property—(1) When the policy currently provides building coverage and the insured is building a new building on the described premises, coverage may be extended to new buildings being built on the premises.

Coverage may also be extended to buildings that have been acquired at other locations, as long as those buildings are used for similar operations or as a warehouse. The maximum available for this Coverage Extension is $250,000 at each building.

(2) When the policy provides Business Personal Property Coverage, coverage may be extended to property acquired, at any location, for up to $100,000 at each building. Excluded is business personal property at fairs or exhibitions.

(3) When either the Building or the Business Personal Property Coverage Extension is used for Newly Acquired or Constructed Property, the Extension ends as soon as one of the following first occurs:

· Policy expiration,

· 30 days after the property is acquired or construction has begun,

· Property values are reported to the insurer.

The insurer will make an additional premium charge for this Coverage Extension from the date of acquisition or construction, when the values are reported.

(06-95 changes: Previously, coverage for buildings was limited to 25% of the building limit, but $250,000 maximum. Coverage for personal property was limited to 10% of the business personal property limit, or $100,000 as a maximum. The ’95 changes eliminated both the percentage limitations, but left the dollar limitations.)

An endorsement available to provide additional Limits of Insurance, for additional premium, is CP 04 25—Newly Acquired or Constructed Property—Increased Limit.

b. Personal Effects and Property of Others—The insured may extend the Business Personal Property Coverage to include the personal effects owned by an insured, the insured's officers, or the insured's employees. Not covered by this extension, however, is loss or damage caused by theft. Coverage may also be extended to personal property of others in the insured's care, custody, or control.

This Extension has a cap or maximum amount available of $2,500 per described premises. In addition, any payment made under this Extension will only go toward the account of the property owner.

c. Valuable Papers and Records-Cost of Research—The insured is allowed to extend the Business Personal Property Coverage to provide costs to research, replace, or restore lost information on valuable papers and records that have been lost or damaged by a covered caused of loss. Included are those electronic or magnetic media damaged or lost that do not have duplicates or backups.

The maximum amount available for this Extension is $2,500 (unless a higher amount is specifically scheduled in the Declarations).

(06-95 changes: Limit of Insurance is increased to $2,500 from $1,000 unless a higher Limit is shown in the Declarations. No other change in coverage. No adjustment to rates is anticipated as a result of this enhancement.)

Additional coverage for Valuable Papers and Records can be purchased by attaching the appropriate Inland Marine Coverage Form.

d. Property Off-Premises—Coverage may be extended for covered business personal property other than "stock," that is temporarily off-premises or at a location not owned, leased, or operated by the insured. The maximum amount available for loss or damage by this Extension is $10,000. The following types of property are not covered in this extension:

· property in or on vehicles,

· property in the care, custody, or control of any salesperson of the insured,

· property at a fair or exhibition.

(06-95 changes: Property temporarily away from the premises owned or controlled by the insured is increased to $10,000 from $5,000. This does not apply to property in vehicles, property in the case of salespeople, or at fairs or exhibitions. Separate coverage is still needed for these items.)

Numerous Inland Marine Coverage Forms are available to provide coverage for the excluded off-premises items, as well as for items while in transit or on the premises of another entity for storage, service, or repair.

e. Outdoor Property—Coverage may be extended to outdoor fences, radio and TV antennas, including satellite dishes, signs (if not attached to buildings), trees, shrubs, and plants (if those trees, shrubs, and plants are not "stock"), including debris removal expense. This Extension is available for only the following causes of loss and only if the appropriate Cause of Loss Form has been attached:

· fire and lightning,

· explosion,

· riot or civil commotion,

· aircraft.

The maximum available for loss or damage in this Extension is $1,000, with a maximum sub-limit of $250 for any one tree, shrub, or plant for any one occurrence, no matter what type or how many items are lost or damaged in that occurrence.

(06-95 changes: The limits remain the same but the language is changed, adding the following sentence to clarify intent to cover any one tree, shrub, or plant only once: These limits apply to any one occurrence, regardless of the types or number of items lost or damaged in that occurrence.)

An endorsement is available to add or schedule additional coverage for Outdoor Trees, Shrubs and Plants. CP 14 30—Outdoor Trees, Shrubs and Plants—allows the insured to increase the limitations and schedule specific coverage for these items.

B. Exclusions and Limitations

Reference is made to the Cause of Loss Form or Forms as shown in the Declarations.

(06-95 changes: The word Limitations has now been added to the title of this paragraph.)

In addition, numerous endorsements are available to increase, restrict and clarify the causes of loss provided. Listed below are a few that may be considered.

· CP 10 33—Theft Exclusion

· CP 10 35—Watercraft Exclusion

· CP 10 37—Radioactive Contamination

· CP 10 40—Cause of Loss Earthquake Form

· CP 10 55—Vandalism Exclusion

· CP 10 70—Pier and Wharf Additional Covered Causes of Loss

C. Limits of Insurance

The most that will be paid for any one loss are the Limits of Insurance shown in the Declarations for each applicable coverage. The limits for the Coverage Extensions, the Fire Department Service Charge, and Pollutant Clean Up and Removal are additional amounts that apply on top of the state limits. For signs attached to buildings, the most that will be paid is $1,000 for any one sign in any one occurrence of loss or damage.

Any payments made under the Preservation of Property Additional Coverage will not increase the applicable Limit of Insurance. Neither do payments for Debris Removal, however if the sum of the direct physical damage loss and the debris removal expense is greater than the Limit of Insurance and if the debris removal expense is greater than the 25% limitation that has been stated in the Debris Removal Additional Coverage, then an additional $10,000 is available at each location for any one occurrence.

D. Deductible

Only those losses that exceed the deductible stated in the Declarations are covered and then only for the amount that is over the deductible, but not greater than the Limits of Insurance, after deduction for any coinsurance penalty or Agreed Value Optional Coverage.

When the loss or damage from any one occurrence involves two or more items of covered property and more than one Limit of Insurance, the deductible is applied to the total amount of loss, as long as loss to at least one item is less than the total or sum of the Limit of Insurance on that item plus the Deductible.

Two extensive rating examples are shown in the Coverage Form to clarify how the deductible will be applied. The following examples are not those used in the Coverage Form and both assume that the coinsurance requirements have been met.

Example 1:

· Limit on building—$100,000

· Limit on business personal property—$50,000

· Deductible—$1,000

· Loss to building—$100,500

· Loss to business personal property—$60,000

· Sum of the limit on building, plus the deductible—$101,000

Because the amount of loss to the building, $100,500, is less than the sum of the building limit plus the deductible, $101,000, the deductible is subtracted from the amount for the building limit, $100,000 minus $1,000 = $99,000.

Once the deductible has been used on a loss, it does not apply to each item, but once to the entire loss. Therefore, for the loss, the business personal property is covered without further deduction, up to the stated item limit of $50,000.

The total loss payment is the $99,000 on the building, plus the $50,000 on the business personal property, or $149,000.

Example 2:

· Limit on building—$100,000

· Limit on business personal property—$50,000

· Deductible—$1,000

· Loss to building—$105,000

· Loss to business personal property—$60,000

· Sum of the limit on building plus the deductible—$110,000

· Sum of the limit on business personal property, plus the deductible—$51,000

Because both the building loss and the business personal property loss exceed the Limit of Insurance plus the deductible, payment for both items will be the full Limit of Insurance for each, or $100,000 on the building and $50,000 on the business personal property, for a total loss payment of $150,000.

(06-95 changes: The following wording was added: When the occurrence involves loss to more than one item of covered property and more than one Limit of Insurance applies, the deductible will reduce the total amount of loss payable, if loss to at least one item is less than the sum of (1) the Limit of Insurance applicable to that item, plus (2) the deductible.)

An available optional deductible endorsement is CP 03 20—Multiple Deductible Form, to be used when different deductibles apply to different items.

E. LOSS CONDITIONS

Seven Loss Conditions are stated in the section of the Coverage Form that apply in addition to the Common Policy Conditions and the Commercial Property Conditions.

1. ABANDONMENT—No abandonment of any of the damaged property is allowed by the insured to the insurer. What this means is that the insured is not entitled to payment for damage or loss by simply abandoning or turning over the property to the insurer.

2. APPRAISAL—Should a disagreement between the insured and the insurer result as to the value of the property or the amount of loss, either party (insured or insurer) may make a written demand for an appraisal of the loss.

When a demand for appraisal is made, the two parties will each select a competent, impartial appraiser. The two appraisers will select an umpire. If the two appraisers do not agree to an umpire, one may be selected by a judge of the court having jurisdiction.

Each appraiser will then determine and state in writing what they believe to be the value of the property and the amount of loss. If the two do not agree, they will submit their differences to an umpire. When any two of the three agree, a decision is reached. This decision is binding.

Each of the parties to loss (insured and insurer) is responsible to pay the cost of their own selection of appraiser and an equal share of the cost of the umpire and any other expenses that result.

Even when there is an appraisal situation, the insurer does not surrender any right to deny the claim.

3. DUTIES IN THE EVENT OF LOSS OR DAMAGE—a. Any time there is a loss or damage to covered property, the following eight items become the duty of the insured and must be performed in order to collect payment:

Notify the police if a law has or may have been broken.

Give the insurer prompt notice of the loss or damage. This must include a description of the property that was lost or damaged.

Provide the insurer with a description of how, when, and where the loss or damage occurred, as soon as possible. Unfortunately, "as soon as possible" is not defined or clarified by policy language.

The insured must take all reasonable steps to protect covered property from further damage. This includes keeping a record of expenses that were necessary to protect the property. These expenses will be taken into consideration when settling the claim; however, they in no way increase the Limit of Insurance. It is further clarified that if any subsequent loss or damage results from a cause of loss that is not covered by the Cause of Loss Form, the insurer is under no obligation to make payment for that subsequent loss or damage. One additional item: when and where possible, the insured should set aside any damaged property in the best possible order to be examined (this could be by the insurer, claims adjuster, or public official).

When requested by the insurer, the insured must provide a complete inventory of the damaged and undamaged property. This should include quantities, costs, values, and the amounts of loss claimed.

The insurer may inspect the property, books, and records of the insured, to prove the loss or damage, as often as reasonably required. The insured must cooperate and allow the insurer to take samples of both the damaged and undamaged property for inspection, test and analysis. In addition, the insured must allow the insurer to make copies of the books and records.

The insured must send the insurer a signed, sworn proof of loss containing the information requested by the insurer to investigate the claim. This must be done within 60 days of the insurer's request. Any forms necessary for this process will be supplied by the insurer.

The insured must cooperate with the insurer in the investigation or settlement of the claim.

b. The insurer has the right to question or examine any one of the insureds under oath, as often as reasonably required, regarding any matter that has any relevancy to the insurance policy, claim, or loss. This includes the insured's books and records. Any of this may be done outside the presence of another insured. When an actual examination is done, an insured's answers must be signed.

4. LOSS PAYMENT

When loss or damage occurs to property that is covered by this Coverage Form, the insurer will determine which payment option will be used among the following four:

• to pay either the value of the property that has been lost or damaged (this option is subject to paragraph b. as follows); or
• the cost to repair or replace that property; or
• the insurer make take possession of all or part of the damaged property (normally for salvage) and pay the insured the appraised or agreed values of that property; or

· repair, place, rebuild, or otherwise restore the property with similar or like kind and quality property (this option is subject to paragraph b. as follows).

Whenever an option to repair, rebuild, or replace the lost or damaged property is chosen by the insurer, any increased cost that results from the enforcement of any ordinance or law regulating the construction, use, or repair of that property is excluded from any payment. An endorsement is available to provide coverage otherwise excluded for the additional or increased cost of construction, demolition, or other expenses which may result from the enforcement of ordinance or law. This endorsement is CP 04 05—Ordinance or Law Coverage.

The insurer agrees to notify the insured of their intentions regarding the handling of the loss payment within 30 days of their receipt of the sworn proof of loss.

It is further clarified that the insurer will not pay more than the insured's financial interest in the covered property. This clarification is intended to reduce the potential for fraud or other intentional loss by limiting the amount of recovery to only the actual financial loss sustained by the insured.

Whenever the covered property that has been lost or damaged is not owned by the insured (as in the case of leased property or property of others in the insured's care), the insurer has the option to adjust or handle the loss settlement directly with the owners of that property. When this occurs, any claim the insured has against the insurer for that non-owned property will be deemed to be satisfied. As with losses to owned property, the owner of any covered non-owned property will not receive more than their financial interest in that covered property.

Should the owner of non-owned property make a suit against the insured because of loss or damaged to covered property, the insurer has the option to decide whether or not the insurer will defend the insured in such suits. Should the insurer decide to defend the insured, it will be at the expense of the insurer.

The insurer agrees to make payment of the claim for loss or damages to covered property within 30 days of the receipt of the sworn proof of loss, as long as all of the terms and conditions of the coverage form have been complied with and the insured and insurer have reached agreement upon the value of the property or the amount of loss, or an appraisal award has been made.

5. RECOVERED PROPERTY—Should either the insured or the insurer recover any property that was covered in a loss settlement, that party must notify the other party promptly of the recovery. The insured has the option for the return of the recovered property.

When the insured wishes the return of the property, the insured must then reimburse the insurer for the amount the insurer paid as settlement for the loss. Any expense for the recovery or repair of that property will be paid by the insurer, up to the Limit of Insurance for that property.

6. VACANCY—The section regarding vacancy has undergone substantial revision with this edition of the Property Coverage Form. Note that the term unoccupancy is no longer a part of the coverage form verbiage.

a. Item a. describes and clarifies what is meant by the term vacant as used in this condition for a tenant, building owner, or property under construction.

TENANT: When the insured is a tenant and covering the insured's interest as a tenant in any covered property, the definition of building is the unit or suite that has been rented or leased to the tenant. That building is considered vacant when it no longer contains enough business personal property to conduct the customary operations of the insured.

BUILDING OWNER: When the insured is a building owner, building is defined as the entire building. The building is considered vacant when 70% or more of that building's square footage is not rented or is not used to conduct the customary operations of the insured.

BUILDINGS UNDER CONSTRUCTION: Buildings that are under construction or renovation are not considered to be vacant.

b. Vacancy Provisions are covered under this portion of the Vacancy condition.

Whenever a building has been vacant as defined for more than 60 consecutive days prior to the onset of any damage or loss, then regardless of whether or not the coverage form has been endorsed to cover any of the following named causes of loss, there is NO coverage for them:

· vandalism,

· sprinkler leakage (unless the system has been protected against freezing),

· building glass breakage,

· water damage,

· theft,

· attempted theft.

For any other covered cause of loss, the amount of payment made by the insurer to the insured will be 15% less than the amount that would have otherwise been paid had the building been occupied.

(06-95 changes: The entire section on Vacancy was rewritten. In the prior version, the definition of vacancy was: when the building does not contain enough business personal property to conduct customary operations. Although this was a good concept, it was difficult to adjust. The new version has the same language for a tenant, but for the building owner, it states that when 70% or more of the total square footage of the building is not rented or used to conduct customary operations, it is vacant. What this means is that only 30% need be rented or occupied, but if rented, it does not specify that it must be occupied.)

Let us look at where the new changes can affect an insured building owner.

Example: A strip mall is 40% rented with the agreements signed but not necessarily occupied (because of such things as default, bankruptcy, etc.) In reality, only 10% of the mall is occupied with tenants, but because of the new definition of vacancy, this building would not be considered vacant.

Now let us look at a couple of situations where the new wording restricts, changes, or makes coverage questionable.

Example: 40% of the floors above the full-length basement and sub-basement are rented, but with the basements, only 10% of the entire building is rented. The limitation applies to the building owner, but not the tenant if he/she is conducting customary operations.

Example: An anchor store declares bankruptcy and breaks the lease. Two other mall stores are still operating, but now only 20% of the building is rented. The owner of the building is affected by the limitation.

Example: A building is a behemoth and expensive to heat. Through intelligent re-engineering of the operation, the business is now operating profitably in 25% of the total building square footage. The rest of the building has not been remodeled, as the owner does not know yet whether or not it will be rented or reoccupied should the business expand. Is this building truly vacant?

What is the definition and conditions of renovation? How active must the renovation be? In the case of a brand new building just completed, if the construction is finished but no tenants have been secured yet, the building is vacant and the limitations apply.

When vacancy does occur, an endorsement called the Vacancy Permit is available to provide coverage for the property during specific time periods, while it is vacant. CP 04 5—Vacancy Permit - is used to provide this coverage.

7. VALUATION—The valuation provision sets forth how the amount of settlement or payment for covered property will be determined in general, and where applicable, to specific types of property.

a. Unless otherwise stated in the specific items that follow, the actual cash value of the damaged or lost property at the time of loss will be used to settle any claim.

b. When the Limit of Insurance that has been selected by the insured on the building coverage satisfies the Coinsurance Condition as set forth in the Additional Conditions in this coverage form, and the total cost to repair or replace the damaged building property is $2,500 or less, the insurer will pay the cost to repair or replace (instead of the actual cash value of the property).

It is important to note that any increased cost that results from the enforcement of any ordinance or law which regulates the construction, use, or repair of that or any property is not included as a part of payment determination.

(An endorsement is available to provide coverage otherwise excluded for the additional or increased cost of construction, demolition, or other expenses which may result from the enforcement of ordinance or law. This endorsement is CP 04 05—Ordinance or Law Coverage.)

However, the following property will still be valued at actual cash value, even when they are attached to a covered building:

· awnings or floor coverings,

· appliances for refrigeration, ventilation, cooking, dishwashing, or laundering,

· outdoor equipment or furniture.

(06-95 changes: Clarification is made that the cost of building repairs or replacement does not include the increased cost attributable to enforcement of any ordinance or law regulating the construction, use, or repair of any property.

The following is also added: the following property will be valued at the actual cash value even when attached to the building: (1) awnings or floor coverings; (2) appliances for refrigerating, ventilation, cooking, dish washing, or laundering; or (3) outdoor equipment or furniture.

Both changes are a change in clarification and not coverage. There is no rate change for these.)

c. Any "stock" that has been sold by the insured to a customer, but not yet delivered, will be valued at the selling price, less discounts and any expenses that the insured would have otherwise had.

Example: Five pieces of machinery were sold for $50,000 each to a customer by the manufacturer. The machinery was still on the insured's premises and not yet delivered, when a tornado destroyed the entire facility. The valuation of the five pieces of machinery will be the $50,000 each, minus the 10% discount the insured gave the customer for buying all five at once and minus the shipping and delivery charges that the insured normally would have incurred, even though the cost to the insured to manufacture was only $25,000 each.

d. In most instances, any increase in the cost of replacement or construction made necessary by the requirement of law or ordinance is not usually covered by this coverage form (unless endorsed to do so). One exception is when the law requires that damaged glass be replaced with safety glazing material. In this case, the cost of the safety glazing material is covered.

e. Tenants' Improvements and Betterments are covered as follows:

actual cash value will apply if repairs are made promptly, however, promptly is not defined in the coverage form.

When repairs are not made promptly, the insurer will only pay a portion of the cost. This portion will be determined by first multiplying the original cost of the improvements and betterments by the number of days, from the loss or damage to the expiration of the lease. Secondly, dividing that amount by the number of days from when the repairs were made to the end of the lease. In those leases that contain a renewal option, the expiration of the renewal option replaces the expiration of the lease in this calculation.

No payment will be made to the insured if others (such as the building owner's insurer) pay for the repairs or replacement of the improvements or betterments.

f. Valuable Papers and Records, which also includes any that exist on electronic or magnetic media (other than prepackaged software programs), will be valued at the cost of:

· the blank materials necessary for the reproduction of those records and papers,

· the labor needed to copy and transcribe those records when duplicates exist.

Endorsements are available that amend the Valuation Condition as stated in the basic coverage form. They include:

CP 04 38—Functional Building Valuation—This form changes the valuation method to functional replacement cost as defined in the endorsement.

CP 04 39—Functional Personal Property Valuation (Other Than Stock)—This form changes the valuation method to functional replacement cost as defined in the endorsement.

F. ADDITIONAL CONDITIONS

The following Additional Conditions are explained and clarified in this section of the Coverage Form. These Additional Conditions apply to the Common Policy Conditions, as well as to the Commercial Property Conditions:

1. COINSURANCE—Coinsurance has sometimes proved to be a somewhat difficult concept to understand with respect to Commercial Property Insurance, yet it is one of the more important concepts as used in assuring rate and premium adequacy.

The normal coinsurance options available are:

· Less than 80% (or no coinsurance),

· 80%,

· 90%,

· 100%.

Note: Base rates and loss costs are typically calculated assuming, at minimum, use of the 80% coinsurance percentage. If less than 80% is used, then a substantial debit or surcharge is applied. If 90% or 100% are used, a credit is applied. It has been determined that 80% is the minimum that must be maintained to make rates adequate to pay losses and be statistically credible.

When a coinsurance percentage appears on the Declarations for the Limits of Insurance on property items, this condition applies. Two explanations follow with examples given for each. The first indicates how coinsurance applies to a single property item and the second clarifies how coinsurance is used when more than one property item is involved, but only one limit applies.

a. Whenever the value of covered property at the time of loss multiplied by the coinsurance percentage is greater than the Limit of Insurance shown in the Declarations for that item, the insurer is not obligated to pay the full amount of the loss. Only a proportionate amount of the loss will be paid based on the ratio of the Limit of Insurance actually carried by the insured to the Limit of Insurance the insured agreed to carry based on the coinsurance percentage (the actual value of covered property at the time of loss multiplied by the coinsurance percentage).

The computation used to determine the amount of loss is as follows:

Step 1. Multiply the actual value of the covered property at the time of loss by the stated coinsurance percentage that was selected and agreed upon by the insured.

Step 2. Divide the Limit of Insurance carried for that property item by the amount that the insured should have carried as computed in the first step.

Step 3. Multiply the total amount of the loss (prior to the application of any deductible) by the factor that was computed in the second step.

Step 4. Finally, apply any applicable deductible (subtract the stated deductible from the amount that was computed in step 3).

When the Limit of Insurance carried does not meet the coinsurance condition, the insurer is liable only for the lesser of either the amount determined in step 4 or the Limit of Insurance. Any amount remaining will have to be absorbed by the insured or handled in some other way, such as an additional insurance policy.

The Building and Contents Coverage Form gives examples on how to calculate the amount of insurance necessary to meet the coinsurance requirement and how the amount of loss payment will be determined. The first example is one where the insured does not carry an adequate limit and the second example is where the insured does carry the necessary amount of insurance. We will walk through the two examples.

In Example Number 1, labeled Underinsurance, first determine the total amount of property under consideration. For this example, $250,000 was used.

The next item to consider is the level the insured selected as the coinsurance percentage. The normal options are less than 80% (or no coinsurance), 80%, 90%, and 100%. For this example, 80% has been selected.

The Limit of Insurance that the insured is carrying in the insurance coverage form for the specified property is $100,000. The deductible used is $250, and the amount of covered loss to the described property is $40,000.

To determine the Limit of Insurance that the insured must carry to meet the coinsurance requirements, take the total amount of the property, $250,000, times the coinsurance percentage selected, 80%, for the sum of $200,000.

In this case, however, the insured is not carrying $200,000, so a coinsurance penalty will be applied against any covered losses.

To calculate the penalty, divide the amount carried, in this case $100,000, by the amount that should be carried, $200,000. This insured is only carrying half of what should be carried; therefore, the penalty factor for this example is .50.

To determine the loss payment, the amount of loss, $40,000, is multiplied by the coinsurance penalty, .50, for the sum of $20,000. From this is subtracted the deductible of $250. The final figure is the amount of payment for this claim, $19,750.

The example is very clear in stating that the remaining $20,250 is not covered by this coverage form.

Example Number 2 illustrating Adequate Insurance, uses the same factors as Example Number 1, except for the amount that the insured carries. In this case, $200,000 is used.

Because the insured is carrying an amount that meets the minimum coinsurance requirement ($250,000 times 80%, or $200,000), no penalty applies. When the same $40,000 loss occurs, only the deductible of $250 is applied, so the loss payment would be $39,750.

b. This paragraph of the Coinsurance Condition relates specifically to the application of coinsurance when the Limit of Insurance applies to more than one item. Very simply, when one Limit of Insurance is involved with more than one covered item, as in the care of blanket coverage, the coinsurance condition and calculations will apply to the total of all the items of property that the Limit applies to.

Example Number 3 is used to clarify the calculations of a loss to more than one property item, but protected under one Limit of Insurance.

Three items are covered, with the actual total amount of each as stated below:

Location #1—Bldg.—$75,000,

Location #2—Bldg.—$100,000,

Location #2—Personal Property—$75,000,

Actual total amount of all three—$250,000.

The coinsurance percentage that was selected by the insured is 90%.

The Limit of Insurance carried by the insured for the three items is $180,000.

A deductible of $1,000 has been used.

A loss of $30,000 has occurred to the building at location #2 and $20,000 to the personal property at location #2, for a total loss of $50,000.

The first thing that must be determined is the minimum amount that the insured must carry to meet the coinsurance conditions. In this case, $250,000 is the actual total which should be multiplied by the coinsurance percentage of 90%. The minimum requirement is $225,000.

However, only $180,000 has been purchased, so the penalty must be computed by dividing the amount carried, $180,000, by the amount that should have been carried, $225,000, or 80%. .80 is the penalty factor that will apply to the loss. The amount of loss, $50,000, times the coinsurance penalty factor, .80, equals $40,000 to which the deductible is applied for a final loss payment of $39,000. $11,000 of the loss is not covered by this insurance between the penalty and the deductible.

No discussion on coinsurance would be complete without reference to Agreed Amount Coverage. Agreed Amount is where the insured and the insurer have agreed on the full value of the designated item prior to any loss. Any loss will be adjusted based on that amount agreed upon ahead of time. When the Agreed Value Coverage is used, the coinsurance condition is waived by virtue of the fact that the value has already been established.

The explanation of Agreed Value is found is section G.—Optional Coverages, Item 1, Agreed Value, of this coverage form. One additional note on the Agreed Value Coverage; the value is agreed upon for a set period of time. An inception and expiration date of the coverage is stated in the Declarations. This allows all parties to the contract to review the amount selected at specified intervals to determine if the value is still accurate.

2. MORTGAGEHOLDERS

a. The first item of this condition clarifies that the term mortgageholder also includes trustee.

b. In this item, the coverage form verifies that the insurer will pay the mortgageholder listed in the Declarations for any covered loss or damage to a covered building or structure (personal property and business personal property are not mentioned), up to the appropriate item or policy limit. If more than one mortgageholder is shown on a covered property, they will be paid in the order of their precedence and as their interests may appear; meaning the mortgageholder listed as the first mortgageholder will be paid first, up to the amount of their financial interest. The second mortgageholder will then be paid up to the amount of their financial interest and so forth until the applicable Limit of Insurance has been exhausted.

c. The mortgageholder has the right to recover their financial interest in the covered property, up to the applicable limit, even if foreclosure or similar action has been started on the building or structure.

d. Even if the insurer denies the claim to the insured because of acts committed by the insured or the insured's failure to comply with the terms and conditions of this insurance coverage form, the mortgageholder still has the right to recover the amount of their financial interest. However, in order to do so, the mortgageholder must complete the following three steps where necessary, and once complied with, all the terms of the coverage part will then apply directly to the mortgageholder:

· At the request of the insurer, pay any premium due or outstanding on this coverage part.

· Submit a signed, sworn proof of loss within 60 days of being notified by the insurer that the insured has failed to do this.

· When known to the mortgageholder, the mortgageholder must notify the insurer of any change in the ownership, occupancy, or substantial change in the risk.

e. When the insurer pays the mortgageholder for loss or damage but denies payment to the insured because of the insured's acts or failure to comply with coverage terms, two things happen:

the rights of the mortgageholder under the mortgage agreement are transferred to the insurer;

none of the rights of the mortgageholder to recover or collect the full amount of the mortgageholder's claim will in anyway be impaired.

The insurer has the option to pay the mortgageholder the whole principal remaining on the mortgage, plus any accrued interest. When this happens, the mortgage and note are transferred from the mortgageholder to the insurer who now becomes the new mortgageholder. The insured is now obligated to pay the insurer any remaining mortgage debt.

f. In the event the insurer cancels the policy, the insurer agrees to give written notice to the mortgageholder as follows:

• 10 days notice prior to the cancellation date will be given for non-payment of premium,
• 30 days notice prior to the cancellation date will be given for any reason other than non-payment of premium.

g. In the event the insurer decides not to renew coverage, 10 days notice will be given to the mortgageholder prior to the expiration date of the policy.

(06-95 changes: The words mortgage holder were changed to mortgageholder and statement of loss was changed to proof of loss.)

To endorse the interest of other parties to the policy for property, Loss Payable Provisions Endorsement, CP 12 18, is available.

G. OPTIONAL COVERAGES

If coverage is indicated on the Declarations Page, the following Optional Coverages are explained and apply separately to each item:

1. Agreed Value

a. When Agreed Value applies to an item, triggered by an entry on the Declarations, the Coinsurance Condition does not apply to that item. Further, when a loss or damage occurs to covered property that also contains an Agreed Value indicator, the insurer is obligated to pay, at the most, a proportion of the loss based upon the relationship between the values shown under the Limit of Insurance and the Agreed Value.

b. Effective and expiration dates for any item covered by Agreed Value must be shown on the Declarations Page. The Agreed Value Coverage applies only until the specified Agreed Value expiration. In the event the Agreed Value expiration is not extended, but the coverage part continues for that item of property, Agreed Value no longer applies and the Coinsurance Condition is automatically reinstated.

c. The policy further clarifies that the Agreed Value Optional Coverage applies only to losses that occur on or after the effective date of this Optional Coverage and prior to the Agreed Value expiration date as shown in the Declarations or the policy expiration date, whichever comes first.

2. Inflation Guard

a. To trigger the Inflation Guard Optional Coverage, a percent must be shown in the Declarations for the Limit of Insurance for each item to which the coverage is to apply. The selected figure is the annual percentage the property coverage will be increased in an attempt to offset the effects of inflation.

b. To calculate what the amount of increase would be for an item, start with the Limit of Insurance that applied either at policy inception, renewal, or the most recent change endorsement, and multiply that limit times the percentage of annual increase shown in the Declarations. First, make sure to convert the percentage shown in the Declarations to a decimal factor. An illustration is provided. If 8% is shown in the Declarations, use .08 as the factor. After taking the Limit of Insurance times the factor, multiply this amount by the number of days that have elapsed since the inception or renewal or the current policy period, divided by 365. If the Limit was endorsed or amended after the policy renewal or inception, use the number of days from endorsement effective date for this computation.

The coverage form provides an example to illustrate the calculation, however, we will use one of our own to clarify how a policy that has a mid-term property endorsement will be calculated.

Example: A policy is effective 1-1-01. An annual 6% inflation guard factor is assigned to the covered building.

On 6-1-01, an endorsement is made to the building, increasing the Limit of Insurance to $500,000. On 7-1-01 the building is a total loss. The available coverage is calculated as follows:

Building Limit of $500,000 multiplied by the inflation guard factor of 6% (converted to a decimal of .06) which is multiplied by 30 (the number of days since the inception/renewal or change) and this figure is divided by 365. This results in a figure of $2,466. The building value will be increased by $2,466 for the loss, for a total Limit of Insurance available of $502,466.

3. Replacement Cost Coverage

a. For those items that are so indicated on the Declarations Page, Actual Cash Value is replaced by Replacement Cost in determining the value of the item. Replacement Cost is clarified to be without deduction for depreciation.

b. There are several types of items that the Replacement Cost Coverage does not apply to and these are listed as follows:

· personal property of others,

· contents of a residence,

· manuscripts,

· works of art, antiques, and rare articles, such as etchings, pictures, statuary marbles, bronzes, porcelains, and bric-a-brac,

· "stock" ("stock" may be covered for Replacement Cost in the event that a separate item with its own Limit of Insurance has been designated in the Declarations).

c. The insured has the option at any time to make a claim based on the Actual Cash Value instead of the Replacement Cost Coverage. There may be circumstances where it may be in the best interest of the insured to go to an Actual Cash Value Claim. Possible reasons may include:

· not rebuilding on the same site,

· repairing or rebuilding with different type construction or material,

· insured decides not to use the property for the same purposes,

· the realization that a coinsurance penalty would be enforced on a Replacement Cost basis, but that limit is adequate for Actual Cash Value,

· the decision to repair or rebuild is delayed for an extended period of time.

After the insured has made a claim on an Actual Cash Value basis, the insured may still make an additional claim for the Replacement Cost Coverage. The insured has this right as long as the insurer is notified of the insured's intent to do this, within 180 days after the loss or damage has occurred.

d. The insurer does not have to provide the Replacement Cost Coverage payment for any loss or damage until:

· the lost or damaged property is actually repaired or replaced; and

· the repair or replacement is done as soon as reasonably possible after the loss or damage. (The term reasonably possible is not defined.)

e. When Replacement Cost Coverage is used as the valuation method, the amount will be determined based on whichever of the following three items is the least costly, subject to the conditions set forth in item f. to follow:

· the applicable Limit of Insurance for the lost or damaged property;

· the cost to repair or replace on the same premises with comparable or the same type material and quality and used for the same purposes; or

· the actual amount spent by the insured to make the necessary repairs or replacement to the lost or damaged property.

f. It is important to note that any increased cost that results from the enforcement of any ordinance or law which regulates the construction, use, or repair of that or any property is not included as a part of payment determination.

An endorsement is available to provide coverage otherwise excluded for the additional or increased cost of construction, demolition, or other expenses which may result from the enforcement of ordinance or law. This endorsement is CP 04 05—Ordinance or Law Coverage.

(06-95 changes: First, clarification was made that replacement with like kind and quality does not include increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair. Second, “property of others” was changed to “personal property of others.”)

H. DEFINITIONS

Only two words are defined in this Coverage Form:

1. Pollutants—has been defined to mean any solid, liquid, gaseous, or thermal irritant or contaminant which includes alkalis, chemicals, and waste. Waste is defined to also include materials that are to be recycled, reconditioned, or reclaimed.

2. Stock—is merchandise held in storage or for sale, any raw materials, and in-process or finished goods. This also includes supplies that are used in their packing or shipping.

CP 00 10–BUILDING AND PERSONAL PROPERTY COVERAGE FORM ANALYSIS (04 02 EDITION)

Note: This analysis is based on the April 2002 edition of the form. Changes from the previous edition are in bold print.

INTRODUCTION

This coverage form begins by defining the terms "you or your" as the named insured and "we, us and our" as the company providing the insurance coverage. Named insured is not defined. As a result, it means only the entities listed or named on the declarations. If a particular entity is not listed, there is no coverage for the property owned by that entity, even if the property is described on the declarations.

COVERAGE

This coverage form obligates the insurance company to pay for direct physical loss or damage to certain types of property. The property must be at a location described on the declarations. In addition, the loss or damage must be due to a type of loss eligible for coverage, or a Covered Cause of Loss.

It must be understood that the form only responds to loss or damage that occurs at a definite place and time. If the loss event is not tangible and not capable of being measured, it does not qualify for coverage.

The form's reference to premises means that protection applies only to property located in or on the premises listed on the declarations. This makes the declarations a very important document because if the location and property is not listed or shown properly, coverage does not apply.

COVERED PROPERTY

Covered Property is defined in two ways. In the first, the policy lists the types of property eligible for coverage. In the second, the policy provides information on the type of property not eligible for coverage. One method for determining what is covered is to ask the following questions:

• Is the property listed on the form as Covered Property?
• Does the declarations show a limit of insurance for the type of property?
• Is the property one of the types listed under the Property Not Covered section?

Building is the first type of covered property. The following property is covered in addition to the commercial structure shown on the declarations:

• Completed additions. The new annex added during the policy term is covered even though it did not exist at policy inception.
• Fixtures, including outdoor fixtures. This includes light poles, fences, satellite dishes and similar property.
• Permanently installed machinery and equipment. The important word here is permanently. If machinery or equipment is permanently placed, it is treated as building. If not, it is treated as personal property. This is a very important distinction when rating and pricing the exposure as well as the time of loss or damage. In most cases, the premium charge for property included in the definition of building is significantly lower than on personal property. This is because permanent property is normally considered less vulnerable to loss. This distinction is also important when determining whether the coverage is the responsibility of the landlord or the tenant.


• Personal property used to maintain or service the building. Some property that falls into this category might appear to be personal property because it is portable. However, it is treated as building property because of its relationship to the building. Property such as fire extinguishing equipment, outdoor furniture, floor coverings and appliances used for refrigerating, ventilating, cooking, dishwashing or laundering is not personal property. It is classified and treated as building property and should be listed as such. However, such a listing is not exclusive. If other property used to service and maintain the premises is not included in a property list, it may still be treated as building property.
• Two other types of property are eligible for coverage but only if no other insurance coverage applies:
• Additions under construction or alterations and repairs to the building or structure; and
• Materials, equipment, supplies and temporary structures, on or within 100 feet of the described premises, used for making additions, alterations or repairs to the building or structure.

The reason for the 100-foot limitation is that most additions are more appropriately covered under a builders risk policy. However, situations occur where additions are made in small increments over a long period of time, without the use of a contractor. All the building materials might be purchased at one time but installed sporadically and slowly. Many times, the insured does not even think to notify the insurance agent that such a project is going on.

Business Personal Property is the next type of covered property. Three distinct conditions must be met in order for coverage to apply. The property must:

• Belong to the insured;
• Be located or situated:
• In or on a building described on the declarations; or
• In the open within 100 feet of the premises; or
• In or on a vehicle within 100 feet of the premises.
• Be included in the list of property treated as personal property.

Note: "Premises" is not the same as "building." Personal property in or on a vehicle or in the open must be within 100 feet of the premises that includes the land on which the covered building is situated. As a result, personal property located in a vehicle parked further than 100 feet from a covered building is covered if the vehicle is within 100 feet of the premises.

The following property is treated as personal property. Certain provisions in the "What Is Not Covered Property" section of the form limit this otherwise inclusive listing. Personal property is:

• Furniture and fixtures are the same fixtures that can also be considered building property. If they are included as building property, they should not be covered under personal property coverage. In addition, the contract between a landlord and its tenant should clearly state who is responsible for coverage on fixtures.
• Machinery and equipment does not include any reference to permanent or mobile. Both are eligible for coverage. However, if included under building coverage, they should not be included under personal property.
• Stock is defined in the policy.
• All other personal property is covered if it passes a two-part test. In addition to being owned by the insured, the property must also be used in the covered business.

Example: Bill owns a hardware store with a large basement. His family is quickly outgrowing their home and rather than renting a storage building, he decides to move some of the extra items to the basement of the hardware store. If a fire occurs, Bill will not collect anything from the commercial policy for the household items damaged or destroyed because they are not used in the business.

• Labor, materials or services provided on the personal property of others is covered but the personal property of others itself is not covered.

Example: If a machine shop sends the customer’s die to the tool and die shop for repair, and the die is subsequently damaged, the cost of that service is covered even though the die itself is not covered.

• Improvements and betterments that cannot be removed from a building by the insured have no value to the insured except for the use value. As a result, coverage does apply but is limited:

o The improvements must be in a building the named insured does not own; AND

o The insured must incur the expense of installing the improvements and cannot legally remove them.

Use interest is the value invested in the improvements by the insured and is generally based on the length of the lease agreement.

Example: An insured leases a restaurant for 10 years and installs $50,000 in improvements that cannot be removed. If a loss occurs, the loss is prorated based on the remaining term of the lease contract. If the loss happens on the same day as the restaurant opens for business, opening day, the insured might expect to receive a claim settlement almost equal to the entire initial investment. However, if the loss occurs toward the end of the 10-year lease, a much lower settlement amount, approximating $5,000, might be expected.

· Coverage on personal property of others that the insured is contractually responsible for insuring is provided. In most cases, leased office equipment includes an agreement requiring the named insured to provide coverage on it. This provision provides that coverage unless another arrangement is provided under Personal Property of Others coverage.

Personal Property Of Others is not covered except for the coverage required by a lease agreement under Personal Property. Because of this, separate coverage is required for Personal Property of Others. This coverage applies if the personal property of others is in the care, custody or control of the named insured and is located:

· In or on a building described on the declarations; or

· In the open within 100 feet of the premises; or

· In or on a vehicle within 100 feet of the premises.

There is no requirement that personal property belonging to others must be used in the insured’s business in order to qualify for coverage.

Example: Bill’s neighbor asks if he can keep some of his excess stock in the basement of Bill’s hardware store. If that property is damaged, coverage is available as long as Bill listed the property and provided a limit of insurance for it at the hardware store location.

Note: It is important to remind the insured that the loss settlement in this situation is with the owner of the personal property and not with the named insured. This coverage is not the same as Bailees’ Coverage.

PROPERTY NOT COVERED

This section modifies the commercial property policy to respond to the coverage needs of the average insurance customer. If the customer wants coverage on any excluded property, separate coverage options are available for an additional premium charge. However, since most do not want to pay the additional premium charges required, this property continues to be excluded. The following property is specifically excluded:

• a. Accounts, bills, currency, deeds, food stamps, other evidences of debt, money, notes or securities. The form specifies that lottery tickets held for sale are not securities.

These forms of property can be covered under crime policies and inland marine policies and coverage provided for the limits required.

• b. Animals are not covered except:

• In cases where the animals are owned by others and boarded by the insured; or
• The insured owns the animals as “stock” but only while inside buildings.

• c. Automobiles held for sale. This property can be covered under an Inland Marine or Automobile coverage form.
• d. Bridges, roadways, walks, patios or other paved surfaces. This property is considered to be fixtures and is eligible for coverage as building property. Most customers choose to not insure this property, because of the comparatively high cost of doing so and the low probability of loss to such property. The insured that decides to insure this property can do so using CP 14 10–Additional Covered Property. Coverage on bridges is available under Inland Marine coverage forms.
• e. Since insurance coverage is never to be used to facilitate illegal activities, the form excludes any property involved with illegal trade or related activities.

Example: George "2Bad" Rotterbee has commercial property coverage on his small grocery store with Good-Deal Mutual Insurance. George operates a "Meth Lab" at the back of the building. George arrives at the store one morning, enters the lab and discovers that a week’s supply of ether has been stolen. Since the ether is used in the manufacturing of illegal drugs, Good-Deal's adjuster informs George that the property is not covered. The adjuster also notifies the police and tells Good Deal's underwriting department to expedite issuing a notice of cancellation.

• f. The cost of excavations, grading, backfilling or filling. These costs are not covered because they are normally associated with new construction and do not usually apply to existing construction. Most customers do not want to pay the premiums required to cover these costs as part of building. For those that do, coverage can be purchased using CP 14 10–Additional Covered Property.
• g. Foundations at or below ground level are not covered. This is because the chance of loss is minimal. For the insured that does want to insure this property, coverage is available under CP 14 10–Additional Covered Property.
• h. Land, water, crops and lawns have value but are not normally covered.
• i. Personal property in transit by means of aircraft or watercraft is not covered. Coverage on such property is available under Inland Marine coverage forms.
• j. Bulkheads, pilings, piers, wharves and docks are excluded. Most customers do not have any of this kind of property. If an insured does have this kind of property and requires coverage, it is available under Ocean Marine coverage forms or by using CP 14 10–Additional Covered Property.
• k. If another coverage insures covered property more specifically or better than the coverage provided by this form, that coverage is treated as primary and this coverage applies only as excess.

Note: Even if the other coverage is exhausted, is not available or cannot be collected for any reason, this coverage only applies for the excess due from that other insurance.

Example: Mary’s Construction Company purchases a builders risk policy to cover the addition to John’s Restaurant. An arsonist burns down the addition, as well as the rest of the building. John’s insurance pays the cost of the restaurant and the builders risk policy should pay the value of the addition. However, Mary’s insurance company went into receivership before the claim was paid. As a result, the loss to the addition was not covered.

• l. Retaining walls, other than retaining walls that are part of the building, are not covered. Coverage for this property is available under CP 14 10–Additional Covered Property.
• m. Underground pipes, flues or drains, much as foundations at or below grade level, are excluded. Coverage is available under CP 14 10–Additional Covered Property.

Note: The cost to research valuable papers as property not covered has been rewritten and is included in the exclusion for electronic data (04/02 change).

• n. Electronic data is not covered, except for the small limit provided under the Additional Coverages Section. Electronic data is a broad category that includes all programs and data stored on computers. Stored data includes floppies, CD-ROMS, tapes and similar storage media even when not on the computer. Only prepackaged software owned by the insured as stock and held for sale is covered (04/02 change).

· o. Valuable papers as excluded property are moved here. Valuable papers and records include information considered to be proprietary, such as accounts, books, deeds, card index systems, drawings, abstracts and manuscripts. However, this list is intended to be illustrative and not inclusive. Note that valuable papers in either paper or electronic form are not covered. Coverage for the cost to replace and restore the valuable information is specifically excluded. This means that, while blank media is covered, the information is not (04/02 change).

• p. Vehicles and self-propelled machines, including aircraft and watercraft licensed for public road use or operated principally away from the described premises are not covered except:

• When manufactured, processed or warehoused by the insured;
• When the property is not an automobile and is held for sale;
• For rowboats or canoes stored out of water at the described premises; or
• When the property is a trailer, subject to the Coverage Extension for Non-Owned Detached Trailers.

Note: CP 14 10–Additional Covered Property can be used to extend coverage to this property.

• q. Described property outside any building, including grain, hay, straw, crops, fences, radio or television antennas except for satellite dishes, signs not attached to building, trees, shrubs, and plants are excluded other than as provided for in the Coverage extensions.

Note: The Outdoor Property Extension endorsement provides specified perils coverage for some of this property for low insurance limits. Inland Marine and Farm coverage forms are available for use by customers with large amounts of this kind of outdoor property. A number of endorsements are available to extend coverage for these items. CP 14 10–Additional Covered Property can be used to extend coverage for fences. CP 14 30–Outdoor Trees, Shrubs and Plants can be used to extend coverage for that property. CP 14 40–Outside Signs extends coverage for signs. Finally, CP 14 50–Radio or Television Antennas extends coverage for antennas and satellite dishes.

Note: Signs attached to buildings are covered for only $1,000 for each sign in any one occurrence. Refer to the Limits of Insurance section for more information.

COVERED CAUSES OF LOSS

ADDITIONAL COVERAGES

Debris Removal

After a physical loss occurs, debris remains behind and coverage is needed to cover the costs of removing it. This relatively simple concept has evolved into one of the more heated points of discussion under Commercial Property coverage forms, as insurance buyers search for alternate sources for pollution coverage. Debris removal coverage was never intended to be environmental clean-up coverage but the language has been found to cover such losses because of the simplicity of the provision.

In previous forms editions, debris removal coverage was found in two places. The primary debris removal limit was shown in the Limits of Insurance section. The other debris removal coverage was a supplemental limit provided under the Additional Coverages section. All debris removal is now treated as Additional Coverage.

This coverage is explained in four paragraphs.

• Actual debris removal expenses are paid under the policy, subject to:
• The insured first incurring an expense;
• The debris being removed from covered property;
• The covered property being damaged or destroyed by a covered cause of loss;
• The loss occurring during the policy period; and
• The expenses being reported within 180 days of the direct physical loss.

Example: Martha’s Food Factory restaurant is vandalized. The interior is completely trashed and a great deal of debris must be removed before replacement property can be brought in. This loss is covered, subject to the outline above, provided Martha pays the costs of debris removal, the debris is actually removed, the personal property damaged is covered property, the loss occurs during the policy period and the expense is reported within 180 days of the date of loss. The coverage provided in this paragraph is also subject to limitations explained in the paragraphs below.

• This paragraph explains that the Commercial Property coverage form is not a pollution coverage policy. There is no coverage for the removal of "pollutants" from land or water or for the removal, restoration or replacement of polluted land or waters.

Example: A fire at a fertilizer plant sends pollutants throughout the air. The residue then falls on the land and lake adjacent to the plant. The lake becomes polluted, requiring treatment and monitoring of its condition. There is no coverage for the treating, testing or monitoring of the lake or for any removal of the pollutants from the surrounding land.

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

The total payment for a direct loss, not just the debris removal, is the lesser of the following:

• The actual physical loss or damage, including the debris removal expense: or
• The limit of insurance for the covered property.

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

o The amount paid for the physical damage loss plus the deductible amount multiplied by a factor of .25. The formula is Loss Amount + Deductible Amount x .25 = Debris Removal Coverage Amount; or

o The actual debris removal expense.

Example: Ken’s photography shop has a small fire. The actual physical loss is $5,000. The limit of insurance is $25,000 and the deductible is $500. The maximum debris removal expense to be paid is $1,375 ($5,000 + $500 X .25). Since the sum of $5,000 + $1,375 is less than $25,000, the total amount of $6,375 is the maximum amount of coverage available to handle Ken’s direct loss and debris removal expense.

• This paragraph provides an additional amount of insurance for debris removal if one of the limitations in the paragraph above is triggered. The additional amount of coverage is $10,000, subject to the following:

The total payment for a direct loss (including any debris removal expense) is the lesser of the following:

o The actual physical loss or damage plus debris removal expense; or

o The limit of insurance for the covered property plus $10,000 Debris Removal Additional Coverage.

Example: We’ll change the example above at Ken’s photography to a $23,000 physical damage loss and debris removal expense of $5,000. Using the formula above, $23,000 + $500 x.25 shows that up to $5,875 is available for debris removal expense. However, since the limit of insurance is $25,000, the most paid for debris removal expense is $2,500 ($25,000 – [$23,000-$ 500]). This results in Ken being forced to pay $2,500 out of pocket. However, the $10,000 Additional Coverage is used and Ken has full coverage.

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

o The sum of the amount paid for the physical loss or damage plus the deductible multiplied by a factor of .25; or

o The actual debris removal expense.

Example: Continuing with our example above, Ken’s photography loss involved chemicals. The chemicals had to be removed by specialists and taken to a special disposal facility. The cost of the removal came to $10,000. Since the debris removal expense is limited to $5,875, $4,125 of the loss is not covered. However, the additional $10,000 limit provides the necessary coverage to fully fund the loss.

The last point made concerning this coverage is that the maximum amount of insurance available for direct physical loss and debris removal expense does not exceed the coverage limit of insurance plus $10,000.

Example: Policy A has a commercial property limit of $750,000. The policyholder sustains a huge grease fire loss and a large amount of debris remains. The direct damage loss amount is $735,000 and the debris removal cost is $44,000. In this case, the policyholder absorbs the following out of pocket loss:

Direct Damage amount $735,000

Plus Debris Removal Expense $ 44,000

Total Loss $779,000

Less Insurance Limit $750,000

Less Additional Debris Removal Amount $ 10,000

Amount Not Covered $ 19,000

Higher debris removal limits are available using CP 04 15–Debris Removal Additional Limits.

Preservation of Property

What would you do if you had no insurance, knew that your business would be threatened and had time to take action? You would probably begin moving your most valuable possessions out of danger. The same course of action is just as important when you do have insurance. The commercial property coverage form encourages the insured to protect its property and also provides coverage as an incentive.

If it is necessary to move covered property from an insured location so it is not damaged or destroyed by a covered cause of loss, the company pays for any direct loss or damage to that property sustained during the move. In addition, coverage applies at the location used to store the property for up to 30 days after the date the property was moved to it.

Several important items should be considered:

• The only property insured is covered property at a location listed on the policy. Coverage is not created by moving ineligible property from a covered location or by moving eligible property from a location not covered.
• The loss or damage from which the property is being protected must be a covered cause of loss.

Example: Kermit moves his business furniture from his offices to protect it from rising floodwaters. Several pieces of furniture are dropped while being loaded on a rented truck, causing hundreds of dollars in damage. This damage is not covered because the threatened flood is not a covered cause of loss.

• During the time covered property is being moved, and during the time it is at another premises for up to 30 days, coverage applies for any direct physical loss or damage to it.

Example: Miller’s Bakery is located in a rural area close to a national forest. A wild fire is in full force and the wind is blowing in the wrong direction. Miller realizes that his property is in the direct line of the fire and he moves his equipment to a safe location on the other side of the river. A heavy rain begins before the fire reaches his property and extinguishes the fire. However, a new problem develops. Due to the heavy rain, a flash flood overflows the river’s banks and totally destroys Miller’s relocated property. Even through flood is an excluded cause of loss, the property destroyed is covered because it was moved to protect it from the fire which is a covered cause of loss.

Note: The property removed must be moved back to the covered location or the temporary location must be added to the policy within 30 days from the date of the move. If neither is done, all coverage ends after 30 days.

Fire Department Service Charge

This additional coverage responds to situations where the insured must pay for the expense of a fire department responding to an emergency. This coverage provides up to $1,000 to apply to the service charge and is not subject to a deductible. The old maxim: "He who hesitates is lost" applies to this coverage. The sooner a fire is reported, the faster it is controlled. Taking the time to consider the cost of fire department response is time lost in fighting the fire.

Pollutant Clean Up and Removal

The second paragraph of the Debris Removal Additional Coverage specifically excludes coverage for expenses to extract pollutants from land or water. This Additional Coverage provides a limited amount of coverage subject to the following requirements:

• The actual expense to extract pollutants from land or water at the described premises;
• The pollutants must be dispersed, discharged, released, or have escaped, migrated or seeped as a result of a covered cause of loss;
• The covered cause of loss must occur during the policy period;
• All expenses must be reported to the insurance company within 180 days after the date on which the covered cause of loss occurred; and
• The coverage does not apply to testing, monitoring or assessing for levels of pollution, except in the case of testing during the course of extraction.

The limit for this additional coverage is unusual. $10,000 is available for all covered expenses as a result of a covered cause of loss but the limit applies as an aggregate. The limit is the total amount provided during a single annual coverage period. The limit is not affected by the number of locations or the number of losses that occur during a policy period. As a result, any and all losses involving eligible expenses reduce the $10,000 total limit.

Example: Ace Manufacturing has five locations in Michigan. During the spring, a series of tornadoes come through and damage two of the locations. Paint is spilled at one of the locations and toxic chemicals are released into a nearby pond at another. The pollutant cleanup cost at the first location is $15,000 and $30,000 at the other. Because of the $10,000 coverage limitation, only $10,000 is paid at the first location. No coverage is available for the additional $5,000 costs at the first location or for any of the expenses at the other.

CP 04 07–Pollutant Clean Up and Removal Additional Aggregate Limits for Insurance can be used to increase the limit.

Increased Cost of Construction

This is welcome protection for any company possibly subject to the Americans with Disabilities Act (ADA) or any of a large number of local, state and federal ordinances typically not enforced until a building requires significant renovations or repairs. These ordinances and codes are helpful to many people and their cost is relatively easily absorbed in new construction. However, updating existing structures after a partial loss can add substantial costs to a rebuilding project and the basic coverage form does not cover these additional costs.

Example: Havor Academy is a private school that has served elementary school children for over 100 years. The building is joisted masonry with plaster interior walls. The hallways in certain areas are rather narrow but lead to spacious areas. A fire starts in the academy’s kitchen and causes significant damage to the kitchen and dining hall. Havor obtains building permits for the reconstruction and is told that the hallways must be widened to meet ADA standards. Since the walls that must be moved were not damaged, coverage does not apply other than the limited amount provided by the Increased Cost of Construction coverage.

This coverage is thoroughly explained in nine paragraphs.

• Paragraph e. (1) details that coverage is conditional and not automatic. It only applies when the basic policy is modified with the Replacement Cost Optional Coverage. While it is unusual to require that an optional coverage be included in order to obtain an additional coverage, it is necessary in this case.
• Paragraph e. (2) represents the basic coverage and explains that it responds to the additional costs created by the enforcement of ordinances or codes and that coverage is modified by paragraphs e. (3) through (9). This coverage applies when the following three events occur:
• Covered property is damaged by a covered cause of loss;
• Increased costs are incurred in the course of repairing, rebuilding or replacing damaged portions of the covered property; and
• The increased costs incurred are in order to comply with enforcement of an ordinance or law.

Example: Havor Academy meets these requirements because covered property is damaged by fire, a covered cause of loss. Increased costs are incurred in the repairing, rebuilding or replacing of the damaged covered property. The increased costs are incurred in order to comply with the enforcement of an ordinance or law. If Havor Academy has Replacement Cost Optional Coverage, there is a strong possibility that coverage is available, subject to paragraphs (3) through (9).

• Paragraph e. (3) provides that the law or code indicated in paragraph (2) above must meet the following requirements:
• It must regulate the construction or repair of buildings or establish a zoning or land use requirement at the described premises; and
• It must be in force at the time of loss.

Example: Continuing with our example, at the time of the Havor Academy loss, the town council was considering an ordinance that would require installation of sprinkler systems in all schools more than two stories high. The council voted and passed the ordinance two weeks after Havor's loss. The building inspector informed Havor Academy of this change. Since the ordinance was passed after the loss, coverage does not apply to the cost of adding the sprinkler system under this Additional Coverage.

• Paragraph e. (4) provides that the insurance company does not pay costs due to an ordinance or law that the insured should have complied with before the loss.

Example: Havor Academy and the town argued for years about the fire escape ordinance but Havor did not have the funds to comply with the town’s rule. Havor believed its evacuation procedure was more than adequate and that the town was unfair in asking it to remodel their building. After the fire loss, the town held the advantage. It could insist that Havor either comply with the ordinance or the building would not be allowed to reopen. Havor turns to the Additional Coverage but, since this was an existing ordinance they chose to ignore, the insurance company is not obligated to handle the added cost.

• Paragraph e. (5) The Commercial Property coverage form does not cover pollution. To be certain that this is clearly understood, this Additional Coverage does not apply to the costs associated with enforcement or ordinances or laws requiring the insured or others to test for, monitor, cleanup, remove, contain, treat, detoxify or neutralize, respond or assess the effects of pollutants or fungus. As a result, this Additional Coverage is worded in such a way that it cannot be used in a backdoor manner to provide pollution coverage (04/02 change).
• Paragraph e. (6) provides the limit of insurance. The limit is $10,000 or 5% of the limit of insurance for the damaged building, unless the building is part of a blanket schedule, whichever is less.

If the damaged building is part of a blanket limit the coverage is limited to the lesser of:

• $10,000; or
• 5% of the value of the damaged building at the time of loss multiplied by the coinsurance percentage that applies.

The blanket provision eliminates application of the 5% to the blanket limit and allowing the maximum limit for all buildings on the schedule, including those worth less than $10,000.

• Paragraph e. (7) indicates the numerous options available to the insured after a loss. One is to simply decide not to rebuild or repair. In that case, this coverage pays nothing. In some cases, the insured needs time to consider their options, including obtaining additional funding and bids needed to complete the construction. This paragraph recognizes this need but also requires the insured to make reasonable progress in making these decisions. Everything must be completed within two years after the date of loss, unless the insurance company extends the time limit in writing. The insurance company has no preference whether repairs are made at the existing location or if a new location is built. The same limit applies in either case.

Example: Havor Academy is unhappy with the loss settlement and the amount they have to pay to repair the building and bring it up to code. After looking at all the options, they determine that building a new building is less costly than repairing the old one. In addition, doing so will enhance the overall appearance of the school. The good news is that the company still pays the $10,000 limit to meet the standards.

Some ordinances or laws require that the insured actually relocate its operations. In that case, the limit applies to the new construction.

• Paragraph e. (8) A conflict could arise between this coverage and the Ordinance or Law Exclusion found in any of the Causes of Loss forms. Since this paragraph provides that the Additional Coverage is not subject to that exclusion, there is no conflict.
• Paragraph e. (9) The Valuation Condition or the Replacement Coverage Optional Coverage does not provide coverage for Increased Costs of Construction due to ordinances or laws. This coverage is not provided anywhere in the policy except in this additional coverage section. However, any limitation regarding Increased Cost of Construction stated in those sections do not apply to this Additional Coverage. This paragraph is intended to eliminate any confusion over the coverages and limitations existing under these three separate policy provisions.

CP 04 05–Ordinance or Law Coverage, should be used if additional limits are required or if broader protection is needed.

Electronic Data (04/02 addition)

Electronic data is now included in the Property Not Covered section of the form. In order to soften the blow, this Additional Coverage was included to provide a $2,500 limit for damage to electronic data. The damage must be due to or result from a covered cause of loss. The causes of loss are not the same as the causes of loss that apply to the rest of the policy. If the Special Causes of Loss form is used, only specified causes of loss and collapse are included. If the Broad Causes of Loss form is used, all of the named causes of loss and collapse are included. In addition, loss or damage due to virus, harmful code and similar attacks on the computer system are covered. However, normal computer entry problems or date manipulation problems are not covered. The $2,500 limit is the most paid over any entire policy period, regardless of the number of occurrences or the number of premises.

If the insured has electronic data exposures, an Electronic Data Processing Policy should be considered due to the lack of coverage in the this coverage form.

COVERAGE EXTENSIONS

If the coinsurance percentage is 80% or higher, or if coverage is written on a reporting form basis, several coverage extensions apply to the covered property. The extensions are limited to protecting property located in or on the building described on the declarations, in the open or in or on a vehicle within 100 feet of the described premises. Any exceptions to these requirements are clearly stated in the particular extension of coverage.

Newly Acquired or Constructed Property

Remembering to contact an insurance agent after a new acquisition is not automatic behavior. The Newly Acquired or Constructed Property extension provides the insured with some peace of mind coverage for their new purchases. The important point is that this is not free coverage. The insured must eventually report the property acquired and pay premium from the date of acquisition.

• Buildings. If the policy provides building coverage, this extension applies to new buildings owned by the insured and being built at a location listed on the policy. It also applies to buildings purchased by the insured at other locations but only if the buildings are intended for the same purpose as other scheduled buildings or for use as a warehouse.

The maximum limit per building is $250,000. It is important to note that the newly built or acquired building must be used in a similar manner to existing buildings or as a warehouse. The insurance company accepts risks based on their occupancy and it should not be expected to add a building with a dramatically different occupancy than what is already on the policy.

Example: L&M Property Management is a successful commercial developer owning 15 office buildings and 10 apartment buildings. It has an opportunity to purchase a building occupied by a furniture manufacturer and quickly does so. A fire occurs two days after the acquisition but before the insurance company is notified of the acquisition. The coverage L&M expects under this coverage extension does not apply because the occupancy is not similar to that of their other scheduled buildings.

• Business Personal Property. If coverage is provided on personal property, this extension applies to the following situations:
• Business personal property at newly acquired locations. This does not apply to property at fairs, trade shows or exhibitions.
• Business personal property located in newly constructed or acquired buildings at locations listed on the declarations.
• Newly acquired business personal property at a described location.

The maximum limit per building is $100,000. However, this coverage extension does not apply to personal property of others in the custody of the insured while being worked on, even if the work is related to the eventual sale or manufacture of the property.

It is not required that newly acquired business personal property be similar to existing business personal property. However, it must still qualify as eligible business personal property in order for coverage to apply.

• Period of Coverage. Coverage for newly acquired property ends when any one of the following occurs:
• When the policy expires;
• 30 days after the property is acquired or construction on it begins; or
• The date the property or value is reported to the insurance company.

Note: This provision can be applied with unfortunate and undesirable results.

Example: If the insured acquires a building on 12/31/2005 and the policy is renewed on 01/01/2006, the newly acquired building is no longer covered as of 01/01/2006.

This is particularly important for the insured that requests that the 30-day time period be increased to 180 days. Even with an increase to 180 days, coverage still ends on the earliest of the dates indicated above.

The construction date is the day the insured begins building the covered building. Since foundations do not qualify as covered property, coverage and the 30-day limitation do not begin until construction above grade level begins, unless the coverage is modified.

The building and personal property is reported to the company as of the date of acquisition. This is so the premium charged is for the entire period the property was insured. As a result, this extension is provided for the convenience of the insured and is not free coverage. However, the insured receives the benefit of coverage being in place if the newly constructed or acquired property is not reported immediately. It is more desirable to owe additional premium than to have an uninsured loss.

Personal Effects and Property Of Others

Coverage for business personal property can be extended to include personal effects belonging to the insured. If the insured is a business entity, such as a partnership or limited liability corporation, coverage is available for personal property belonging to the entity’s partners, officers, members, employees or managers. However, this coverage does not apply to theft losses. While coverage may also be provided for property of others in the insured’s care, custody or control, the maximum limit available is $2,500 while at a described location. This limit is the most available, regardless of the number of persons involved and the value of the property lost.

Note: Loss adjustments involving such claims are handled directly with the party that owns the property.

Valuable Papers and Records (Other Than Electronic Data) (04/02 change)

Valuable Papers and Records is now included in the Property Not Covered section of the form. This means that costs involved in replacing or restoring information on valuable papers and records are not covered.

This coverage extension provides a small limit of insurance to pick up this expense as long as the valuable papers are not considered electronic data. The limit is $2,500 limit per location and can be increased by making an entry on the declarations.

If higher limits are required and the insured plans to use this coverage in place of separate Inland Marine Valuable Papers and Records coverage, it should be noted that the coverage provided by this form is different and possibly not as broad as that provided by the inland marine form. One important difference is in the covered causes of loss. If the Special Causes of Loss form is attached, only certain specified causes of loss and collapse apply to Valuable Papers and Records coverage. On the other hand, if the Broad Causes of Loss form is attached, the broad causes of loss and collapse apply to valuable Papers and Records coverage.

Note: There is no coverage if the Valuable Papers and Records are kept in an electronic format. Coverage for Valuable Papers and Records kept in that manner is only available in this coverage form under Electronic Data Additional Coverage.

While including coverage for this exposure under the Commercial Property Coverage Form may be less expensive, using it means loss of valuable coverage enhancements as well as loss of the portable nature of a floater form in a the stand-alone policy. Always compare the two coverage forms carefully before making any coverage decisions.

Property Off-Premises

Business personal property is subject to movement from time to time. This extension recognizes this fact of business life and provides a limit of $10,000 for this coverage extension. An important point to consider is that this coverage applies to property originally situated at a described location and now away from it for a brief period. The personal property can be temporarily:

• At a location not owned, leased or operated by the insured;
• At a storage location leased by the insured, if the lease was made after the policy period began; or

• At a fair, trade show or exhibition.

Note: If storage space leased during the policy period is still leased when the policy renews, it must be added to the policy as a separate covered location or coverage ends.

This extension has important limitations. The coverage provided does not apply when property is in or on a vehicle or when it is with one of the insured’s salespersons, except at a fair, trade show or exhibition.

Numerous inland marine coverage forms are available to cover off premises property, property in transit or property at the premises of another entity for storage, service or repair.

Outdoor Property

Item p (2) under Property Not Covered lists the following items as not covered:

• Outdoor fences;
• Radio and television antennas, including satellite dishes;
• Signs, other than signs attached to buildings; and
• Trees, shrubs and plants, other than the stock of trees, shrubs or plants held for sale.

This coverage extension provides coverage on this property but only if the loss or damage is caused by or results from the aircraft, explosion, fire, lightning, riot or civil commotion causes of loss.

Example: A group of high school kids looking for treats on a Halloween evening approaches Mitzi’s Daycare just as Mitzi is leaving to go home. The students approach her yelling, "Trick or treat!" A smiling Mitzi tells them that she is sorry but she doesn’t have anything for them. The next morning, a frowning Mitzi discovers her wooden fence and some of her shrubs destroyed by a fire started with the candle in her jack-o-lantern. Some of the damage caused by the disappointed tricksters might be covered by this coverage extension.

The limit of insurance provided by this extension is $1,000 in any one occurrence, subject to a maximum limit of $250 for any one tree, shrub or plant.

The Commercial Property Program has an endorsement available to include or schedule additional coverage for Outdoor Trees, Shrubs and Plants. CP 14 30–Outdoor Trees, Shrubs and Plants allows the insured to increase these coverage extension limits and schedule specific coverage for this property. CP 14 40–Outdoor Signs and CP 14 50–Radio or Television Antennas are also available to use to increase limits. In addition, inland marine coverage forms are available that provide both higher limits and broader coverage.

Non-Owned Detached Trailers

Personal Property coverage can be extended to include coverage for non-owned trailers. These trailers must be:

• Used in the insured’s business;
• Situated at a premises described in the declarations and in the care, custody or control of the insured; and
• Covered because the insured has a contractual responsibility to pay for loss or damage.

The use of the contractual responsibility wording is unusual. This could be a preview of “things to come” in other areas of insurance that have previously been murky or unclear.

There is no coverage for loss or damage that occurs:

• When the trailer is attached to a motor vehicle or motorized conveyance, whether moving or not; or
• During hitching or unhitching operations, or when the trailer is accidentally unhitched from a motor vehicle or a motorized conveyance.

The maximum limit provided by this extension is $5,000. However, the policy wording does not indicate if this limit applies on a per trailer basis or a per location basis. Higher limits are available by making the appropriate entry on the declarations.

This coverage is excess over any other insurance covering such property, whether that insurance can be collected or not. The fact that the coverage responds on an excess basis may make it unnecessary to specify if coverage applies on a per-trailer basis or on a per-location basis.

EXCLUSIONS AND LIMITATIONS

Exclusions and limitations are found in the Causes of Loss Forms that apply.

LIMITS OF INSURANCE

This section informs the policyholder of the maximum limits the insurance company pays in any one loss. In most cases, the limit shown on the declarations is the total recovery possible for a single loss. If an outdoor sign attached to a building is damaged or destroyed, the policy provides up to $1,000 per sign per occurrence.

Example: On July 8^th, a fire breaks out in Wally’s Winery. The heat pouring out of the winery’s doors is so intense that it shatters the front and rear electric signs. The sign at the rear of the building is valued at $810. The larger sign in front is valued at $2,170. Under the coverage extension in the form, the insurance company pays $1,810 for the damage to both signs, $810 for the sign at the rear and $1,000 for the sign at the front of the building.

On August 23^rd, after both signs are replaced, a severe windstorm breaks a limb off a nearby oak tree. The limb smashes the sign at the rear and completely destroys it. The brand new sign just recently installed is valued at $973. The full value of the sign is paid for the second occurrence.

The limits provided by the coverage extensions and the following coverages are in addition to the limits of insurance on the declarations:

• Fire Department Service Charge
• Pollutant Clean Up and Removal

Insurance company payments made under the Preservation of Property Additional Coverage do not increase the limit of insurance that applies.

Example: Back to Wally’s Winery again. Once again, a fire breaks out in the center of the building and begins to spread. Wally is able to move $40,000 in stock to a truck in order to save it. However, that truck is struck by a fire engine and the stock is destroyed. Wally’s total limit of coverage is $300,000. In this case, since $40,000 is paid under the Preservation of Property Additional Coverage, $260,000 of the limit remains to apply to loss to the remaining personal property.

DEDUCTIBLE

When a loss occurs, the insurance company reduces the loss in accordance with any coinsurance that applies or the agreed value optional coverage provisions. After that, the amount of loss is compared to the deductible amount. If the amount of loss is less than the deductible, the entire loss amount becomes an out-of-pocket expense for the insured.

Example: Marv’s Meat Market has a $50,000 limit of insurance on Business Personal Property and a $1,000 deductible. The police cut short an attempted break-in but not before the criminals damage the entry doors and a safe. The total loss is $988. Since this amount is less than the deductible, Mary pays for the repairs from her own funds.

If the loss exceeds the deductible, the insurance company pays either the amount of loss above the deductible or the limit of insurance, whichever is less.

Example: The criminals return to Marv’s two nights later. This time they are much more successful and steal a large amount of inventory. Since they are concerned about getting caught, they decide to set a fire to cover their tracks. The total loss is $63,000. The amount of loss after application of the $1,000 deductible is $62,000. Since the limit of insurance is only $50,000, the total payment by the insurance company in this case is $50,000.

If the occurrence causing the loss involves two or more kinds of covered property, each having separate limits of insurance, the occurrence deductible is applied only once.

Example: The fire from Marv’s Meat Market damages the building owned by LRO Property Management. LRO insures the main building for $250,000, subject to a $1,000 deductible. LRO also has a garage at the rear of the main building insured for $15,000. The loss amounts are $125,000 on the main building and $5,000 on the garage.

The loss payment on the main building is $124,000, based on the $125,000 loss reduced by the $1,000 deductible. Since the deductible is applied to the loss on the main building, no deductible is applied to the garage and the total loss of $5,000 to it is paid.

An optional deductible endorsement is available. CP 03 20–Multiple Deductible Form is used in cases where the insured wishes to apply different deductibles to different forms of property or coverages.

LOSS CONDITIONS

The Loss Conditions in this portion of the policy apply in addition to the Common Policy Conditions and the Commercial Property Conditions.

Abandonment

The insured still owns the property after a loss and remains responsible for all expenses associated with ownership of the property. This situation is unchanged after a loss occurs, unless or until the insurance company agrees to accept ownership of the property.

Example: A sinkhole causes the Montgomery Fashion Palace to tilt and slide off its foundation into the middle of Main Street. This creates a major traffic obstruction. Montgomery Fashion informs its insurance company that it will accept a cash settlement and retire from business. The insurance company is not interested and refuses to accept the property. As a result, Montgomery Fashion Palace is responsible for either moving the building back to its original position or arranging for demolition of the building. Montgomery is also responsible for all fines and penalties from the city for the traffic obstruction.

Appraisal

From time to time, the insurance company and the insured disagree on the value of property or on the actual amount of loss. This condition contains a procedure designed to solve this problem. In the first step, one of the parties determines that it has reached an impasse with the other party and makes a written request for an appraisal. At that point, each party hires an independent appraiser. The appraisers must be both competent and impartial.

Example: Jane is the insured and her insurance company is Bargun-Downe Property Company. They disagree on the value of the roof damaged by a lightning strike. They both agree to submit the dispute to appraisal. Jane selects an experienced appraiser who just happens to be her brother. Bargun-Downe selects a totally impartial party who has no appraisal credentials. Both "appraisers" are rejected because Jane’s selection is biased and the insurer’s selection is not qualified.

In the next step, the appraisers choose an umpire. If they cannot agree on an umpire, they can request that a judge of a court having jurisdiction over the matter select an umpire. Once all parties are selected and in place, each appraiser states the value of the property and the amount of loss. If both parties agree, the loss amount is settled. Only amounts over which they disagree are submitted to the umpire. Any decision made by two of the three is binding on both the insurance company and the insured.

The expenses associated with this process fall outside the category of expenses paid under the policy. The insured pays the following costs or expenses and the insurance company does not reimburse it for them:

• The insured’s appraiser;
• An equal share of the cost of the umpire; and
• An equal share of any other appraisal expenses.

The insurance company pays the following costs and expenses. None of these expenses reduce the limit of insurance:

• The insurance company’s appraiser;
• An equal share of the cost of the umpire; and
• An equal share of any other appraisal expense.

Example: Baron’s Furniture Store is seriously damaged by a tornado. Furniture is strewn over many city blocks. Sheila is the owner and believes the value of the loss is $560,000, based on inventory records. The insurance company claims representative visits the store, views both damaged and undamaged merchandise and determines the loss to be $350,000. Each side presents its case to the other but the impasse cannot be resolved. Sheila needs to restore the inventory and get back in business. She sends a letter to the insurance company and requests an appraisal. Each party selects a qualified and impartial appraiser but cannot agree on an impartial umpire. They ask a local judge to select the umpire and he does so. Sheila’s appraiser determines the loss to be $625,000 but the insurance company’s appraiser determines a value of the loss of $450,000. The umpire reviews their figures and agrees with the insured on some items and with the insurer on others. The final settlement is $525,000.

Each side bears their own expenses for the appraisers and umpire but $525,000 is the agreed value of the loss.

Duties In The Event Of Loss Or Damage

The insurance company requires the insured to act in a reasonable manner immediately after a loss occurs. If this is not done, the insurer’s obligation to pay the loss may end. The insured is responsible for the following:

• The insured must notify the police or other law enforcement authorities if a law may have been broken.

Note: Even though this requirement may sound obvious, the circumstances surrounding a loss may make this issue more complicated than it appears.

Example: A theft occurs at an insured location and the insured reports the loss to the insurance company. It begins to adjust the loss and finds that no police report was made because the insured suspects that a relative may be involved.

Example: A fire destroys the insured’s warehouse. The insurance company adjuster discovers that a local gang may have started the fire. The insured does not fill out a police report because of fear of reprisal.

In cases like these, the insurance company has the right to refuse to pay the loss. It needs the insured's cooperation in meeting this requirement to protect its interests. One of these is to be certain that the claim is legitimate in addition to increasing the chances that the responsible parties will be found and prosecuted. When theft of property is involved, police involvement increases the chances that the property will be recovered.

• The insured must give prompt notice to the insurance company of the loss or damage that occurred and describe the property involved. Prompt notice is not a complete and thorough report but it provides enough information for the insurance company to begin to process the claim and make decisions about how to respond. The meaning of the term "prompt" has been challenged in some court cases. As a result, the best advice for the insured is to send as much loss information to the insurance company as soon as it knows that a loss has occurred.
• As soon as possible after a loss occurs, the insured must give a description of how, when and where it happened. This requirement is slightly different from the prompt notification obligation. That obligation is to inform the insurance company on a timely basis that a loss occurred. This obligation assists the insurer in determining if the loss is actually covered.
• "How" is the cause of the loss and determines if it is a covered cause of loss under the policy.


• "When" is the exact time the loss occurred. Since the loss must occur during the policy period in order for coverage to apply, this information is very important. Coverage for a loss that occurs at 12:02 a.m. on the inception date may be more subject to debate than a loss that occurs at 11:59 p.m. on the expiration date. In addition, accurate information on when the loss or damage occurred may help resolve whether the loss occurred suddenly or over a period of time. Finally, this information is important because a distinction about the loss being fortuitous or a normal maintenance issue may come into play.
• "Where" involves whether the location where the loss occurred was listed on the policy. If it was not, the form must be examined carefully to determine if any coverage applies at locations not listed on the declarations.
• The insured must do everything possible to protect the covered property from any further damage. The time to take the annual Florida vacation is not immediately after a loss occurs. The requirement to protect property involves taking reasonable measures, not extraordinary or unreasonable ones. Covering property with tarps to protect against moisture damage, boarding up windows and hiring security guards are examples of reasonable measures that might be taken after a loss. Any expenses incurred by the insured are taken into consideration in the loss adjustment and settlement but these expenses do not increase the limit of insurance. Finally, the insured should separate the damaged property from undamaged property and set the damaged property aside for examination whenever possible.

Example: The front window of Haptown Appliances blows in during a violent thunderstorm. The televisions on display in that window are badly damaged by flying glass, debris and water. The police notify the owner and the owner informs his insurance agent and the insurance company. When the storm ends, the owner goes to the store and evaluates the situation. His immediate concern is that the security system is no longer working, so he purchases lumber, boards up the window and contacts the alarm company. The alarm company recommends a security company that can provide extra security until the window is repaired and the alarm system is put back into operation. After these arrangements are in place, the owner examines the appliances and moves the damaged ones to the rear of the store and begins to clean up. The insurance company includes the expenses for temporary security and boarding-up the window in the loss adjustment and settlement.

• When the insurance company requests inventories of damaged and undamaged property, the insured must provide them. This includes quantities, costs, values and the amount of loss claimed. This detailed information is vital to properly adjust the loss and offer a fair settlement. Since the insured controls the inventory, the insured is responsible for supplying the information needed.
• The insurance company has the right to verify that the information provided by the insured is accurate and correct. For this reason, the company may inspect the property for the purpose of proving the loss or damage and may also examine the insured's books and records.

A part of this condition is necessary to protect the insured. The insurance company must be reasonable with respect to the number of times it requests information or requires access to the insured's premises. Since the term "reasonable" is not defined, the two parties might disagree about the intent of this condition. For example, the insurer may take the position that repeat visits are necessary in order to be thorough. The insured may view the same actions as being a delaying tactic that slows down the settlement. While the essence of this condition is to prevent a carrier from harassing the insured, it also benefits the insurance company. Because of the way it is written, an uncooperative insured cannot claim that a single visit is sufficient for the carrier to adjust and settle a loss.

• The insured must prove good faith about the truth and accuracy of a claim for loss. This is accomplished by it providing the insurance company with a signed and sworn proof of loss. This must be done not later than 60 days after the insurer requests it, along with any other information needed. The insurance company provides the necessary forms and instructions on exactly what information is needed.

Note: If the insurer's requests are unclear and the insured is confused, any delay in providing the information cannot be used as an excuse to deny coverage.

• The insured must cooperate with the insurance company in the investigation or settlement of the claim.

In addition to the points outlined above, the insurance company has the right to examine any insured under oath. The examination usually takes place individually and without another insured being present. The examinations can be done as often as necessary concerning any matter related to either the insurance coverage or the claim itself. These examinations can include examinations of the insured's books and records. In all examinations, the written document on which the insured's answers are recorded must be signed.

Loss investigation is a serious part of the insurance claims process and the insurance company must have complete access to information as necessary to investigate and settle the claim. This may include information the insured would prefer not to disclose. Claims adjusters want to believe their insurance customers are honest but the sheer number of incidents of fraud makes them cautious. While the insurance company cannot use intimidation or harassment, they must still be diligent in order to protect their assets and to prevent or limit fraud.

Loss Payment

The insurance company has four options for paying covered losses or damage:

• Pay the value of the lost or damaged property;
• Pay the cost to repair or replace any damaged or lost property. This does not include any expense or increased cost due to the enforcement of any ordinance or law regulating use, repair or construction of any property;
• Take all or any part of the property at an agreed or appraised value; or
• Pay to repair, rebuild or replace the damaged property with property of similar type and quality. This does not include any expense or increased cost due to the enforcement of any ordinance or law regulating use, repair or construction of any property.

The value of damaged or destroyed property, or the cost to repair or replace, is based on the terms of the valuation condition of the coverage form or any other provision that amends or replaces the valuation condition.

The insurance company must tell the insured the option they will exercise within 30 days after receiving a properly prepared and signed sworn proof of loss. The company pays no more than the financial interest of the insured in the covered property.

Example: Mary and Jane form a partnership called Mary Jane’s Clothing. Five years later, Mary purchases Jane’s interest. A covered loss occurs two months after that. Jane’s name is still on the policy, so she files a claim against the policy. Since she no longer has a financial interest in the covered property, she is politely informed that she has no right to make a claim and that the coverage form will not respond to her claim.

The insurance company adjusts claims for loss or damage to property not owned by the insured with the owner of the property. The settlement must satisfy all claims for the property because the insurance company only pays once. In addition, the most paid is the property owner’s financial interest in the property.

If the insurance company providing the property coverage chooses to defend the insured against suits due to claims by the owners of property, it does so at its own expense.

Actions by the insured create obligations for the insurance company. In this case, when the insured provides the insurance company with a signed and sworn proof of loss, the insurance company must pay the loss within 30 days of receiving it. This obligation depends on the insured meeting all policy conditions as well as:

• The parties having agreed on the amount of loss; or
• An appraisal award having been made.

Recovered Property

If either the insured or the insurance company recovers property after a loss is paid, each party must give prompt notice to the other and inform it of the recovery. The insured decides whether to return the claim payment or keep the recovered property. The insurance company is responsible for the expense of the recovery and any repair to the recovered property, subject to the limit of insurance.

Example: Burglars break into Floyd’s Music Shop and steal $25,000 in CDs. The insurance company pays the claimed amount of $25,000. Two years later, the police notify Floyd that the CDs have been located at a warehouse. Floyd notifies the insurance company of this development. The insurance company representative and Floyd visit the warehouse and Floyd realizes that the current value of the CDs is negligible due to their age. He decides to keep the claim payment and allows the insurance company to keep the CDs.

Vacancy

Insurance companies are only interested in insuring successful and ongoing businesses. Risk pricing contemplates an active occupancy. As a result, rates on vacant properties are heavily surcharged. Since vacancy is often only discovered after a loss occurs, the loss conditions severely limit coverage if the vacancy was not disclosed to the insurance company in advance.

Before any restrictions are imposed, the insurance company must define exactly what it means by vacancy. If coverage applies to a tenant, the only part of the building that can be considered when analyzing vacancy is the portion occupied by the tenant. The portion the tenant occupies is considered vacant if it contains insufficient business personal property to conduct customary operations.

Example: Millie’s Florist Shop occupies a quarter of the Landow building. The tenant that previously occupied the rest of the building, The Cat and Mouse Café, moved out. The building owner is looking for a new tenant and the search is now in its ninth month. A fire breaks out in the vacant portion of the building and Millie's space experiences heavy smoke damage. In this situation, Millie’s loss is not compromised on account of the vacant space because the building is not considered vacant.

If the building owner or a general lessee is the policy owner, the entire building is considered in determining vacancy. The building is considered vacant unless least 31% of the total square foot area is:

• Rented to a lessee or sub-lessee and used by the lessee or sub-lessee to conduct its customary operations; or
• Used by the building owner to conduct customary operations. The key word is customary.

Example: If the lessee, sub-lessee or building owner is a retail business, then the retail business is their customary operation. If a loss occurs and the insurance company discovers that 90% of the building is being used for storage, it can deny the claim because the building is vacant according to the language in the coverage form.

Buildings under construction or renovation are not treated as vacant. If the building, or an area within the building, is temporarily vacant so that major renovation work can be done, and the tenant will return as soon as the work is done, the building is not treated as vacant.

Example: The Eastward Shopping Center has four separate buildings and always struggles with vacancy issues. Building 1 is totally occupied by one tenant. Building 2 has one shop that occupies 20% of the space. The rest of the building has been vacant for more than six months. Building 3 has multiple tenants but is 15% vacant. Building 4 has just been leased subject to completion of major remodeling. A contract has just been signed and remodeling has begun.

A major summer storm with heavy winds damages all the buildings. Based on the definition of vacancy, Buildings 1 and 3 are not vacant and coverage on them is not compromised. Building 2 is vacant and is subject to a vacancy penalty. Since Building 4 is being remodeled, it is not treated as vacant at the time of the loss and a vacancy penalty is not applied.

Having defined vacancy, the vacancy condition can be stated. If the building damaged by a covered cause of loss has been vacant, as defined above, more than 60 consecutive days before the date of loss:

• The insurance company pays nothing if the loss was caused by vandalism, sprinkler leakage, unless the system was protected against freezing, breakage of building glass, water damage, theft or attempted theft.
• The insurance company reduces the amount of any loss by 15% if the claim is caused by or results from any covered cause of loss not listed above.

Example: Building 3 in the Eastward Shopping Center example above would be penalized 15% because the loss was caused by storm damage and not by one of the listed causes of loss.

Valuation

The value of covered property at the time of covered loss or damage is determined as follows:

• Actual cash value at the time of loss except as provided for below. Actual cash value is not defined in the policy but court decisions refer to it as replacement cost new minus accumulated depreciation.
• If the limit of insurance for building meets the requirements of the Additional Condition–Coinsurance, and the cost to repair or replace the damaged building property does not exceed $2,500, the insurance company pays all costs. This is a bonus to the insured for insuring to a limit that satisfies the coinsurance requirement. This cost does not include any increased costs due to the enforcement of any ordinance or law affecting construction. In addition, the following are not subject to replacement cost valuation, even when attached to the building:
• Awnings or floor coverings;
• Appliances for refrigerating, ventilating, cooking, dishwashing or laundering; or
• Outdoor equipment or furniture.

Losses involving this property are handled on an actual cash value basis.

• Stock sold but not delivered is valued at the net selling price less discounts and expenses the insured would have had otherwise.

Example: Ben’s Wholesale only stocks merchandise already sold. A covered loss destroys all the stock. The merchandise was previously sold at an agreed price of $600,000. Ben provides a 10% 30-day payment discount and it costs $50,000 to transport the merchandise to the customer. The value of Ben’s loss is $600,000 minus the 10% discount of $60,000 minus transportation costs of $50,000, for a total of $490,000.

• Glass that must be replaced by law with safety glass is replaced with safety glass and the insurance company covers this cost.
• Tenants’ improvements and betterments is unique because the tenant creates, owns and uses them but cannot legally exercise the ownership right of removing them when the rental or lease ends and the tenant moves out. Two methods of valuation are available in this case:
• Actual cash value of the lost or damaged property if the insured makes repairs promptly.
• A proportion of the original cost if the insured does not make repairs promptly. The proportion is determined by multiplying the original cost by the number of days from the date of loss to the expiration date of the lease and then dividing this amount by the number of days from the installation of the improvement or betterment to the expiration date of the lease.

If the lease contains a renewal option, the expiration of the renewal option replaces the expiration of the lease provision.

Example: Sally’s Card Shop added $5,000 in improvements when it moved in two years ago. The five-year lease includes a five-year renewal option. Lightning damages the improvements and all must be replaced. Sally is not sure that the improvements are really needed at this time, so the proportion must be calculated in order to pay the loss.

Step one:

Original cost $5,000

Multiplied by the number of years remaining in the lease:

(Three plus five in the renewal option equals 8) X 8

Multiplied by 365 days in a year X 365

Equals $14,600,000

Step two:

Number of years from installation to lease expiration 10

Multiplied by 365 days in a year x 365

Equals the total 3,650

Step one ($14,600,000) divided by step two (3,650) equals $4,000

Sally receives $4,000 based on the proportion method.

o The insured receives nothing for repairs to improvements or betterments that someone else pays for.

Endorsements available that amend the valuation condition as stated in the basic coverage form include:

• CP 04 38–Functional Building Valuation changes the valuation method to functional replacement cost as defined in the endorsement.
• CP 04 39–Functional Personal Property Valuation (Other than Stock) changes the valuation method to functional replacements cost as defined in the endorsement.

ADDITIONAL CONDITIONS

Two additional conditions apply in addition to the Common Policy Conditions and Commercial Property Conditions.

Coinsurance

This condition applies only if a coinsurance percentage is shown on the declarations. The insurance company does not pay the full amount of any loss if the value of the covered property at the time of loss, multiplied by the coinsurance percentage shown on the declarations, is greater than the limit of insurance for the property.

It is important to understand that coinsurance is not required or mandatory. However, it is recommended because the pricing is surcharged when it is not selected, except for agreed value discussed under optional coverages below. The insured is charged a premium based on maintaining a limit of insurance equal to at least 80%, 90% or 100% of the value of the covered property. This condition includes penalties if these limits are not maintained.

Certain information is needed to determine if a coinsurance penalty applies:

• The value of the covered property at the time of loss. The value on the inception date of the policy is not relevant.

Example: Keith’s Shoe Barn has a policy covering stock and other business personal property. On the policy inception date, the total value is $100,000. Keith decides to use 80% coinsurance and purchases an $80,000 limit. A fire breaks out three months into the policy period. At the time of loss, the total value of stock and other business personal property is $120,000 because Keith purchased a large amount of stock in advance of back to school shopping. The value of the loss is $50,000. The value used in application of the coinsurance penalty is the $120,000 value at the time of loss and not the $100,000 value at policy inception.

• The coinsurance percentage selected. Options available are 80%, 90% or 100% or none in some cases. If the no coinsurance option is selected, the premium is surcharged. Property rates are developed assuming 80% coinsurance and no surcharge or credit is applied. Limits reflecting 90% coinsurance are credited 5% and those reflecting 100% coinsurance are credited 10%.

The limit of insurance does not have to be the value multiplied by the coinsurance. It should reflect the maximum value that could be expected during the policy period. In cases where fluctuating values are expected, the insured should consider writing coverage on a reporting form or use the peak season endorsement. In some cases, the insured may choose to insure for the 100% value of the property but keep the coinsurance at 80% or 90% in order to avoid a coinsurance penalty.

Example: Keith’s Shoe Barn should have a limit of $96,000. This is based on the $120,000 value at the time of loss multiplied by 80% coinsurance. Keith chose 80% but applied it to the $120,000 value at policy inception and now faces a coinsurance penalty because of that decision.

• The coinsurance penalty is determined as follows:
• Multiply the value of covered property at the time of loss by the coinsurance percentage;
• Divide the limit of insurance by the result of the step above;
• Before applying the deductible, multiply the total amount of loss by the figure developed in the step immediately above; and
• Subtract the deductible from the figure determined in the step immediately above.

The insurance company pays the amount determined in the last step above, or the limit of insurance, whichever is less. Any difference is paid by the named insured.

Example: Keith’s Shoe Barn incurs a coinsurance penalty, as follows:

• $120,000 limit required multiplied by 80% coinsurance equals $96,000.
• $80,000 limit at inception at 80% coinsurance divided by $96,000 limit required at time of loss equals a coinsurance penalty factor of .833.
• $50,000 actual loss multiplied by the .833 coinsurance penalty factor equals $41,650.00.
• $41,650 minus the $1,000 deductible equals $40,650.

The insurance company pays $40,650. The remaining $9,350 is not covered and must be paid from the insured's funds.

The coverage form includes three useful examples that explain how the coinsurance condition applies. The coinsurance condition may be suspended by selecting the Optional Coverages–Agreed Value option. Refer to Section G. Optional Coverages for a more detailed discussion of this optional coverage.

Mortgageholders

The form does not define mortgageholder but the term also includes trustees. The insurance company pays for covered loss or damage to buildings or structures to each mortgageholder listed, in the order of precedence, as their respective interests may appear. The mortgageholder must prove its interest at the time of loss.

The mortgageholder does not lose the right to receive loss payment even if foreclosure or similar action has begun.

If the insured’s claim is denied because of its actions, or because the insured failed to comply with any of the terms and conditions of the policy, the mortgageholder still has the right to receive loss payments if it:

• Pays any premium due once the insurance company notifies it that the insured has not paid;
• Submits a signed, sworn proof of loss within 60 days after the insurance company notifies it that the insured has not submitted the proof of loss required; and
• Notifies the insurance company of any change in ownership, occupancy or substantial change in risk known to it.

Once the actions above occur, the terms of the coverage part apply to the mortgageholder.

If the insurance company pays the mortgageholder for any covered loss or damage, but denies payment to the insured because of its actions or non compliance with the terms and conditions of the coverage form:

• The mortgageholder’s right under the mortgage is transferred to the insurance company to the extent of the amount paid; and
• The mortgageholder’s right to recover the full amount of its claim is not impaired.

The insurance company has the option to pay off the entire mortgage, including accrued interest. If that happens, it owns the mortgage and the insured must pay the remaining mortgage debt to the insurance company.

If the insurance company cancels the policy, it must give written notice to the mortgageholder at least 10 days before the effective date of cancellation if the reason is non-payment of premium. It must give at least 30 days written notice before the effective date of cancellation if cancellation is for any other reason. If it decides not to renew, it must give the mortgageholder at least 10 days written notice before the expiration date.

OPTIONAL COVERAGES

The form includes provisions for four optional coverages. Each must be selected by making the appropriate entry on the declarations in order for the selected coverage to apply. The selection must be made for each item of covered property. For example, an optional coverage can apply to building coverage and not to business personal property coverage. It is also possible to have an optional coverage on some buildings and not on others.

Agreed Value

The coinsurance condition includes serious penalties if the value of covered property at the time of loss does not meet the value required by the coinsurance clause. This option gives the insured an alternative valuation technique but it is also subject to certain conditions and requirements.

When the insured selects this optional coverage, the coinsurance condition does not apply. Instead, the insurance company pays no more for covered loss or damage to covered property than the proportion that the limit of insurance under this coverage form bears to the agreed value shown on the declarations.

An expiration date for the agreed value option must be shown on the declarations when it is selected. If the expiration date for it is before the policy expiration date and is not extended by endorsement, the coinsurance condition is reinstated and the option no longer applies. This optional coverage only applies to loss or damage that occurs on or after the effective date of the optional coverage, and before the expiration date of the agreed value option shown on the declarations or the policy expiration date, whichever is earlier.

Example: Kitty’s Tavern submits an application and requests agreed value optional coverage. The worksheet attached indicates business personal property with a value of $150,000 but Kitty only wants to insure to 90% of this value. The insurance company and Kitty agree that the 90% agreed value is $135,000. The policy is issued with a $135,000 insurance limit for the policy period of January 1, 2006 to January 1, 2007. The expiration date of the agreed value clause is also January 1, 2007.

A $5,000 loss occurs. Because the limit of insurance of $135,000 is the same as the agreed value of $135,000, the loss is paid in full.

The policy is extended to April 1, 2007 but there is no request to extend the agreed value optional coverage. A loss occurs on March 1, 2007. Unfortunately, since the Agreed Value Optional Coverage date has not been extended, the coinsurance clause is reinstated and the loss adjusted accordingly.

Inflation Guard

This option provides flexibility to the insured at times when inflation is increasing property values rapidly. The insured selects an annual inflation rate to apply to the property values. If a loss occurs, the insurance limit increases by the pro rata portion of the annual inflation rate before any loss calculation is done. The increase is calculated as follows:

• The limit of insurance that applies as of the date of loss, multiplied by;
• The percentage of annual increase shown on the declarations, expressed as a decimal, multiplied by;
• The number of days since the last change in the limit of insurance, divided by 365.

Example: Caldwell Manufacturing has coverage with a building limit $1,250,000 and an 8% inflation guard factor. On June 1, the limit is increased to $1,350,000. A loss occurs on July 1. The revised limit of insurance is calculated as follows:

• $1,350,000 updated value multiplied by .08 annual inflation guard factor equals $108,000.
• $108,000 multiplied by .082 (30days between the date of increase and the date of loss divided by 365) equals $8,856.
• $8,856 added to $1,350,000 equals $1,358,856, the limit of insurance used in settling this claim.

Note: When a policy with this coverage form also includes Optional Coverages–Inflation Guard, review the limit at renewal carefully. If the inflation guard factor is 8%, the limit at renewal should be at least 8% higher or the insured's limits will not be adequate and a loss may subject the insured to a coinsurance penalty.

Example:

• Policy term: 01/01/2006- 01/01/2007
• Limit of insurance: $1,000,000
• Inflation guard factor: 8%
• Limit of insurance as of 12/31/2006: $1,000,000 multiplied by .08 equals $1,080,000.

If the insured wants the policy renewed "as is," the insured should be reminded that this means a renewal limit of $1,080,000, reflecting the original limit increased by the annual inflation guard factor. If the renewal reflects the original limit of $1,000,000, it really means an actual reduction of the current limit.

Replacement Cost

The Valuation Loss Condition is revised by using the term replacement cost instead of actual cash value. This means that no deduction is taken for property depreciation when determining payment for property damaged or destroyed by a covered cause of loss. Replacement cost valuation does not apply to:

• Personal property of others;
• Contents of a residence;
• Works or art, antiques or rare articles, including etchings, pictures, statuary, marbles, bronzes, porcelains and bric-a-brac; or
• Stock, unless stock is shown as included on the declarations.

Note: Tenants’ improvements and betterments are not treated as personal property of others under this optional coverage.

The insured has the option to make a claim based on actual cash value instead of replacement cost. However, the insured also has the option to change its mind and make a claim based on replacement cost as long as the insurance company is notified within 180 days after the loss.

The insurance company does not pay on a replacement cost basis:

• Until the property damaged or destroyed is actually repaired or replaced; and
• Unless arrangements are made for repairs or replacement as soon as possible after the date of loss.

When a tenant’s improvements or betterments are involved, the following apply:

• If the conditions immediately above are not met, the value of tenants' improvements and betterments are the proportion of the original cost, according to the formula in the valuation condition of the coverage form; and
• The insurance company does not pay under optional coverage if another party pays for the needed repairs or replacement.

The insurance company is obligated to pay only the least of the following:

• The limit of insurance that applies to the damaged or destroyed property;
• The cost of replacing the damaged or destroyed property with comparable property used for the same purpose; or
• The actual cost to repair or replace the damaged or destroyed property.

If a building is rebuilt at a different location, the cost is limited to the amount equal to the cost to rebuild it at the original site. The cost of repair or replacement does not include any increase caused by the enforcement of any ordinance or law applying to the construction, use or repair of the property.

Example: The coverage for Connie’s Feed and Grain has a limit of $225,000 and replacement cost valuation. When her store is destroyed by fire, she decides to take the actual cash value settlement of $150,000 instead of rebuilding. When members of the community beg her to reconsider her decision, she changes her mind. On the 179^th day after the loss, she notifies the insurance company and informs it that she will rebuild. She uses the $150,000 to begin reconstruction. After construction is complete, she receives the remaining $75,000.

Extension of Replacement Cost To Personal Property Of Others

This extension can be used only when the Replacement Cost Optional Coverage is also selected. It modifies the Replacement Cost Optional Coverage to include personal property of others. It is subject to the following limitation:

If any property of others is subject to a written contract that dictates the insured’s liability for loss or damage to that property, its valuation is based on the amount for which the insured is liable. The most the insurance company pays is the lesser of the following:

• The amount stated in the contract;
• The replacement cost of the property; or
• The limit of insurance for the property.

DEFINITIONS

Three terms are defined in this coverage form:

1. Fungus includes all types of fungus. This includes, but is not limited to, mold, mildew, spores, scents, mycotoxins, or by-products released or produced by the fungus. (04/02 addition. This term is used in the Increased Cost of Construction Additional Coverage to restrict coverage.)

2. Pollutants are any solid, liquid, gaseous, or thermal irritant or contaminant. This also includes smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

3. Stock is merchandise held in storage or for sale, any raw materials and goods in-process and finished goods. This also includes supplies used in their packing or shipping.

CP 00 10–BUILDING AND PERSONAL PROPERTY COVERAGE FORM ANALYSIS (06 07 EDITION)

Index

A. Coverage

1. Property Covered

2. Property Not Covered

3. Covered Causes of Loss

4. Additional Coverages

5. Coverage Extensions

B. Exclusions and Limitations

C. Limits of Insurance

D. Deductible

E. Loss Conditions

F. Additional Conditions

G. Optional Coverages

H. Definitions

This analysis is based on the 06 07 edition of this coverage form. Changes from the previous edition are in bold print.

INTRODUCTION

This coverage form opens by defining the terms "you or your" as the named insured and "we, us and our" as the company that provides the insurance coverage. Named insured is not defined. As a result, it means only entities listed or named on the declarations. If a given entity is not listed, there is no coverage for its property, even if the property is described on the declarations. This coverage form has other words that have special meanings. They are defined in Section H. Definitions.

A. COVERAGE

The coverage form obligates the insurance company to pay for direct physical loss or damage to certain types of property. The property must be at a location listed or described on the declarations. However, this is not open-ended coverage. In order for coverage to apply, the loss or damage must be caused by a cause of loss described in the causes of loss form attached to the policy.

Coverage applies only to loss or damage that occurs at a definite place and time. There is no coverage for a loss event that is not tangible or capable of being measured.

The reference to premises means that coverage applies to only property located in or on the premises listed or described on the declarations. For this reason, the declarations is a very important document. Coverage does not apply if the location and type of property is not properly listed or described.

1. Covered Property

Covered Property is defined in two ways. In the first, the coverage form lists the types of property eligible for coverage. In the second, it provides information on the types of property not eligible for coverage. One method to determine of an item is covered is to ask the following questions:

Step 1: Is the item described in the listings provided under Building, Your Personal Property, or Personal Property of others? If the answer is no, there is no coverage. If yes, continue to Step two.

Step 2: Is there a limit of insurance on the declarations for the qualifying type of property? If the answer is no, there is no coverage. If yes, continue to Step three.

Step 3: Is the item described in the listings provided under Property Not Covered? If the answer is yes, there is no coverage. If the answer is no, this coverage form should cover that item.

Example: Lydia’s declaration has a $50,000 limit of insurance for business personal property. There are no other limits on the declarations. When Lydia has a loss, she determines which items are covered by using the step method described above:

Property Description	Step 1	Step 2	Step 3	Coverage
Owned floor coverings	Yes	Yes	No	Covered
Owned grills and storage bins	Yes	Yes	No	Covered
Stock	Yes	Yes	No	Covered
$5,000 in cash	Yes	Yes	Yes	Not Covered
Borrowed desk and cabinets	Yes	No	Yes	Not Covered

a. Building

Building is the first type of covered property. The following property is covered in addition to the actual building or structure listed on the declarations:

• Completed additions. This means an addition to the described structure during the policy term is covered even though it did not exist at policy inception.

Example: The Kingsley Office Plaza expanded its first floor and added extra storage in its most recent addition. The addition was made during the policy period and was considered building once it was complete and the builders’ risk policy no longer covered it.

• Fixtures (including outdoor fixtures). Light poles, fences, satellite dishes, and similar property are considered fixtures. Indoor light fixtures, cabinets, and restaurant booths are also considered fixtures.

• Permanently installed machinery and equipment. The key word is permanently. Machinery or equipment that is placed permanently is considered building. If it is not, it is considered personal property. This is a very important distinction when rating and pricing the exposure as well as at the time of loss or damage. In most cases, the premium charge for property that qualifies as building is significantly lower than the charge for personal property. The difference is because permanently installed property is usually considered less vulnerable to loss. This distinction is also important when determining whether the coverage is the landlord or the tenant's responsibility, as well as with respect to coinsurance issues.

• Owned personal property used to maintain or service the building. Some property in this category (while appearing to be personal property because it is portable) is treated as building property because of its relationship to the building. Property such as fire extinguishing equipment, outdoor furniture, floor coverings, and appliances used for refrigerating, ventilating, cooking, dishwashing, or laundering is not personal property but is classified and treated as building property and should be listed as such. However, such listings are not necessarily exclusive. Other property used to service and maintain the premises that is not included on a list of property may still be treated as building property.
• Two other types of property are covered but only if not covered elsewhere:
• Additions being built are covered. Alterations and repairs to the building or structure are also covered.
• Any materials, equipment, supplies, and temporary structures situated on the described premises or within 100 feet of it. These are building only if they are used to make additions, alterations, or repairs to the specifically described building or structure.

Note: This coverage is provided because of the way most building owners work on their buildings. Repairs and alterations are often handled as time and money permits. The materials and property may be obtained early and kept on site until the repairs or alternations can be made. These materials would be considered business personal property without this item.

b. Your Business Personal Property

The next type of covered property is Business Personal Property. There are three distinct conditions to meet in order for coverage to apply. The property:

• Must be owned by the named insured
• Must be located or situated at any of the following:
• In or on a building listed or described on the declarations
• In the open within 100 feet of the premises
• In or on a vehicle within 100 feet of the premises
• Must be included as property considered as personal property

Note: A premises is not the same as a building. A premises is the land on which the building is situated. This means personal property can be off the premises and still be covered. An example is personal property in a vehicle on the street in front of the premises. There is no coverage if it is parked down the street and over 100 feet away.

The following is considered personal property. Certain provisions in the Property Not Covered section limit this otherwise inclusive listing. Personal property is:

• Furniture and fixtures. This could include the same fixtures included as building property. If the insured owns the building, the fixtures should be included in only the building coverage because payment is limited to not more than the value of the item (even if covered in more than one place).
• Machinery and equipment. This does not refer to permanent or mobile but both are eligible for coverage. If the insured owns the building (as well as the machinery or equipment), any permanently installed machinery and equipment should be covered under building and not under personal property coverage. This is because duplicate coverage wastes premium but does not increase coverage.

• Stock is as defined in Section H. Definitions.
• All other personal property is covered if it passes a two-part test. The named insured must own it and it must be used in its business.

Example: Bill owns a hardware store with a large basement. His family is rapidly outgrowing its home and he decides to move some extra household items to the basement of the hardware store instead of renting space in a storage facility. If a fire occurs, the Building and Personal Property Coverage Form does not pay anything for the household items damaged or destroyed. This is because the property is not used in the business (even though Bill owns it).

• Coverage applies to labor, materials, or services provided on personal property of others. However, personal property of others itself is not covered.

Example: Jeremy’s Machine Shop sends a customer’s die to a tool and die shop for repair. Jeremy pays for that service. The die is returned but a tornado rips through his building the following day and damages it. The damage to the die is not covered but the amount Jeremy paid to the tool and die shop is covered.

• Improvements and betterments that the insured cannot legally remove from a building have no value to the insured except for their use value. As a result, coverage does apply but is limited as follows:
• The improvements must be in a building the named insured does not own AND
• The named insured must have incurred the expense to install the improvements but not be legally permitted to remove them.

Use interest is the value the named insured invested in the improvements. It is generally based on the length of the lease agreement.

Example: The insured leases a restaurant building for 10 years and installs $50,000 in improvements that cannot be removed. If a loss occurs, the value is prorated based on the remaining term of the lease contract. If the loss happens on the named insured’s opening day, it should expect to receive a claim settlement equal to almost the entire initial investment. On the other hand, if the loss occurs toward the end of the 10-year lease, it should expect a much lower settlement amount.

• Coverage on personal property of others applies only if the named insured is contractually obligated to provide the coverage. Agreements for leased office equipment generally require the named insured to provide coverage on it. This provision responds to that requirement. However, this coverage is superseded if coverage under Personal Property of Others applies.

c. Personal Property of Others

There is no coverage under Your Business Personal Property for Personal Property of Others, except for the coverage a lease agreement requires. All other personal property of others is covered only if there is a limit for this type of property on the declarations. Coverage applies only for personal property in the insured's care, custody, or control and located or situated at any of the following:

• In or on a building listed or described on the declarations
• In the open within 100 feet of the premises
• In or on a vehicle within 100 feet of the premises

Personal property of others does not have to be used in the named insured’s business in order for coverage to apply.

Example: Bill’s neighbor asks if he can keep some of his excess stock in the basement of Bill’s hardware store. If that property is damaged, coverage applies as long as there was a limit of insurance for personal property of others on the declarations.

Note: The named insured should be informed that any loss settlement is with the personal property's owner, not with the named insured. This coverage is not the same as Bailees’ Coverage.

2. Property Not Covered

This section modifies the Coverage section to apply to the typical insured's coverage needs. If coverage on any excluded property is needed, separate coverage options are often available for an additional premium charge.

The following property is excluded:

a. Accounts, bills, currency, deeds, food stamps, other evidences of debt, money, notes, or securities. Lottery tickets are a unique type of property. They are considered covered property only if they are held for sale. Otherwise, they are excluded. Excluded property under this item can be covered under crime and inland marine coverage forms and policies.

b. Animals are excluded. There are two exceptions:

• Animals owned by others that the named insured boards
• Owned animals (but only if they are considered stock). However, they are covered only while inside a building.

Note: It is important to review the causes of loss form animal limitation because coverage applies only if the animal is killed or must be destroyed. Veterinary services are not covered.

c. Automobiles are excluded but there is a limitation. This item applies only if the automobiles are held for sale. However, this is not the only automobile exclusion. Item p. also applies to automobiles.

d. Bridges, roadways, walks, patios, or other paved surfaces. This property is considered fixtures and is treated as building property if covered. Most insureds do not insure this type of property because of the comparatively high cost to do so and the low probability that it will sustain loss or damage. If an insured decides to cover this property, it can do so by attaching CP 14 10–Additional Covered Property and increasing the property limits.

Bridge coverage is also available under Inland Marine coverage forms because bridges are considered instrumentalities of transportation.

e. Insurance coverage is not intended to facilitate illegal activities. For this reason, any property involved with illegal transportation, trade, or related activities is excluded.

Example: George "2Bad" Rotterbee has commercial property coverage on his small grocery store with Good-Deal Mutual Insurance. George operates a "Meth Lab" in the back of the building. George arrives at the store one morning and, upon entering the lab, discovers that a week’s supply of ether was stolen. Since ether is used to manufacture illegal drugs, Good-Deal's adjuster informs George that the property is not covered. The adjuster also notifies the police and tells Good Deal's underwriting department to expedite issuing a notice of cancellation.

f. Costs to excavate, grade, backfill, or fill are not covered. This is because these expenses are normally associated with new construction and are not usually part of existing construction. Most insureds do not want to pay the premiums required to cover these costs as part of building. However, coverage is available for an additional premium charge by using CP 14 10–Additional Covered Property and increasing the property limits.

g. Foundations at or below ground level are not covered because of the minimal chance of loss or damage to them. This foundation exclusion applies to foundations of machinery and equipment as well as to the building and structure. Coverage is available for an additional premium charge by using CP 14 10–Additional Covered Property and increasing the property limits.

h. Land, water, lawns, and crops not yet harvested, while having value, are not covered. Growing crops can be covered under farm or agricultural coverage forms and policies.

i. Personal property in transit by air or water conveyances is excluded. Coverage on this property is available under Inland Marine coverage forms.

j. Bulkheads, pilings, piers, wharves, and docks are excluded because most insureds do not have this type of property. Coverage is available for an additional premium charge by using CP 14 10–Additional Covered Property and increasing the property limits. In some cases, an Ocean Marine coverage form may be more appropriate.

k. If other coverage more specifically insures property that the Building and Personal Property Coverage Form also covers, this coverage form treats that other coverage as primary and responds to losses on an excess basis.

Note: Even if the other coverage is exhausted, is not available, or cannot be collected for any reason, this coverage form still responds only on an excess basis over that other insurance.

Example: Mary’s Construction Company purchases a builders risk policy to cover the addition to John’s Restaurant. An arsonist burns down both the addition and the rest of the building. John’s insurance should pay for the loss to the restaurant and the builders risk policy should pay for the loss to the addition. However, Mary’s insurance company went into receivership just as it was preparing to pay the claim. As a result, Mary's insurance company did not pay for the loss to the addition and John’s policy did not respond because Mary’s builders risk policy limits were sufficient to cover the loss if it had been able to respond.

l. Retaining walls (other than retaining walls that are part of the building) are unusual and are excluded. Coverage is available for an additional premium charge by using CP 14 10–Additional Covered Property and increasing the property limits.

m. Underground pipes, flues, or drains are not covered because the potential for loss is fairly remote. Coverage is available for an additional premium charge by using CP 14 10–Additional Covered Property and increasing the property limits.

n. Electronic data is excluded, except for the nominal limit provided under Additional Coverage, Electronic Data. Electronic data is defined as all programs, information, and data stored, created, transmitted, or used on computers. The data can be in the form of floppy disks, hard disks, CD-ROMS, tapes, and similar storage media even when not on the computer.

Prepackaged software the named insured holds for sale is exempt from this item. As a result, it is covered.

Coverage for all other electronic data can be provided on an electronic data processing coverage form or policy.

o. The cost to restore information on valuable papers and records is not covered, even if the records are in electronic form. The Coverage Extension for Valuable Papers and Records (Other Than Electronic Data) provides a limited amount of coverage.

Valuable papers and records include proprietary information such as (but not limited to) accounts, books, deeds, card index systems, drawings, abstracts, and manuscripts.

This exclusion applies to only the cost to restore information. Valuable papers and records themselves are covered but, without restoration, the coverage is very limited.

p. Vehicles and self-propelled machines licensed for use on public roads (or operated primarily away from the described premises, including aircraft and watercraft) are not covered. This is because this property is correctly covered under automobile, inland marine, ocean marine, or aviation coverage forms designed for their specific exposures. However, the exclusion does not apply to the following covered property:

• Any such property the named insured manufactures, processes, or warehouses
• Vehicles or self-propelled machines (excluding autos) held for sale
• Rowboats or canoes at the described premises (but out of the water)
• Trailers to the extent of the coverage the Coverage Extension for Non-Owned Detached Trailers provides

Example: Grady Auto Restoration Services has 40 vehicles on its premises. A break-in occurs. The coverage applies as follows:

• The 25 vehicles held for sale are not covered based on item d.
• The 10 vehicles licensed for use on the road are not covered based on item p.
• The 5 vehicles owned by others are not covered based on item p.

The 5 vehicles Grady owns that are being restored are covered if they are not licensed and are not used off premises. Their status changes once restoration is complete. However, if they are insured under a specific policy they will be covered for only excess coverage.

q. Grain, hay, straw, and other crops are not covered. This property should be covered under farm or agricultural coverage forms or policies.

Fences, outdoor radio and television broadcasting and receiving equipment, and shrubs, plants, and trees (other than stock held for sale) are excluded, except for the limited coverage that Coverage Extensions, Outdoor Property provides.

Note: Coverage Extensions, Outdoor Property provides coverage against specified perils for nominal limits of insurance. Other endorsements are available to provide additional coverage on this property. CP 14 10–Additional Covered Property can be used to extend coverage on fences. CP 14 30–Outdoor Trees, Shrubs and Plants can be used to extend coverage for that property. CP 14 50–Radio or Television Antennas extends coverage for antennas, satellite dishes, and supporting equipment.

The 06 07 edition of this coverage form removes outdoor signs from the property listed in exclusion q. However, it does not mean that signs are totally covered. All attached and detached outdoor signs are covered for the same causes of loss as other covered property but remain subject to the $2,500 limit of insurance under Section C. Limits of Insurance.

3. Covered Causes of Loss

This coverage form requires that one or more of the causes of loss forms be attached. Different types of property may have different causes of loss forms. The applicable cause of loss form is entered on the declarations.

Example: Crainston Furs purchases CP 10 30–Causes Of Loss–Special Form on all building property and
CP 10 10–Causes Of Loss–Basic Form for all business personal property because its furriers block policy covers all furs and fur-related property.

4. Additional Coverages

a. Debris Removal

After a loss that involves physical loss or damage, debris that must be removed remains and coverage that applies to the costs to remove it is needed. Over the years, this relatively simple concept has become one of the more hotly debated issues under commercial property coverage forms as insurance buyers search for alternate sources for pollution coverage. Debris removal coverage was never intended to be environmental clean-up coverage but the language has been found to cover such losses because of the provision's simplicity. In an attempt to eliminate any misunderstanding, this coverage has become much more complicated.

This coverage is explained as follows:

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

• The named insured actually incurs the debris removal expenses
• The debris to be removed is covered property
• The covered property became debris because a covered cause of loss occurred
• The loss occurs during the policy period
• The expenses are reported within 180 days of the direct physical loss

Example: Martha’s Food Factory (a restaurant) is vandalized. The interior is completely trashed and a significant amount of debris must be removed before replacement property can be brought in. The cost to remove the debris is covered provided Martha pays the costs of debris removal, the debris is actually removed, the personal property damaged is covered property, the loss occurs during the policy period, and the expense is reported within 180 days of the date of loss.

The coverage this paragraph provides is subject to limitations as outlined below.

(2) This paragraph explains that the coverage form is not a pollution policy. There is no coverage to remove pollutants from land or water or to remove, restore, or replace polluted land or waters.

Example: As a final act of vandalism, the vandals rip out Martha’s fryer and throw it into the pond located behind the restaurant. The fryer is covered but the cost to remove the grease from the pond is not.

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

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

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

· The limit of insurance for the damaged covered property

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

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

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

· The actual debris removal expense

Example: Ken’s photography shop has a small fire. The actual paid physical loss amount is $5,000. The limit of insurance is $25,000 and the deductible is $500. The maximum debris removal expense available is $1,375 [($5,000 + $500) X .25]. The sum of $5,000 + $1,375 = $6,375. Since this is less than the $25,000, $1.375 is the amount paid for debris removal.

(4) This paragraph provides an additional amount of insurance to remove debris if one of the limitations in paragraph (3) above applies. The additional amount of coverage is $10,000, subject to the following:

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

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

· The limit of insurance for the damaged covered property plus $10,000 Debris Removal Additional Coverage

Example: We’ll change the loss amount in the Ken's photography example to a $23,000 physical damage paid loss and $5,000 in debris removal expenses. The maximum debris removal expense available is $5,875 [($23,000 + $500) X .25]. However, since the limit of insurance is $25,000, the most paid for debris removal expense is $2,500 [$25,000 – ($23,000 - $ 500)]. This results in Ken having to pay $2,500 out of pocket. However, when the $10,000 Additional Coverage is used, Ken has full coverage and does not have any out of pocket expense.

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

· The total of the amount paid for the direct physical loss plus any applicable deductible amount multiplied by a factor of .25 PLUS $10,000. The formula is [(Paid loss amount + deductible amount) x .25] + $10,000 = Debris Removal Coverage Amount.

· The actual debris removal expense

Example: Continuing the example above, the Ken’s photography loss involved chemicals. The chemicals had to be removed by environmental specialists and taken to a special disposal facility. The removal cost was $10,000. Because the debris removal expense in step (3) (b) is limited to $5,875, $4,125 of the loss is not covered. However, the additional $10,000 limit is (4) (b) provides the necessary coverage to fully fund the loss.

The last point to make with respect to this coverage is that the maximum amount of insurance available for direct physical loss and debris removal expense does not exceed the coverage limit of insurance plus $10,000.

Example: Policy A's commercial property limit is $750,000. The policyholder sustains a huge grease fire loss and a large amount of debris remains. The direct damage paid loss is $735,000 and the debris removal cost is $44,000. In this case, the policyholder absorbs the following out of pocket loss:

Direct Damage Paid Loss Amount	$735,000
Add Debris Removal Expense	+$44,000
Total Loss	$779,000
Limit Of Insurance	$750,000
Add Additional Debris Removal Amount	+$10,000
Available Limit of Insurance	$760,000
Debris Removal Expense Not Covered	$19,000

CP 04 15–Debris Removal Additional Limits is used to provide higher debris removal limits.

b. Preservation of Property

What happens if you do not have insurance, know that your business is being threatened, and have time to take action? You probably start by moving your most valuable possessions out and away from danger. The same course of action is just as important when you do have insurance. The Building and Personal Property Coverage Form encourages the insured to protect its property by providing coverage as an incentive to do so.

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

There are several important points to consider:

• The only property insured is covered property at a location listed on the declarations. Property eligible for coverage moved from a location that is not covered does not create coverage.
• The potential loss or damage from which the property is being protected must be a covered cause of loss.

Example: Kermit moves his business furniture from his offices to protect it from rising floodwaters. Several pieces of furniture are dropped while being loaded on a rented truck, resulting in hundreds of dollars in damage. This Additional Coverage does not insure this damage because the threatened flood is not a covered cause of loss.

• While the property is being moved to and from (and while at the "safe" location) it is covered for ANY cause of loss. This coverage applies for up to 30 days.

Example: Miller’s Bakery is located in a rural area near a national forest. A major wild fire is nearby and the wind is blowing in the wrong direction. Miller realizes its equipment is in the direct line of the fire and moves it to a safe location on the other side of the river. A heavy rain extinguishes the fire before it reaches his property. However, a new problem develops. Due to the heavy rain, a flash flood overflows the river’s banks and totally destroys Miller’s relocated property. Even though flood is not a covered cause of loss, the loss to the property moved is covered because it was moved to protect it from a fire, a covered cause of loss.

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

c. Fire Department Service Charge

This additional coverage responds to situations where the insured must pay for the expense of a fire department that responds to an emergency. The old maxim: "He who hesitates is lost" applies to this coverage. The sooner a fire is reported, the faster it is controlled. Taking the time to consider the cost of fire department response is time lost in fighting the fire.

This coverage pays only if the insured is contractually obligated to pay for the expense of a fire department that responds to an emergency (or is required to pay because of a local ordinance). It provides up to $1,000 to apply to the service charge and is not subject to a deductible. A higher limit is available if it is entered on the declarations. (06 07 change)

d. Pollutant Clean Up and Removal

The second paragraph of Debris Removal Additional Coverage specifically excludes expenses to extract pollutants from land or water. This additional coverage provides a limited amount of coverage for those expenses. Each of these requirements must be met in order for coverage to apply:

• The expenses must be the insured’s actual expenses to extract pollutants from land or water at the described premises.
• The pollutants must result from a covered cause of loss occurring.
• The covered cause of loss must occur during the policy period.
• All expenses must be reported to the insurance company within 180 days of the date that the covered loss occurred.
• The only covered expenses for testing, monitoring, or assessing for levels of pollution are tests conducted in the course of extraction.

The $10,000 limit for this additional coverage is unusual because it is an aggregate limit and not an occurrence limit. It is the total amount available during a single annual coverage period and is not affected by the number of locations or the number of losses that occur during that period. As a result, any and all losses that involve eligible expenses reduce the $10,000 aggregate limit.

Example: Ace Manufacturing has five locations in Michigan. During the spring, a series of tornadoes damaged two of the locations. Paint spilled at one of the locations and toxic chemicals were released into a nearby pond at another. The pollutant cleanup cost at the first location was $15,000 and $30,000 at the other. Because of the $10,000 aggregate coverage limitation, only $10,000 of the $15,000 expenses at the first location was paid and none at the second.

Note: CP 04 07–Pollutant Clean Up And Removal Additional Aggregate Limits Of Insurance is used to increase the limit.

e. Increased Cost of Construction

This is welcome protection for any company subject to the Americans with Disabilities Act (ADA) or many local, state, and federal ordinances that are not enforced until a building requires significant renovations or repairs. These ordinances and codes are helpful to many people and their cost is relatively easily absorbed in new construction. However, updating an existing structure after a partial loss can add substantially to the costs to rebuild it and the basic coverage form does not cover them.

Example: Havor Academy is a private school that has served elementary school children for over 100 years. The building is joisted masonry with plaster interior walls. The hallways in certain areas are rather narrow but lead to spacious areas. A fire starts in the academy’s kitchen and causes significant damage to the kitchen and dining hall. Havor obtains the required building permits for the reconstruction but is informed that the hallways must be widened to meet ADA standards. Since the walls that must be moved are not damaged, the only coverage available to pay to widen them is the limited amount this Additional Coverage provides.

This coverage is explained in nine paragraphs.

• (1) This paragraph states that coverage is conditional and not automatic. It applies only when the basic policy includes Replacement Cost Optional Coverage. While it is unusual to require including an optional coverage as a condition of an additional coverage, it is necessary in this case.
• (2) This paragraph explains the coverage. It responds to additional costs that result from enforcing ordinances or codes. These codes are subject to modifications in paragraphs e. (3) through (9). This coverage applies when all of the following events occur:
• A covered cause of loss damages covered property.
• The insured incurs increased costs to repair, rebuild, or replace the damaged portions of covered property.
• The increased costs result from requirements to comply with an ordinance or law being enforced.

Example: Havor Academy meets the requirements because covered property is damaged by fire, a covered cause of loss. Increased costs are incurred to rebuild, repair, or replace the damaged covered property. The increased costs result from requirements to comply with an ordinance or law being enforced. If Havor has Replacement Cost Optional Coverage, it is possible that coverage is available, subject to paragraphs (3) through (9).

• (3) This paragraph states that the law or code in (2) above must meet two requirements before increased costs are covered:
• It must regulate the construction or repair of buildings (or establish a zoning or land use requirement) at the described premises.
• It must be in force at the time of loss.

Example: The town council was considering an ordinance that required installing sprinkler systems in all schools that exceed two stories in height when the Havor Academy loss occurred. The council voted and passed the ordinance two weeks after Havor's loss and the building inspector informed Havor of the change. This Additional Coverage does not apply to the cost to add the sprinkler system because the ordinance passed after Havor's loss.

• (4) This paragraph relieves the insurance company of any costs due to ordinances or laws the insured should have complied with before the loss.

Example: Havor Academy and the town argued for years about the fire escape ordinance but Havor never had the funds to comply with it. It believed its evacuation procedure was more than adequate and that the town was unfair in requiring that it remodel its building. However, the town held the advantage after the fire loss and insisted that Havor either comply with the ordinance or the building would not be allowed to reopen.

Havor turned to this additional coverage but, since installing the fire escape was required prior to the loss (and Havor chose not to act), the insurance company was not obligated to pay the added cost.

• (5) This coverage form is not designed to cover pollutants. This item clearly states that pollution is excluded. This additional coverage does not pay when local ordinances or laws force the insured to take actions because of pollutant contamination or the presence of fungus in a building. It also does not pay any costs associated with enforcing ordinances or laws that require the insured (or others) to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, respond to, or assess the effects of pollutants, fungus, wet rot, dry rot, or bacteria.
• (6) This paragraph states that the limit of insurance for this additional coverage is the lesser of $10,000, or 5% of the limit of insurance for the damaged building. If the damaged building is part of a blanket limit, the coverage is limited to the lesser of $10,000 or 5% of the value of the damaged building at the time of loss multiplied by the applicable coinsurance percentage.

Note: The blanket provision is important because it keeps the 5% from being applied to the blanket limit. Doing so would allow each building within the blanket to receive the maximum limit for this additional coverage even if the specific building was worth less than $10,000.

Example: Havor Academy has 20 buildings on its campus insured for a blanket limit of $25,000,000 at 100% coinsurance. The fire damaged three of them. The maximum increased cost of construction limit available to each building is:

Building Number	Value	Lesser of:	Maximum Paid
#1	$10,000,000	$500,000 or $10,000	$10,000
#2	$500,000	$25,000 or $10,000	$10,000
#3	$10,000	$500 or $10,000	$500

• (7) This paragraph outlines the insured's options after a loss under this additional coverage. One is to not rebuild or repair. However, this additional coverage does not pay if the insured selects that option. The insured can delay taking action for up to two years (or longer if the insurance company extends the period in writing). The insured can decide to repair at the existing location or build at a new location. However, the insurance company does not pay more at the new location than it would have at the existing location.

Example: Havor Academy is unhappy with the loss settlement and the amount it must spend to repair the building and bring it up to code. After reviewing its options, Havor decides that building a new building is less costly than repairing the old one. In addition, doing so will enhance the overall appearance of the entire campus. The good news is that the company still pays the $10,000 limit to help it meet the standards.

Note: Some ordinances or laws require that the insured actually relocate its operations. In that case, the limit applies to the new construction.

• (8) A conflict could arise between this coverage and the Ordinance or Law Exclusion in any of the Causes of Loss forms. However, there is no conflict since this paragraph states that this Additional Coverage is not subject to that exclusion.
• (9) The Valuation Condition and the Replacement Cost Optional Coverage exclude the increased costs of construction due to ordinances or laws. This coverage is provided only in this additional coverage section. However, any limitation that relates to increased costs of construction that appears in those sections does not apply to this Additional Coverage. The intent of this paragraph is to eliminate any confusion over the coverages and limitations that exist under these three separate policy provisions.

Note: CP 04 05–Ordinance Or Law Coverage should be used if higher limits or broader coverage is needed.

Electronic data is considered property not covered except for the small limit this additional coverage provides. If a covered cause of loss damages or destroys electronic data, this additional coverage covers the cost to replace or restore it on a very limited basis.

This additional coverage has two unusual features. The first is that the applicable covered cause of loss varies by the cause of loss form that applies to business personal property at the location where the loss occurs. If the Causes of Loss–Special Form applies, the covered causes of loss for electronic data are specified causes of loss and collapse. If the Causes of Loss–Broad Form applies, the causes of loss named and collapse are included. While not mentioned, if the Causes of Loss–Basic Form applies, only the causes of loss named in that form apply. In addition to the covered causes of loss listed above, loss or damage caused by virus, harmful code, and similar attacks on the computer system is covered, regardless of the causes of loss form that applies. However, normal computer entry problems or date manipulation problems are not covered.

The second unusual feature is that the $2,500 limit is an aggregate amount and is the most paid over all locations for an entire year. If a loss begins in one year and continues into a second year, the only limit available is the aggregate limit from the first year.

This is extremely limited coverage. As a result, an insured that has electronic data exposures should consider an Electronic Data Processing coverage form or policy.

5. COVERAGE EXTENSIONS

If 80% or higher coinsurance applies (or if coverage is written on a reporting basis), there are several coverage extensions that apply to covered property. They are limited to protecting property located in or on buildings listed on the declarations as well as property within 100 feet of the described premises (either in the open or in or on a vehicle). Any exceptions to these requirements are stated in the specific extension of coverage.

Each extension provides additional limits of insurance. None of them is subject to the coinsurance condition.

a. Newly Acquired or Constructed Property

Since contacting an insurance agent to report a new acquisition is not automatic behavior, the Newly Acquired Or Constructed Property extension gives the named insured with some peace of mind coverage for new purchases. However, this coverage is not free. The property acquired must be reported and an additional premium paid from the date of acquisition.

• Buildings. If building coverage is provided, this extension applies to new buildings the insured owns and that are being constructed at a location listed and described on the declarations. It also applies to buildings the insured purchases at other locations. However, they are covered only if they are intended for use similar to other scheduled buildings (or as a warehouse). The maximum limit for any newly built or purchased building is $250,000.

Note: As stated above, the newly purchased building's use must be similar to that of existing buildings or be used as a warehouse. This limitation does not apply to buildings being constructed at a premises listed on the declarations. The insurance company accepts risks based on occupancy and should not be expected to automatically add a new location with a dramatically different occupancy than what is already on the policy.

Example: L&M Property Management is a successful commercial real estate developer. L&M owns 15 office buildings and 10 apartment buildings. It has an opportunity to purchase a building occupied by a furniture manufacturer and quickly does so. A fire occurs two days after the acquisition but before it notifies the insurance company. The coverage L&M expects under this coverage extension does not apply because the occupancy is not similar to that of other scheduled buildings.

• Your Business Personal Property. If coverage is provided on the named insured’s business personal property, this extension applies to any and all the following:
• Business personal property at newly acquired locations (but not to property while at fairs, trade shows, or exhibitions)
• Business personal property in newly constructed or acquired buildings at locations already listed on the declarations
• Newly acquired business personal property at a described location

The maximum limit per building is $100,000. However, this coverage extension does not apply to personal property of others in the insured's custody being worked on, even if the work is related to the eventual sale or manufacture of the property.

Note: Unlike the requirement under newly acquired building, there is no requirement that newly acquired business personal property be the same as (or similar to) existing business personal property. However, it must qualify as eligible business personal property.

• Period Of Coverage means that coverage for newly acquired property ends at the earliest date when the following occurs:
• The policy expires
• 30 days after the property is acquired (or construction on it begins)
• The date the property or value is reported to the insurance company

Note: This provision is occasionally applied with unfortunate and undesirable results.

Example: If the insured acquires a building on 12/31/2011 and the policy renews on 01/01/2012, coverage no longer applies to the newly acquired building as of 01/01/2012.

This is especially important for the insured that requests that the 30-day time period be increased to 180 days. Even then, coverage still ends on the earliest of the dates indicated above.

The construction date is the date the insured begins constructing a new building. Since covered property does not include foundations (unless otherwise modified), coverage and the 30-day limitation do not begin until construction above grade level begins.

The date that building and/or personal property was acquired is reported to the insurance company so that premium can be charged for the entire period it was covered. This extension is provided for the insured's convenience but coverage requires a premium charge. It is better to owe premium than to have an uninsured loss.

b. Personal Effects and Property of Others

Coverage for business personal property can be extended to include personal effects that belong to the named insured, its partners, officers, members, employees, or managers. An important restriction of this part of the extension is that the coverage does not include theft. Coverage also extends to property of others in the named insured’s care, custody, or control. However, this part of the extension does not have a theft limitation.

The most paid at a described location is $2,500. This is the most available, regardless of the number of persons involved and the value of the property lost. Loss adjustments that involve such claims are handled directly with the property's owner.

c. Valuable Papers and Records (Other Than Electronic Data)

The basic coverage form does not insure the cost to restore and replace valuable paper and records information. This coverage extension provides a small limit of insurance to pick up this cost but only for valuable papers and records not considered electronic data.

The applicable covered causes of loss vary by the causes of loss form that applies to business personal property at the location where the loss occurs. If the Causes of Loss–Special Form applies, the covered causes of loss for electronic data are specified causes of loss and collapse. If the Causes of Loss–Broad Form applies, the causes of loss named and collapse are included. While not mentioned, if the Causes of Loss–Basic Form applies, only the causes of loss named in the form apply.

The limit is $2,500 at each location. Higher limits are available. The cost of research and duplication is considered additional coverage but the blank material used for the process is covered under business personal property coverage and is NOT additional coverage.

Note: There are two options if the insured requires higher limits. One is to increase the limits for this coverage extension. The second is to use a separate Inland Marine Valuable Papers and Records coverage form. While increasing this coverage form's limits for this exposure may be simpler and less expensive, doing so may mean losing valuable coverage enhancements and the portable nature of a floater form in a stand-alone policy. Both coverage forms should be compared carefully before making any coverage recommendation.

d. Property Off-Premises

Most business personal property tends to move around. This extension recognizes this fact and provides up to $10,000 as the property does so. However, this coverage applies only to property usually situated at a described location that is away from the premises for a short period. The personal property can be temporarily:

• At a location the named insured does not own, lease, or operate
• At a storage location the named insured leases (if the lease was made after the policy period began)
• At a fair, trade show, or exhibition

If storage space leased during the policy period is still leased when the policy renews, it must be added to the policy as a separate covered location. Otherwise, coverage at that leased storage space ends.

This extension has two important limitations. It does not apply to property in or on a vehicle. It also does not apply to property in the possession of the named insured’s salespersons (unless the property and the salespersons are at a fair, trade show, or exhibition).

Inland marine coverage forms are available to cover off premises property, property in transit, or property at the premises of others for storage, service, or repair.

e. Outdoor Property

Under Property Not Covered, q. (2) lists the following as not covered:

• Fences
• Radio and television antennas (including satellite dishes)
• Trees, shrubs, and plants (other than stocks of trees, shrubs, or plants held for sale)

This coverage extension insures this property, but only for loss or damage caused by or that results from the aircraft, explosion, fire, lightning, riot, or civil commotion causes of loss. The limit of insurance is $1,000 in any one occurrence, subject to a maximum of $250 for any one tree, shrub, or plant.

Example: A group of high school kids looking for treats on a Halloween evening approaches Mitzi’s Daycare just as Mitzi is leaving to go home. They yell at her, "Trick or treat!" A smiling Mitzi tells them that she is sorry but she doesn’t have anything for them. The next morning, a frowning Mitzi reads, “Here’s your treat!” scrawled on her wood fence now lying on the ground. If her insurance company agrees the damage was due to civil commotion as opposed to vandalism, this coverage extension may apply to some of the damage caused by the disappointed tricksters.

Note: Signs were previously part of this extension but the 06 07 edition no longer excludes them.

The Commercial Property Program has an endorsement available to include or schedule additional coverage for outdoor trees, shrubs, and plants. CP 14 30–Outdoor Trees, Shrubs and Plants allows the insured to increase these coverage extension limits and schedule specific coverage for this property. CP 14 50–Radio or Television Antennas is available to use to increase limits on that property. In addition, inland marine coverage forms are available that provide both higher limits and broader coverage.

f. Non-owned Detached Trailers

Personal Property coverage can extend to include coverage for non-owned trailers that meet all of the following conditions:

• The trailer must be used in the insured’s business.
• The trailer must be at a premises listed on the declarations and in the insured's care, custody, or control.
• The insured must be contractually responsible to pay for loss or damage to the trailer.

Note: Using the phrase "contractually responsible" is unusual and may be a preview of things to come in other areas of insurance that have been murky or unclear in the past.

However, there is no coverage for loss or damage that occurs:

• When the trailer is attached to a motor vehicle or motorized conveyance (whether moving or not)
• During any hitching or unhitching operations. This applies even if the trailer is accidentally unhitched from a motor vehicle or a motorized conveyance.

The most paid under this extension is $5,000. Higher limits are available. This coverage is excess over any other insurance that covers such property, whether that insurance can be collected or not.

Note: The limit could be per-trailer or per premises. However, since there is no such statement, the limit should be applied per occurrence. If a named insured uses a number of non-owned trailers, the limit should be increased to reflect those values.

B. EXCLUSIONS AND LIMITATIONS

Exclusions and limitations are in the Causes Of Loss Forms that apply. More than one causes of loss form may be attached based on entries on the declarations.

C. LIMITS OF INSURANCE

This section states the maximum limits the insurance company pays in any one loss. In most cases, the limit on the declarations is the total amount that can be recovered for a single loss. If an outdoor sign (whether attached to the building or not) is damaged or destroyed, coverage applies up to $2,500 per sign in each occurrence. (06 07 changes)

Example: A fire breaks out at Wally's Winery on July 8. The intense heat pouring out of the winery’s doors shatters the front and rear electric signs. The sign at the rear is valued at $810. The larger sign in front is valued at $2,710. The insurance company pays only $3,310 for the damage to both signs, $810 for the sign at the rear and $2,500 for the sign at the front of the building.

On August 23 (after both signs are replaced), a severe windstorm breaks a limb off a nearby oak tree. The limb smashes the sign at the rear and completely destroys it. The brand new sign just recently installed is valued at $1,973. The full value of this sign is paid for the second occurrence.

The limits provided for the following coverages are in addition to the limits of insurance for other coverages listed on the declarations:

• Fire Department Service Charge
• Pollutant Clean-up And Removal
• Increased Cost Of Construction (06 07 change)
• Electronic Data (06 07 change)

Insurance company payments made under Preservation of Property Additional Coverage do not increase the limit of insurance that applies.

Example: Back to Wally’s Winery. Once again, a fire breaks out in the center of the building and begins to spread. Wally moves $40,000 in stock to a truck in order to save it. However, a fire engine responding to the fire strikes that truck and the stock is destroyed. Wally’s Business Personal Property limit is $300,000. In this case, since the Preservation Of Property Additional Coverage pays $40,000, only $260,000 of the Business Personal Property limit remains to apply to loss to the remaining personal property.

Note: The limits for the extensions of coverage are also in addition to the Limits of Insurance on the declarations, even though this section does not have a statement to that effect. The explanation of the limits appears at the end of A. 5. Coverage Extensions.

D. DEDUCTIBLE

The deductible is the amount of a loss that the named insured must pay. However, the amount of loss must be reduced by any coinsurance or agreed amount condition penalty before the deductible is applied. This becomes the adjusted loss amount.

The adjusted loss amount is compared to the deductible amount. If it is less than the deductible, the named insured is responsible for the entire loss amount.

Example: Mary’s Meat Market has a $50,000 limit of insurance on Business Personal Property and a $1,000 deductible. The police cut short an attempted break-in but not before the criminals damage the entry doors and a safe. The total loss is $988. Mary pays for the repairs from her own funds because the amount of loss is less than the deductible.

If the adjusted loss amount exceeds the deductible, the insurance company pays the lesser of the amount of loss above the deductible or the limit of insurance.

Example: The criminals return to Mary’s two nights later. They are much more successful this time and manage to remove a large amount of inventory. Because of their concern about getting caught, they decide to set a fire to cover their tracks. The total loss is $63,000. The amount of loss after the $1,000 deductible is applied is $62,000. Because the limit of insurance is only $50,000, the insurance company pays $50,000.

If the occurrence that causes the loss involves two or more items of covered property (each having separate limits of insurance), the occurrence deductible is applied only once.

Example: The fire from Mary’s Meat Market damages the building owned by LRO Property Management. LRO insures the main building for $250,000, subject to a $1,000 deductible. LRO also has a garage at the rear of the main building insured for $15,000. The loss amounts are $125,000 on the main building and $5,000 on the garage. The loss payment on the main building is $124,000, based on the $125,000 loss reduced by the $1,000 deductible. The deductible is applied to the loss on the main building. The garage is not subject to a deductible and its $5,000 loss is paid.

An optional deductible endorsement is available. CP 03 20–Multiple Deductible Form is used to apply different deductibles to different coverages or types of property.

E. LOSS CONDITIONS

These Loss Conditions apply in addition to IL 00 17–Common Policy Conditions and CP 00 90–Commercial Property Conditions.

1. Abandonment

The named insured still owns the property after a loss and is responsible for all expenses associated with it, unless or until the insurance company agrees to accept ownership of the property.

Example: A sinkhole causes the Montgomery Fashion Palace to tilt and slide off its foundation into the middle of Main Street, creating a major traffic obstruction. Montgomery informs its insurance company that it will accept a cash settlement and then close the business. However, the insurance company is not interested and refuses to accept the property. As a result, Montgomery must either moving the building back to its original position or arrange for its demolition. Montgomery is also responsible for all fines and penalties from the city for the traffic obstruction.

2. Appraisal

The insurance company and the insured may occasionally disagree on the value of property or on the actual amount of loss. The appraisal condition is designed to solve this problem. In the first step, one of the parties decides it has reached an impasse with the other party and makes a written request for an appraisal. Each party then hires an independent appraiser. Each appraiser must be both competent and impartial.

Example: Jane is the insured and her insurance company is Bargun-Downe Property Company. They disagree on the value of the roof damaged by a lightning strike. They both agree to submit the dispute to appraisal. Jane selects an experienced appraiser who just happens to be her brother. Bargun-Downe selects a totally impartial party who does not have any appraisal credentials. Both appraisers are rejected. Jane’s selection is biased and the company’s selection is not qualified.

The appraisers then choose an umpire. If they cannot agree on one, they can request that a judge of a court that has jurisdiction over the matter select one. Once all parties are selected and in place, each appraiser states the value of the property and the amount of loss. If both parties agree, the amount of loss is settled. Only disputed amounts are submitted to the umpire. Any decision made by any two of the three is binding on both the insurance company and the insured.

The expenses associated with this process fall outside the category of expenses the coverage form pays. The insured pays the following costs or expenses (and the company does not reimburse it for them):

• Its appraiser
• Its equal share of the cost of the umpire
• Its equal share of any other appraisal expenses

The insurance company pays the following costs and expenses. None of these expenses reduce the limit of insurance:

• Its appraiser
• Its equal share of the cost of the umpire
• Its equal share of any other appraisal expense

Example: A tornado seriously damages Baron’s Furniture Store. Furniture is strewn over many city blocks. Sheila is the owner and believes the value of the loss is $560,000, based on inventory records. The Cheapskate Mutual claims representative visits the store, views both damaged and undamaged merchandise, and determines the loss to be $350,000. Each side presents its case to the other but the impasse cannot be resolved. Sheila has to restore the inventory and get back in business. She sends a letter to Cheapskate and requests an appraisal. Each party selects a qualified and impartial appraiser but cannot agree on an impartial umpire. They ask a local judge to select one and he does so. Sheila’s appraiser determines the loss to be $625,000 but Cheapskate’s appraiser determines a value of the loss of $450,000. The umpire reviews their figures and agrees with the insured on some items and with Cheapskate on others. The final settlement is $510,000. Each party bears its own expenses for the appraisers and umpire but the agreed value of the loss is $510,000.

3. Duties in the Event of Loss or Damage

The insured is expected to act reasonably immediately after a loss occurs. If not, the company’s obligation to pay the loss may end. The named insured must:

• Notify the police or other law enforcement authorities if a law may have been broken. Even though this requirement may sound obvious, the circumstances surrounding a loss may make this issue more complicated than it appears.

Examples:

Scenario 1: A theft occurs at Paul’s Camera Shop. Paul reports the loss to the insurance company. It begins to adjust the loss and discovers that a police report was not made. Paul explains that he suspects that a relative may be involved and doesn’t want to get her in trouble.

Scenario 2: A fire destroys Jerry’s warehouse. The insurance company adjuster discovers that a local gang may have started the fire. Jerry does not fill out a police report because of fear of reprisal.

In cases like these, the insurance company has the right to refuse to pay the loss. It needs this requirement to protects its interests, which include being certain that the claim is legitimate as well as making sure there is a chance that the responsible parties are found and punished. When theft of property is involved, police involvement increases the chances that the property will be recovered.

• Give prompt notice to the insurance company of loss or damage and describe the property involved. This notice is not a complete and thorough report but instead provides enough information for the insurance company to begin to process the claim and decide how to respond. Some court cases have challenged the meaning of "prompt." As a result, the best advice is for the insured to send as much loss information to the insurance company as soon as it knows that a loss has occurred.
• Give a description of how, when, and where a loss occurred as soon as possible after it occurs. This requirement is slightly different than the prompt notification obligation. That obligation is to inform the insurance company on a timely basis that a loss has occurred. This obligation assists the company to determine if the loss is actually covered.
• HOW is what actually caused the loss. The answer determines if the loss is covered.
• WHEN is the exact time of the loss. Since coverage applies only if the loss occurs during the policy period, this information is very important. There is coverage if the loss occurs at 12:02 a.m. on the inception date. There is no coverage if it started at 11:59 p.m. the day before the inception date. In addition, accurate information on when the loss or damage occurred may help resolve whether the loss occurred suddenly or over a period of time. This is important. There is a distinction because sudden losses tend to be fortuitous and covered while losses that take place over a period time may be maintenance issues that are not covered.
• WHERE is important because most coverages require that the property be at a location or premises listed on the declarations. If the loss occurs elsewhere, the coverage form must be examined carefully to determine if any coverage applies at such locations.

• Take appropriate steps to protect the covered property from any further damage. The time to take that annual Florida vacation is never immediately after a loss occurs. The requirement to protect property involves taking reasonable measures, not extraordinary or unreasonable ones. Covering property with tarps to protect against moisture damage, boarding up windows, and hiring security guards are examples of reasonable measures to take after a loss. Any expenses the named insured incurs are taken into consideration in the loss adjustment and settlement but paying these expenses does not increase the limit of insurance. Finally, the named insured should separate the damaged property from undamaged property and set the damaged property aside for examination whenever possible.

Example: The front window of Haptown Appliances blows in during a violent thunderstorm. Flying glass, debris, and water badly damage the televisions on display. The police notify the owner and the owner informs his insurance agent and the insurance company. When the storm ends, the owner goes to the store and evaluates the situation. His immediate concern is that the security system no longer works. He purchases lumber, boards up the window and contacts the alarm company. The alarm company recommends a security company that can provide extra security until the window is repaired and the alarm system is put back into operation. After these arrangements are in place, the owner examines the appliances and moves the damaged ones to the rear of the store and begins to clean up. The insurance company includes the expenses for temporary security and boarding-up the window in the loss adjustment and settlement.

• Provide inventories of damaged and undamaged property when the insurance company requests them. This includes quantities, costs, values, and the amount of loss claimed. This detailed information is important to properly adjust the loss and offer a fair settlement. The named insured controls the inventory and is responsible for supplying the information needed.
• The insurance company has the right to verify that the information the named insured provides is accurate and correct. For this reason, it may inspect the property in order to prove the loss or damage. It may also examine the insured's books and records that relate to the loss or damage. The insurance company can also take samples of the damaged and undamaged property and make copies of the insured's books and records.

This condition states that the insurance company must be reasonable in its requests. Since reasonable is not a defined term, the two parties might disagree about the intent of this condition. For example, the company may take the position that repeat visits are necessary in order to be thorough. The insured may view the same actions as being a delaying tactic that slows down the settlement. While the essence of this condition is to prevent the carrier from harassing the insured, it also benefits the insurance company. Because of the way it is written, an uncooperative insured cannot claim that a single visit is sufficient for the carrier to adjust and settle a loss.

• Show good faith in the truth and accuracy of a claim for loss by providing the insurance company with a signed and sworn proof of loss. This must be done no later than 60 days after the company requests it, along with any other information needed. The insurance company provides the necessary forms and instructions on exactly the information it needs.

Note: If the company's requests are unclear and the insured is confused, any delay in providing the information cannot be used as an excuse to deny coverage.

• Cooperate with the insurance company in investigating and settling the claim.

In addition to the points outlined above, the insurance company has the right to examine any insured under oath. The examination can take place without another insured being present. The examinations can be done as often as necessary with respect to anything related to either the insurance coverage or the claim itself. They can include examinations of the insured's books and records. In all examinations, the written document used to record the insured's answers must be signed.

Note: Loss investigation is a serious part of the insurance claims process. The insurance company must have complete access to information as necessary to investigate and settle the claim. This may include information the insured would rather not to disclose. Claims adjusters want to believe their insurance customers are honest but the sheer number of incidents of fraud makes them cautious. While the insurance company cannot use intimidation or harassment, it must still be diligent in order to protect its assets and to prevent or limit fraud.

4. Loss Payment

a. and b. The insurance company must use one of the four options below to settle a claim:

• Pay the value of the lost or damaged property.
• Pay the cost to repair or replace any lost or damaged property. This cost does not include any expense for increased cost due to enforcing any ordinance or law that regulates use, repair, or construction of any property.
• Take all or any part of the property at an agreed or appraised value.
• Pay to repair, rebuild, or replace the damaged property with property of similar type and quality. This payment does not include any expense for increased cost due to enforcing any ordinance or law that regulates use, repair, or construction of any property.

The value of damaged or destroyed property (or the cost to repair or replace) is based on the terms of the valuation condition of the coverage form (or any other provision that amends or replaces the valuation condition).

c. The insurance company must tell the insured the option it will use within 30 days after receiving a properly prepared and signed sworn proof of loss.

d. Insurance is meant to indemnify, not reward. As a result, the insurance company does not pay more than the insured's financial interest in the covered property at the time of loss.

Example: Mary and Jane form a partnership called Mary Jane’s Clothing. Five years later, Mary purchases Jane’s interest. A covered loss occurs two months after the purchase. Since Jane’s name is still on the policy, she files a claim against the policy. She is politely informed that she has no right to make a claim and that the coverage form will not respond to her claim because she no longer has a financial interest in the covered property.

e. The insurance company has the right to adjust claims for loss or damage to property the insured does not own directly with the property's owner but it may also allow the named insured to do so. The settlement must satisfy all claims for the property because the insurance company pays only once. In addition, the most paid is the property owner’s financial interest in the property.

f. The insurance company that provides the property coverage may decide to defend the insured against suits due to claims brought by the property's owner. In such cases, it does so at its own expense.

g. The insurance company must pay the loss within 30 days of receiving the insured's signed and sworn proof of loss. This obligation depends on the insured meeting all policy conditions as well as the value of the loss being determined by one of the following:

• The parties having agreed on the amount of loss
• An appraisal award having been made

h. Buildings that abut one another often share a party wall. This wall separates the two buildings but is also part of each building. Loss settlements are not affected if the same insured owns all buildings. However, loss settlements may be more difficult if different insureds own the shared party wall. The 06 07 edition formally addresses this issue for the first time.

When both building owners plan to repair and rebuild, the insurance company pays its insured’s proportional share of the damage to the party wall. However, the insurance company pays the full value of the party wall if the named insured wants to rebuild but the other building owner does not. It then has the right to subrogate against the adjoining building owner. (06 07 addition)

Example: Marsh’s Restaurant is the middle building in a row of five buildings. Each shares a common wall with its neighbor. A fire starts at Marsh’s and travels to both its neighbors. The loss is substantial. Marsh’s is determined to rebuild but the neighbor on the south is not. Marsh’s insurance company works with the northern neighbor and both pay their share of the party wall but Marsh pays the full amount for the southern wall and then subrogates against the southern neighbor for its share of that wall.

5. Recovered Property

Either the named insured or the insurance company may recover property after a loss is paid. In that case, the recovering party must promptly notify the other and inform it of the recovery. The named insured has the right to decide whether to return the claim payment and keep the recovered property or allow the insurance company to keep the recovered property. The insurance company is responsible for recovery expenses and any repair to the recovered property, subject to the limit of insurance.

Example: Burglars break into Floyd’s Music Shop and steal $25,000 in CDs. The insurance company pays the claimed amount of $25,000. Two years later, the police notify Floyd that the CDs have been located at a warehouse. Floyd notifies the insurance company of this development. The insurance company representative and Floyd visit the warehouse and Floyd realizes that the current value of the CDs is negligible due to their age. He decides to keep the claim payment and let the insurance company keep the CDs.

6. Vacancy

Insurance companies are interested in insuring successful and ongoing businesses. Risk pricing contemplates an active occupancy. As a result, rates on vacant properties are heavily surcharged. Since vacancy is often discovered only after a loss occurs, the loss conditions dramatically limit coverage if the insurance company was not informed of the vacancy in advance.

This condition has harsh penalties. As a result, it is very important to understand the definition of vacancy and that the definition depends on whether the insured is a tenant or a building owner. If the named insured is a tenant, the only part of the building considered when analyzing vacancy is the portion it occupies. That portion is considered vacant if the business personal property on premises is not sufficient for the tenant to conduct its customary operations.

Example: Millie’s Florist Shop occupies a quarter of the Landow building. The tenant that previously occupied the rest of the building, The Cat and Mouse Café, moved out. The building owner is looking for a new tenant and the search is now in its ninth month. A fire breaks out in the vacant portion of the building and Millie's space experiences heavy smoke damage. This condition does not affect Millie’s loss because the portion of the building she occupies is not considered vacant.

If the named insured is the building owner (or a general lessee), the entire building is considered in determining vacancy. The building is vacant unless at least 31% of the total square foot area is:

• Rented to a lessee or sub-lessee that uses it to conduct its customary operations
• Used by the building owner to conduct customary operations. The key word is customary.

Example: If the lessee, sub-lessee, or building owner is a retail business, the retail business is its customary operation. The insurance company may deny a claim when a loss occurs and it discovers that 90% of the building is used for storage, because the building is vacant according to the coverage form's language.

Buildings under construction or being renovated are not considered vacant. Questions could arise as to how long a project can be considered under construction and under renovation. If a building is being renovated but the renovation involves only the owner working on the building in his spare time (because he knows there are no tenants interested in it), how long will it be before that building is considered vacant?

Example: The Eastward Shopping Center has four separate buildings and always struggles with vacancy issues. Building A is totally occupied by one tenant. Building B has one shop that occupies 20% of the space. The rest of the building has been vacant more than six months. Building C has multiple tenants but is 15% vacant. Building D has just been leased subject to completion of major remodeling. A contract has been signed and remodeling has begun.

A major summer storm’s heavy winds damage all four buildings. Based on the definition of vacancy, Buildings A and C are not vacant and their coverage is not affected. Building B is vacant and is subject to a vacancy penalty. Building D is not vacant at the time of the loss (and the vacancy penalty is not applied) because it is being remodeled.

Having defined vacancy, the vacancy condition can be stated. If the building damaged by a covered cause of loss has been vacant (as defined above) more than 60 consecutive days before the date of loss:

• The insurance company does not pay anything if the loss is caused by vandalism, breakage of building glass, water damage, theft, or attempted theft. It also does not pay for sprinkler leakage damage if the sprinkler system is not protected against freezing.
• The insurance company reduces the amount of any loss it pays by 15% if the claim is caused by or results from any covered cause of loss not listed above.

Example: Building B in the Eastward Shopping Center example above was penalized 15% because the loss was caused by storm damage. The loss would have been denied if it had been caused by vandalism.

7. Valuation

The value of covered property at the time of covered loss or damage is determined as follows:

a. Actual cash value at the time of loss except as described below. The coverage form does not define actual cash value but court decisions refer to it as replacement cost new minus accumulated depreciation.

Note: Section G. Optional Coverage Item 3. replaces actual cash value valuation with replacement cost valuation.

Example: Listings, Inc. has a small fire that produces considerable smoke. It provides a complete inventory along with purchase prices for all items damaged. The claims adjuster then develops the current replacement cost new for those items and applies a depreciation factor to that replacement cost new in order to develop each item's actual cash value.

Item Description	Item Age	Purchase Price	Replacement cost new	Depreciation factor	Actual Cash Value
Office furniture	2 years	$6,000	$7,500	.80	$6,000
Computers	5 years	$15,000	$9,000	.50	$4,500
Carpet	5 years	$20,000	$25,000	.70	$17,500
Window Coverings	2 years	$10,000	$12,000	.90	$10,800
Total Value			$53,500		$38,800

The maximum loss payment using actual cash value valuation is $38,800. If the replacement cost option had been selected, a maximum payment of $53,500 would have been available.

b. The insurance company pays the building loss at full replacement cost value if the building limit of insurance meets the requirements of the Additional Condition–Coinsurance and the cost to repair or replace it is $2,500 or less. This is a bonus to the insured for carrying a limit of insurance that satisfies the coinsurance requirement.

This cost does not include any increased costs due to enforcing any ordinance or law that affects construction or use.

This item has exceptions. The following property is still valued at its actual cash value, whether or not it is attached to the building.

• Awnings
• Floor coverings
• Refrigerating, ventilating, cooking, dishwashing, or laundering appliances
• Outdoor equipment
• Outdoor furniture

c. Stock sold but not delivered is valued at its net selling price less discounts and expenses the insured would have had otherwise.

Example: Ben’s Wholesale stocks only merchandise it has sold. A covered loss destroys all the stock. The merchandise was sold at an agreed price of $600,000. Ben provides a 10% 30-day payment discount and it costs $50,000 to transport the merchandise to the customer. The value of Ben’s loss is $600,000 minus the 10% discount of $60,000 and minus transportation costs of $50,000, for a total of $490,000.

d. Damaged glass that laws require be replaced with safety glass is replaced with safety glass (even if the damaged glass was not safety glass).

e. Tenants’ improvements and betterments are unique because the tenant purchases, owns, and uses them but cannot legally exercise its ownership right to remove them when the rental or lease ends and it moves out. One of the following three valuation methods is used that are based on actions of the insured or the landlord:

• Actual cash value is used to determine the amount of loss if the insured repairs or replaces the improvements or betterments.
• A cash settlement based on the proportional value of the items is determined if the insured does not promptly repair or replace the improvements and betterments. The proportion is determined as follows:

Step 1: Determine the number of days from the date of loss to the lease's expiration date. The expiration date is considered the end of the renewal option period, if there is one.

Step 2: Determine the number of days from the date the improvements and betterments were installed to the lease's expiration date. The expiration date is considered the end of the renewal option period, if there is one.

Step 3: Multiply the original cost of the improvements and betterments by step one.

Step 4: Divide step three by step two.

Example: Sally’s Card Shop added $5,000 in improvements when it moved in two years ago. The five-year lease includes a five-year renewal option. Lightning damages the improvements and they must all be replaced. Sally is not sure that the improvements are really needed at this time, so the proportion must be calculated in order to pay the loss.

Step 1: Date of loss is 01/01/12. Date of lease is 01/01/10-12/31/15 with option to 12/31/20. The number of days from 01/01/12 to 12/31/20 is 2,920.

Step 2: The lease inception is 01/01/10 and lease with renewal option is 12/31/20. The total number of days is 3,650.

Step 3: $5,000 X 2,920 = $14,600,000

Step 4: 14,600,000/3,650 = $4,000

Sally receives $4,000 based on this proportional method.

• The insured does not receive anything if another party (such as the landlord) repairs the improvements or betterments.

F. ADDITIONAL CONDITIONS

These two additional conditions are extremely important. Mistakes in either can be extremely costly.

1. Coinsurance

This condition applies only if there is a coinsurance percentage on the declarations. The insurance company does not pay the full amount of any loss if the value of the covered property at the time of loss multiplied by the coinsurance percentage on the declarations exceeds the property's limit of insurance.

It is important to understand that coinsurance is not required or mandatory. However, it is recommended because pricing is surcharged significantly when coinsurance is not selected. The lower premium is provided on the condition that the insured maintain a limit of insurance equal to the selected 80%, 90%, or 100% of the value of the covered property. If it does not, a coinsurance penalty is applied to any loss sustained.

The coinsurance penalty is calculated as follows:

Note: The insured can select the Agreed Value option and not be subject to coinsurance or the coinsurance penalty. This option is analyzed in G. Optional Coverages.

Step 1. Determine the value of the covered property at the time of loss. The value of the property as of the policy inception date is irrelevant.

Example: Keith’s Shoe Barn has coverage on its stock and other business personal property. The total value is $100,000 on the inception date. Keith decides to use 80% coinsurance and purchases coverage with an $80,000 limit. A fire occurs three months into the policy period. At the time of loss, the total value of stock and other business personal property is $120,000 because Keith purchased a large amount of stock in advance of back-to-school shopping. The loss is valued at $50,000. The value used to determine the coinsurance penalty is $120,000, the value at the time of loss, and not the $100,000 value on the inception date.

Step 2. Multiply Step 1. by the coinsurance percentage on the declarations. There is no penalty if the result is greater than the limit of insurance. However, if the result is less than the limit of insurance, go to step 3.

Options available are 80%, 90%, 100%, or none (in some cases). The premium is surcharged if the no coinsurance option is selected. Property rates are developed assuming 80% coinsurance and are not surcharged or credited. Limits that reflect 90% coinsurance are credited 5% and those that reflect 100% coinsurance are credited 10%.

The limit of insurance does not have to be the value multiplied by the coinsurance. It should be based on (and reflect) the maximum value expected during the policy period. If fluctuating values are expected, the insured should consider writing coverage on a reporting form or using the peak season endorsement.

In some cases, the insured may choose to insure at 100% value of the property but keep the coinsurance at 80% or 90% so the limit is adequate in case of unanticipated value increases and to avoid a coinsurance penalty.

Example: Because the value of the property at the time of loss is $120,000, Keith’s Shoe Barn's limit should have been $96,000. Keith chose 80% but applied it to the value of $100,000 as of the inception date and now faces a coinsurance penalty because the limit is only $80,000.

Step 3. Divide the limit on the declarations by Step 2 to develop the coinsurance penalty factor.

Step 4. Before applying the deductible, multiply the loss amount by Step 3.

Step 5. Subtract the deductible from step 4.

The insurance company pays the lesser of the amount determined in Step 5.or the limit of insurance. The named insured pays any difference.

Example: Keith’s Shoe Barn's loss amount with a coinsurance penalty is determined as follows:

Step 1: The value is $120,000

Step 2: $120,000 X .80% = $96,000.

Step 3: $80,000 / $96,000 = .833

Step 4: $50,000 X .833 = $ 41,650.

Step 5: $41,650 – the $1,000 deductible = $40,650.

The insurance company pays $40,650. The remaining $9,350 is not covered and Keith must pay it from his funds.

The coverage form includes three useful examples that explain how the coinsurance condition applies. The coinsurance condition may be suspended by selecting the Optional Coverages–Agreed Value option. Refer to Section G. Optional Coverages for a more detailed analysis of this optional coverage.

2. Mortgageholders

Mortgageholder is not defined but it includes trustees in this coverage form. The insurance company pays for covered loss or damage to buildings or structures to each listed mortageholder in the order of precedence and as its respective interest appears. The mortgageholder must prove its interest at the time of loss.

The mortgageholder retains the right to receive loss payments even when foreclosure proceedings or similar actions begin against the insured. However, it loses those rights after the foreclosure is complete since the named insured no longer has any interest in the property. At that point, the bank is the owner and its policy should respond.

If the insured’s claim is denied because of its actions (or because it failed to comply with any of the policy's terms and conditions), the mortgageholder still has the right to receive loss payments (but only if it has done all of the following, as applicable):

• Paid any premium due when the insurance company notified it that the insured had not done so
• Submitted a signed, sworn proof of loss within 60 days after the insurance company notified it that the insured had not done so
• Notified the insurance company of any change it knows of in ownership, occupancy, or substantial change in risk

Example: Gravyboat LLC buys and sells homes. It owns 35 homes when the sub-prime bubble crunch hits. Gravyboat is overextended and cannot sell a number of houses. The mortgageholder, Bank Three, begins foreclosure proceedings on five properties. Gravyboat does not pay the premium and CloseEnuf insurance company sends a notice of cancellation. Bank Three receives the notice and pays the premium but does not tell CloseEnuf that Millicent, LLC actually owned two of the properties. When one of the Millicent properties is damaged by fire, CloseEnuf denies the loss because Bank Three had not informed it that the ownership had changed.

Once the mortgageholder takes such intervening action, the terms of the coverage form apply to the mortgageholder because it assumed the named insured's position.

If the insurance company pays the mortgageholder for a covered loss or damage but refuses to pay the insured because of its actions (or because it did not comply with the terms and conditions of the coverage form):

• The mortgageholder’s rights under the mortgage transfer to the insurance company to the extent of the amount paid.
• The mortgageholder’s right to recover the full amount of its claim is not impaired.

The insurance company has the option to pay off the entire mortgage (including accrued interest). If it does so, it owns the mortgage and the insured must pay the remaining mortgage debt to the insurance company.

If the insurance company cancels the policy for non-payment of premium, it must give at least 10 days prior written notice to the mortgageholder before the cancellation takes effect. It must give at least 30 days written notice to the mortgageholder for any other reason.

If the insurance company decides to not renew the policy, it must give at least 10 days written notice to the mortgageholder prior to the expiration date.

G. OPTIONAL COVERAGES

This coverage form has four optional coverages. They are optional because they apply only if there are entries for them on the declarations that indicate they have been selected. The optional coverage may apply to one type of coverage but not another. As a result, the entries on the declarations must be very precise.

1. Agreed Value

The coinsurance condition includes serious penalties if the value of covered property at the time of loss is less than the value the coinsurance clause requires. While the agreed value option gives the insured an alternative valuation technique, it is also subject to certain conditions and requirements.

The coinsurance condition does not apply when the insured selects this optional coverage. Instead, the insurance company does not pay more for covered loss or damage to covered property than the proportion that the limit of insurance bears to the agreed value entered on the declarations.

An expiration date for the agreed value option must be entered on the declarations. If its expiration date is prior to the policy expiration date (and is not extended by endorsement), the coinsurance condition is reinstated and the option no longer applies. This optional coverage applies only to loss or damage that occurs on or after the effective date of this optional coverage and before the expiration date of the agreed value option date on the declarations or the policy expiration date, whichever is earlier.

Note: This option is called agreed value because the insurance company and the named insured agree that the value is adequate based on documentation submitted to substantiate the values. Before extending the option, updated documentation must be submitted so that a new agreed value can be determined.

Example: Kitty’s Tavern submits an application and requests agreed value optional coverage. The worksheet also submitted shows a business personal property value of $150,000. However, Kitty wants to insure it to only 90% of this value. AlcoHall Insurance company and Kitty agree on a 90% agreed value of $135,000. The policy is issued with this limit for the period 01/01/12 to 01/01/13. The agreed value clause expiration date is also 01/01/13.

A $5,000 covered loss occurs. The loss is paid in full because the limit and the agreed value are the same.

The policy is extended to 04/01/13 without a request to extend the agreed value optional coverage. When a loss occurs on 03/01/13, the coinsurance clause is reinstated and the loss adjusted based on coinsurance because the Agreed Value Optional Coverage date was not extended.

2. Inflation Guard

This option gives the named insured a certain degree of flexibility. It is used primarily on real property, not personal property. The named insured selects an annual inflation rate. The insurance limit automatically increases by the inflation rate selected during the course of the year. As a result, if a loss occurs, the new limit as of the date of loss is determined before any loss calculation is done. The new limit is calculated as follows:

Step 1. Determine the limit of insurance that applies to the loss.

Step 2. Multiply the limit in Step 1 by the decimal version of the annual increase percentage selected on the declarations.

Step 3. Determine the number of days since the limit was last changed.

Step 4. Divide Step 3 by 365.

Step 5. Multiply Step 2 by Step 4 to determine the amount of increase.

Step 6. Add Step 1 to Step 5 to determine the limit of insurance that applies to the loss.

Example: Caldwell Manufacturing has building coverage with a $1,250,000 limit and an 8% inflation guard factor. On June 1, the limit is increased to $1,350,000. A loss occurs on July 1. The revised limit of insurance is calculated as follows:

Step 1. $1,350,000 is the limit because the loss occurred after June 1.

Step 2. $1,350,000 X .08 = $108,000.

Step 3. There are 30 days between June 1 and July 1.

Step 4. 30/365 = 082

Step 5. $108,000 X.082 = $8,856.

Step 6. $1,350,000 + $8,856 = $1,358,856. This is the amount available to apply to pay for the claim.

Note: When Optional Coverages–Inflation Guard is included, the renewal limit should be reviewed carefully. If the inflation guard factor is 8%, the limit at renewal should be at least 8% higher or the insured's renewal limits are actually lower.

Example:

· Policy term: 01/01/12 to 01/01/13

· Limit of insurance: $1,000,000

· Inflation guard factor: 8%

· Limit of insurance as of 12/31/12: $1,000,000 X .08 = $1,080,000

The insured that wants the policy renewed "as is" should be reminded that this means a renewal limit of $1,080,000. This reflects the original limit increased by the annual inflation guard factor. Renewing for the $1,000,000 limit is actually a reduction in limits.

3. Replacement Cost

a. The Valuation Loss Condition is amended by replacing Actual Cash Value with Replacement Cost. This means that there is no deduction for depreciation of property when determining payment for property damaged or destroyed by a covered cause of loss.

b. Replacement cost valuation does not apply to:

• Personal property of others
• Contents of a residence
• Works of art, antiques, or rare articles. This includes etchings, pictures, statuary, marbles, bronzes, porcelains, and bric-a-brac.
• Stock (unless an entry on the declarations includes stock as covered property)

c. The insurance company does not force the insured to accept replacement cost valuation. The insured can accept a settlement based on actual cash value. The insured can even change its mind and make a claim based on replacement cost as long as it notifies the insurance company within 180 days after the date of loss that it desires the replacement cost option. The reason to accept an actual cash value settlement and then revert to replacement cost is to obtain initial funds to begin the process to repair or replace.

Example: Connie’s Feed and Grain has a $225,000 limit, including replacement cost optional coverage. A fire destroys her store. Connie decides to take the actual cash value settlement of $150,000 instead of rebuilding. When members of the community beg her to reconsider her decision, she changes her mind and notifies the insurance company of her intent to rebuild on the 179^th day. She uses the $150,000 settlement to start rebuilding. She receives the remaining $75,000 after construction is complete.

d. The insurance company does not pay on a replacement cost basis until the property damaged or destroyed is actually repaired or replaced. If the arrangements for repairs or replacement are not made as soon as possible after the date of loss, replacement cost may not be made.

Note: The longer the insured takes to begin making repairs, the more expensive the loss becomes because of deterioration and general exposure to the elements. Water damage is always a concern, especially in warm climates.

Tenants’ improvements or betterments are not considered property of others but losses that involve them are settled differently than other personal property. If the insured does not meet the conditions in item d. above, the valuation reverts to the method explained under the Valuation Condition. In addition (and to prevent double dipping), the insurance company pays the named insured only if it actually pays for the repairs. The named insured does not receive anything if the landlord or another party pays for the repairs.

e. The insurance company is obligated to pay only the least of the following amounts:

• The limit of insurance that applies to the damaged or destroyed property
• The cost to replace the damaged or destroyed property with comparable property used for the same purpose
• The actual cost to repair or replace the damaged or destroyed property

Note: The named insured can decide to rebuild at a different location. However, the amount paid for the loss is limited to the amount equal to the cost to rebuild at the original site.

f. The cost of repair or replacement does not include any increase caused by enforcing any ordinance or law that applies to the construction, use, or repair of the property.

4. Extension of Replacement Cost to Personal Property of Others

This extension can be used only when Replacement Cost Optional Coverage is selected because it simply modifies it. This coverage removes the exclusion for personal property of others from the Replacement Cost Optional Coverage.

There is one limitation. If personal property of others is subject to a written contract that establishes the named insured's liability for loss or damage to it, valuation of that property is based on the least of:

• The amount stated in the contract
• The property's replacement cost
• The property's limit of insurance

Example: Mary has a contract for leased equipment in her office. The contract states that she is not responsible for more than $40,000 if a loss occurs. A loss occurs and the replacement cost value for the equipment is determined to be $60,000. The most the insurance company pays is $40,000 due to the contract's language.

H. DEFINITIONS

This coverage form has three defined terms.

1. Fungus

This term includes any and all forms of fungus. Mold, mildew, spores, scents, mycotoxins (or by-products that the fungus releases or produces) are examples of items considered fungus but the term is not limited to only them.

Note: The Increased Cost of Construction Additional Coverage uses this term to restrict coverage.

2. Pollutants

This term refers to any solid, liquid, gaseous, or thermal irritant or contaminant. It includes smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.

Note: ISO uses this definition in all its coverage forms.

3. Stock

This is merchandise held for sale or in storage. It also includes any raw materials, goods in process, and finished goods. It also includes supplies used in their packing or shipping.

BASIC, BROAD, AND SPECIAL CAUSES OF LOSS FORMS ANALYSIS (04 02 EDITION)

INTRODUCTION

The Commercial Property Program Causes of Loss Forms are designed to complete the coverage begun in the coverage part. The separate causes of loss forms allow insurance buyers to customize the commercial property coverage part or policy. After selecting the appropriate coverage part, the buyer can then select a causes of loss form for each property insured. This gives the insured maximum flexibility in arranging its insurance coverage.

The Causes of Loss Forms provide the answer to the question: "What must happen in order for coverage to apply?" The more causes of loss provided, the more expensive the policy. The three Causes of Loss forms are:

• CP 10 10–Causes of Loss–Basic Form
• CP 10 20–Causes of Loss–Broad Form
• CP 10 30–Causes of Loss–Special Form

The most frequently used version is CP 10 30–Causes of Loss–Special Form. For this reason, this analysis builds on this form. The other two forms are discussed at the end of this section, with emphasis on how they differ from
CP 10 30.

Note: This analysis is based on the 04/02 forms edition. Changes from the previous edition are in bold print.

CP 10 30–CAUSES OF LOSS–SPECIAL FORM

COVERED CAUSES OF LOSS

The policy declarations must show a causes of loss form for each item of property covered. If it is CP 10 30–Causes of Loss–Special Form, the coverage provided is for risks of direct physical loss. This approach is extremely broad because, if the coverage wording is not modified elsewhere in the policy, it means that any physical event causing loss or damage to property eligible for coverage is covered.

EXCLUSIONS

The form has only three exclusions but each has multiple subparts.

1. The causes of loss indicated in the first exclusion do not apply to loss or damage caused directly, indirectly or in any sequence in a chain of events that contribute to the loss. If an exception to the chain of events condition applies, it is stated in the exclusion subpart. Additional wording emphasizes that coverage for these events does not apply to the widespread nature of an event does not affect coverage.

• a. Ordinance or Law

Local governments develop ordinances and laws relating to the construction and remodeling of buildings. A building may be grandfathered, or granted an exception, as long as it remains standing. Once a substantial loss occurs and remodeling or rebuilding is necessary, the grandfathered laws activate and come into play. This exclusion states that the policy does not apply to any costs associated with meeting such laws and ordinances.

In addition, coverage does not apply to the expense of removing undamaged portions of the building and does not pay for rebuilding those undamaged portions. It also does not apply to the additional cost of rebuilding at a different location due to ordinances or laws. Finally, it does not pay to remodel a structure in order to bring the building up to current standards.

Example: Harvey’s Hatchery started in 1930. It is located on the family farm 15 miles from Little Town. Over the years, Little Town grew, along with Harvey’s Hatchery. As subdivisions sprouted, new city ordinances were enacted. One of them prohibits livestock and other farm animals inside the city limits. Over Harvey’s objection, the area where the hatchery is located is incorporated into the city. Harvey’s continues to operate as it did in the past and tries to be a good neighbor. However, chicken droppings are an unpleasant intrusion on city life. The hatchery sustains a covered loss and, thanks to the fire department’s quick response, only 60% of the building is destroyed. Unfortunately, the city inspector informs Harvey that he may not rebuild. They cannot obtain the permit needed to rebuild the hatchery in the city limits. Unless ordinance and law coverage was purchased, using Form CP 04 05, Harvey receives a settlement from the insurance company for the 60% loss to the building and must then find new property and rebuild there.

• b. Earth Movement consists of five separate components:
• Earthquake includes any sinking, rising or shifting of the earth.
• Landslide includes any sinking, rising or shifting of the earth.
• Mine Subsidence is a particular problem in the Midwest. This exclusion applies to both man-made and natural mines. Coverage does not apply whether the mine is still operating or not. Mine subsidence coverage may be purchased separately. In some states, mine subsidence coverage must be offered in certain counties. If coverage applies on property located in Illinois, Indiana, Kentucky, Pennsylvania or West Virginia, the laws in those states should be reviewed carefully to determine how to deal with this exposure.
• Sinkhole Collapse is covered but sinking of the earth is not. Any rising, shifting, erosion, contraction or expansion of earth is not covered. Water under the surface of the ground and poor soil conditions are also not covered.

An important exception to these exclusions is that if fire or explosion occurs as a result of any earth movement, coverage applies to the ensuing damage.

Example: An earthquake rocks Bardsville but there is little damage to the buildings. However, the rigid gas lines break. A spark causes an explosion and Sam’s Hardware burns to the ground due to the explosion and the inability of the fire department to respond. This loss is covered because it is due to a fire resulting from the earthquake.

• Volcanic eruption is not covered except if fire, breakage of building glass or volcanic action ensues. Volcanic action includes airborne blasts and shockwaves, the different types of dust, ash and similar material emitted by the volcano and lava flow. However, it does not include the cost of removing dust, ash and similar material if it does not cause direct physical loss or damage to insured property.

Volcanoes are very messy and usually erupt over a period of days. Any such event that takes place over a period of 168 hours is treated as one occurrence. This is very important to the insured with a substantial deductible for this coverage. Instead of multiple deductibles applying to multiple events, only one deductible applies to the 168-hour period for which only one limit is available.

Example: Prime Real Estate Management owns two commercial strip centers and covers them with a blanket limit of $6,000,000 on an agreed value basis. A volcanic eruption occurs nearby, lava flow destroys one center and fire caused by flaming debris destroys the other. Each center is valued at $6,000,000. Both losses are due to the same occurrence. Instead of receiving $12,000,000, Prime Real Estate Management receives only $6,000,000.

• c. Government Action

Coverage does not apply if the government seizes property or destroys property, unless the property was seized and destroyed to prevent the spread of fire, provided fire is a covered cause of loss.

• d. Nuclear Hazard

There is no coverage for anything involving any nuclear hazard. Nuclear reactions, radiation and contamination are not covered unless fire ensues, and then only for the loss or damage caused by the fire.

• e. Utility Services

Loss or damage due to utility failure or interruption is not covered if the failure occurs away from the described premises. However, if the failure of the utility causes a covered cause of loss on the insured premises, coverage applies for that covered cause of loss.

Example: In December, a fire occurs at the electric power plant and causes a blackout. Fred's Fine Food loses refrigeration and the food spoils. In addition, the pipes freeze and burst and cause considerable water damage. The spoiled food is not covered but the water damage is covered.

• f. War and Military Action

This exclusion lists three specific types of activity considered to be war. Note that the words terrorist or terrorism are not listed. War can be undeclared or a civil war. It is important to review a dictionary definition to determine who can declare war. If an action does constitute a war, coverage does not apply. In addition, any action involving the military and or military agents is not covered. Finally, rebellions, revolution, usurped power, insurrection and the government response to them are not covered.

• g. Water

Damage caused by the action of water outside the building is not covered. To clarify this further, this exclusion is broken into four subparts, each of which defines exactly what is meant by water.

• Flood is not covered. Flood includes surface water, tides, and tidal waves. The overflow of any body of water is also excluded. A body of water is a river, creek, ocean or lake, whether natural or manmade. In addition, spray from the water and wind-driven water is not covered.
• Mudslide and mudflow can occur when a sudden large volume of water mixes with unstable soil conditions. Neither of these conditions is covered.
• Sewers, drains and sumps can be overwhelmed by the volume of water coming into them and begin to backup or overflow. The loss or damage due to or resulting from the backup or overflow is not covered.
• Water saturated ground can create pressure against the surface or subsurface portions of a building. This subpart excludes loss or damage from water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows and other openings of a building.

In the same manner as found in some other exclusions, if fire or explosion occurs because of the action of water, coverage does apply for the damage caused by the fire or explosion. In addition, if a sprinkler leakage loss occurs due to the action of water, coverage does apply for the damage caused by the sprinkler leakage.

• h. Fungus, wet rot, dry rot and bacteria (04/02 addition)

Losses caused by the existence of fungus, mold, rot, bacteria and other growing organisms are not covered. However, if a specified cause of loss occurs because of their existence, coverage does apply for the loss or damage caused by the specified cause of loss.

This exclusion does not apply if the fungus, mold, rot, bacteria or similar organisms result from a fire or lightning loss or is covered under the Additional Coverage–Limited Coverage for Fungus, Wet Rot, Dry Rot and Bacteria.

Example: Millicent purchases a store. Six months later she notices an unusual odor. She hires a contractor who discovers mold behind ceiling tiles that is destroying the tiles. The tiles must be destroyed and the area disinfected. She turns in a claim and the claim is denied. However, if a fire occurs and the tiles are moldy because of the water used to extinguish the fire, that mold loss is covered.

2. There is no coverage for loss or damage caused by the following group of exclusions:

• a. There is no coverage if electricity, other than lightning, damages electrical devices unless a fire ensues. In that case, coverage applies only for the loss or damage caused by the fire.
• b. Loss of use or loss of market.
• c. Smoke, vapor or gas caused by agricultural smudging or industrial operations. However, other types of smoke damage are covered.

Example: Lenny’s Laundry must shut down and cleaned after a short circuit in a dryer causes smoke to fill the building. This cleanup cost is covered.

• d. Wear and Tear. This exclusion has seven subparts. Most of the items in these subparts should be viewed as simply costs associated with doing business and not as losses.
• Wear and tear. Loss simply caused by aging and everyday use is not covered.
• Rust, fungus and other hidden or latent defects, including any feature of the property that causes it to destroy itself, is not covered.
• Smog is not covered.
• All buildings, and some personal property, are subject to shrinking, expanding, cracking and settling. These events should be expected and accommodations made in building construction and design and with respect to storage of personal property. As a result, losses from these causes are not covered.
• Insects, birds, rodents and other animals cause considerable damage to buildings. The loss or damage caused by nesting or infestation is not covered. This includes the various waste products or secretions left by these animals.

Example: One day, Perry notices an unusual shimmering substance on the side of the church. He touches the amber liquid and realizes it is honey. He notices the amount of it increasing every day and notifies the trustees. The trustees bring in a contractor who investigates and finds a beehive in the walls of the church. The contractor brings in a beekeeper to remove the bees. The beekeeper must remove part of the interior wall to remove the hives, repair the damaged wood and seal the bee’s entrance point. None of these services are covered losses because all result from an insect infestation.

• Machines regularly break down because of use. For this reason, mechanical breakdown is not covered. Rupture and bursting caused by centrifugal force is also considered mechanical breakdown and is also excluded. The exception to this exclusion is that coverage applies to the damage caused if the mechanical breakdown results in elevator collision. This damage includes damage to the shaft, any property damaged by the elevator and the elevator itself.
• The exclusions above apply mainly to buildings. The final exclusion applies to Business Personal Property. Coverage does not apply to loss or damage caused by or resulting from atmospheric dampness or dryness, temperature extremes, any changes in temperature or from scratching or marring. Since these causes of property damage should be anticipated and expected by the insured, they are not covered causes of loss.

If any cause of loss referred to above results in either a specified cause of loss or breakage of building glass, the loss or damage caused by the specified cause of loss or glass breakage is covered.

Example: Susie's Fancy Finery is a tenant on the first floor of a three-story building. The upper floors are sealed and not used. Unknown to the building’s owner or Susie, birds are nesting in the attic and also find their way into the chimney. The chimney has an opening at the top that leads directly into Susie's shop. One day nearly a dozen birds enter the shop, panic and careen into objects and windows in their attempt to escape. The birds crack and break the windows before they escape. Coverage does not apply to the damage caused by the infestation but does apply to the glass breakage damage.

• e. Steam boiler, steam pipe, steam engine or steam turbine explosions are not covered if owned or operated by the insured or in the insured's care, custody or control. This means coverage to the insured's property does apply if the damage is due to explosion of one of these objects owned by another party. If the insured owns or operates any of these items, the only coverage available is for loss or damage due to fire or an explosion caused by combustion.
• f. Loss or damage due to water that leaks or seeps over a period of 14 days or more is not covered. In addition to water, any humidity, moisture or vapor present over a period of 14 days or more is not covered (04/02 addition). This means that water leaking internally is covered unless allowed to run unchecked and unnoticed for more than 14 days.
• g. Damage caused by water, other liquids, powder or molten material is not covered if the damage is due to freezing. This exclusion does not apply if the insured either maintained heat in the building or drained and shut off the supply. It also does not apply to fire protection devices.

This exclusion requires the insured to take care of maintenance issues that are not the responsibility of insurance. The insurance company has the right to expect the insured to act in a responsible manner toward their property even in cases where insurance coverage is provided.

• h. Coverage does not apply to dishonest or criminal acts by the insured, partners, members of a Limited Liability Company (LLC), officers of a corporation, managers, employees or anyone else to whom property is entrusted. This exclusion applies whether these parties act alone, in collusion with others, during business hours or after hours. The Insured should purchase employee dishonesty coverage to apply to these acts.

It is important to note that coverage applies if employees, including leased employees, destroy property. However, this coverage does not apply to theft.

Example: Sheila and Fred are long time employees of Frankel Egg Farm but decide they've had enough of the company. They steal the payroll and then burn the plant down to hide their tracks but are captured three days later. If the plans are not interrupted, the fire loss is covered but the theft of payroll is not. That loss is covered by employee dishonesty coverage.

• i. There is no coverage if the insured, or someone the insured trusts with its property, is tricked into giving it away.
• j. Personal property in the open is not covered for loss or damage caused by or resulting from rain, snow, ice or sleet.
• k. Collapse is initially completely excluded. However, some coverage is added back in the Additional Coverage for Collapse section located elsewhere in the form.
• l. Pollutant damage is not covered, unless the damage is caused by a specified cause of loss. In addition, if pollutant damage results in the occurrence of a specified cause of loss, coverage applies for the loss or damage caused by the specified cause of loss but not the pollutant damage leading up to it. Loss or damage to glass caused by chemicals applied to the glass is covered.

Example: Windstorm damages an outbuilding at Mayfield Nursery. The weed killers stored in the building blow out, cover and kill most of the growing stock and the standing stock. Since the spread of the pollutants was due to a specified cause of loss, the loss of the stock is covered. While waiting for the outbuilding to be rebuilt, Mayfield receives a new shipment of fertilizer. Mayfield stores the fertilizer in another outbuilding but this time places it too close to a heat source. The combination of the two starts a fire that burns the building down. Since the pollutant resulted in a covered cause of loss, coverage applies to this loss.

• m. There is no coverage if the insured neglects to use all reasonable means to save and preserve property from further damage at and after the time of loss.

Example: The Mayfield family is exhausted after the two losses described above. They decide to just walk away and take a week’s vacation. Thieves notice the unlocked doors and unattended supplies. Since the Mayfield family neglected their duty to preserve property, coverage does not apply to the theft loss of the supplies.

3. The subparts of this exclusion are sometimes referred to as the concurrent causation exclusions. These exclusions are unique in that, if a loss is covered as a covered cause of loss, with the exception of these exclusions, it is still covered. On the other hand, if the loss would have been excluded anyway, it is still excluded. The three subparts of this exclusion are:

• a. Weather conditions. However, this only applies if the weather contributed to a cause or event excluded in the first set of exclusions above.

Example: Heavy rains cause creeks to rise well above flood stage. The flooding damages businesses. Although the proximate cause is the weather condition, since flood is an excluded cause of loss, the weather exclusion applies and there is no coverage.

• b. Governmental entities and related groups can make decisions and take actions that not only affect others but also cause loss or damage. The acts and decisions that cause loss or damage are excluded.

Example: The dams along the river are getting old but the Corps of Engineers decides it is too expensive to replace them. The heavy spring rains cause the dams to fail and many homes and businesses are flooded. Since flood is an excluded cause of loss, the loss or damage due to the decision and actions by the Engineers is also excluded.

• c. This subpart has four separate elements but basically excludes any type of faulty, inadequate or defective planning, design, materials and maintenance.

Example: Mainline Construction Company prepares the land for an industrial park. Severe drought followed by drenching rains causes the newly constructed buildings to slide down the slope. It is later found that the ground preparation was inappropriate for the amount of slope involved. Since landslide is not a covered cause of loss, the loss is not covered.

4. Special exclusions

The exclusions in this section only apply to certain coverage forms. The three exclusions are for Business Income, Leasehold Interest and Legal Liability.

• a. The Business Income (And Extra Expense) Coverage Form, Business Income (Without Extra Expense) Coverage Form and Extra Expense Coverage Form each have the following additional exclusions:

Loss or damage due to failure of power or other utility services is not covered if the failure occurs away from the covered building. However, if the failure causes or results in a covered cause of loss, the resulting loss is covered.

One important word is "outside." Failure of power inside the insured building is not covered. Another important word is "building." This exclusion uses building instead of premises. This means that if the power outage in one building is due to a problem at another building on the same premises, there is no coverage.

The 04 02 edition includes an additional part to this exclusion. Failure includes not only total failure but also lack of capacity and reduction of supply.

Loss due to damage of finished stock, or the amount of time to replace finished stock, is not covered. Since this is a time-related incident, it does not apply to Extra Expense.

There is no coverage for any loss that results from physical loss or damage to radio or television antennas, including satellite dishes.

Coverage does not apply to any increase of loss due to:

• Interference by strikers or others that delays rebuilding.
• Suspension, lapse or cancellation of a license, lease or contract. However, if the lapse or cancellation is a result of the loss, then coverage applies during the period of restoration.

Example: Rudy's Bar has a fire and is being rebuilt. During the fire investigation, the police discover some irregularities that cast a shadow on Rudy’s reputation and his liquor license is suspended. Rudy fights the suspension. The fire repairs are complete but the license is not renewed. The period of restoration ends when the building is complete, even though Rudy is still unable to re-open due to his suspended license.

There is no coverage under Extra Expense coverage if a license, lease or contract is suspended, lapsed or cancelled beyond the period of restoration.

Any consequential loss is not covered.

• b. When the Leasehold Interest Coverage form is included, the Causes of Loss Form changes in two ways:

• The Ordinance or Law exclusion does not apply; and
• There is no coverage if the insured cancels a lease, if a license is suspended, lapses or is cancelled or for any other consequential loss.

• c. When the Legal Liability Coverage form is included, the Causes of Loss form changes substantially. This is because the Legal Liability Coverage is more liability coverage than property coverage.
• Five exclusions are removed and do not apply. These are the exclusions for Ordinance or Law, Governmental Action, Nuclear Hazard, Utility Services and War and Military action.
• Two liability related exclusions are added:
• Contractual Liability

There is no coverage for protection provided under a contract, except for an agreement to assume liability for building damage due to attempted break-in. The assumption of such liability must be made prior to any accident and the coverage form must apply to the building in question.

• Nuclear Hazard

There is no coverage for suits brought due to any damages or expenses relating to nuclear reaction, radiation, or contamination.

COVERAGE RESTRICTIONS AND LIMITATIONS

Now that what is covered and what is excluded is outlined, coverage restrictions and limitations must be reviewed. Each of the four limitations has subparts.

1. The insurance company does not pay for loss or damage to property as described and limited, including related or consequential loss:

• Steam boilers, steam pipes, steam engines or steam turbines are not covered if the loss is caused by or results from a condition inside the equipment. However, coverage does apply if the loss or damage is caused by an explosion of gases or fuel inside the furnace of a fired vessel or within the flue through which combustible gases flow.
• Any water heating device, including hot water boilers, is not covered if the loss is due to a condition inside the equipment, unless an explosion occurs.
• The interior of a building and personal property inside that building is not covered for loss or damage caused by rain, snow, sleet, ice, sand, or dust, unless the roof or walls of the building are first damaged by a covered cause of loss through which the rain, snow, sleet, ice, sand or dust enters or due to the thawing of snow, sleet or ice on the building causes the loss.

Note: Remember that leaving doors and windows open limits a loss that is otherwise covered!

• Building materials awaiting installation in a building are not covered for loss due to theft unless they are building materials held for sale. This limitation does not apply to either of the business income forms or the extra expense form.
• Any property loss that can be proven only by a shortage based on an inventory. This really means there is no actual knowledge that something was taken. The loss could be due to a mathematical or computation error, employee theft or a break-in. Since there is nothing to physically indicate what actually happened, there is no coverage.
• Coverage does not apply if a loss occurs because property was transferred to another person based solely on unauthorized instructions.

2. The insurance company does not pay for loss or damage to any of the following property unless it is caused by a specified cause of loss or breakage of building glass:

Note: The 04 02 edition eliminates the limitation on Valuable Papers. This is not to provide coverage but because the coverage has been significantly changed in the coverage form.

• Loss or damage to animals is not covered unless the animals are killed or must be destroyed due to an injury caused by one of the specified cause of loss or breakage of building glass. This means that veterinarian bills or expenses incurred to save the animal are not covered.
• Breakage of fragile articles that includes statuary, marbles, chinaware and porcelains is not covered. This limitation does not apply to glass or containers holding property held for sale.
• Builders’ machinery, tools and equipment owned by or entrusted to the insured that qualifies as covered property is excluded. However, this limitation does not apply if the property is located on or within 100 feet of the described premises. This limitation does not apply to business income or extra expense coverage forms.

3. The following categories have special limitations on the total limit of loss. It is a per occurrence limit and applies only to theft loss. All other causes of loss are covered, subject to the standard exclusions and the limit of insurance for the covered property:

• Furs, fur garments and fur-trimmed garments are covered, subject to a limit of $2,500.
• Jewelry, watches, watch movements, jewels, pearls, gold, and similar items are covered, subject to a limit of $2,500. This limitation does not apply to jewelry and watches valued at less than $100 each.
• Patterns, dies, molds and forms are covered, subject to a limit of $2,500.
• Stamps, tickets, letters of credit and lottery tickets held for sale are covered, subject to a limit of $250.

Note: Remember that these are limitations, not special coverage extensions. As a result, the limits are not additions to the limit of insurance that applies. The good news is that these limitations do not apply to either of the business income or extra expense coverage forms.

4. The insurance company does not pay the cost to repair a defect in a system or appliance from which water, other liquids, powder or molten material escapes, except for automatic sprinkler or fire extinguishing systems. The fire extinguishing system is only covered if the damage results in a discharge from the automatic protection system or the damage is caused directly by freezing. This limitation does not apply to either of the business income or extra expense coverage forms.

ADDITIONAL COVERAGE–COLLAPSE

This additional coverage is necessary since collapse is specifically excluded in the coverage form. At one time, policy forms provided collapse coverage. However, broad legal interpretations forced the coverage to be rewritten as a named or designated cause of loss.

1. With respect to buildings:

• An abrupt falling down or caving in of a building or of part of the building is collapse, if the building cannot be occupied for its intended purpose.
• If a building is in danger of falling down or caving in, it is not considered to be in a state of collapse.
• If part of a building is standing, even if it has separated from another part of the building, it is not treated as being in a state of collapse.
• If a building is standing but shows evidence that it may collapse due to bulging, sagging, cracking, bending, leaning, settling, shrinkage or expansion, it is not in a state of collapse.

Example: The Good Shepherd Church was built 90 years ago in a small rural area next to the main road. It is now in the suburbs of a town along a major highway. The church never moved but the town grew out to it. During choir practice one evening, a few tiles in the sanctuary ceiling loosened and fell. The next day an inspector was called to evaluate the situation. After the inspector left, the building was condemned. Over the years, the building shifted on its foundation and is now in imminent danger of collapse. Collapse coverage does not apply to this situation.

2. The insurance company pays for direct physical loss or damage to covered property caused by collapse of a building or any part of a building to which coverage applies, or that contains covered property insured by the coverage form, if the collapse is caused by any of the following:

• A specified cause of loss or breakage of building glass as insured by this coverage part.
• Hidden decay, as long as the insured was not aware of the hidden decay prior to the collapse.
• Hidden insect or vermin damage, but only if the insured was not aware of the hidden insect or vermin damage prior to the collapse.
• Weight of people or personal property.
• Weight of rain that collects on a roof.
• Coverage applies if a collapse occurs during construction that is caused by the use of defective material or methods in construction, remodeling or renovation. If it occurs after the construction, remodeling or renovation is finished; the collapse must be due to one of the causes listed immediately above.

3. The following property is covered but is treated differently from building and personal property:

• Outdoor radio or television antennas;
• Awnings, gutters, and downspouts;
• Yard fixtures;
• Outdoor swimming pools;
• Fences;
• Pier, wharves and docks;
• Beach or diving platforms or appurtenances;
• Retaining walls; and
• Roadways, walks and paved surfaces.

Coverage applies if collapse involving any of this property is due to a specified cause of loss or breakage of building glass. However, if any of these items of property collapse because of one of the causes of loss listed above, coverage applies only if:

• A building insured under the coverage form collapsed and caused the loss; and
• The item is treated as covered property under the coverage form. Many of the items of property are listed as property not covered but may have been added using Form CP 14 10.

4. Under certain circumstances, personal property sometimes collapses but the building does not. In that case, the loss is covered only if:

• The collapse was due to a cause of loss listed above under this additional coverage;
• The personal property is in a building; and
• The personal property is not one of the items listed above in this additional coverage.

Coverage does not apply if the personal property collapses and the only damage to it is marring and scratching. Any cracking, bulging, sagging, leaning, settling, expansion and shrinkage of personal property is not treated as collapse.

5. This additional coverage does not increase the limit of insurance.

ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT AND BACTERIA (04/02 ADDITION)

Collapse was removed as a covered cause of loss and then added back in as an additional coverage. In the same manner, fungus coverage is also removed as a covered cause of loss and is added back in. The methods used are similar. However, the coverage available is substantially different.

The coverage only applies if the cause of loss is one of the specified causes, other than fire or lightning, or flood if flood coverage is provided. In addition, the insured must have taken all reasonable steps to prevent further damage to the property after the loss.

Example: Smoke filled a small store and the employees took all of the personal property outside to avoid smoke damage. The employees then left work at quitting time without putting the personal property back in the store. The next morning, the property was picked up and placed back in the store without inspecting it. A week later, mold and mildew were found on most of the items because of their exposure to moisture during the night. A claim was filed and subsequently denied because reasonable care had not been taken to protect the property from further damage.

Loss or damage includes not only direct damage to the property but also removal of the fungus, wet or dry rot or bacteria. This is in addition to the cost to tear out and replace walls and other parts of the building in order to get to the problem. It also includes the necessary testing to verify that the property is clean and the situation mitigated.

The limit of insurance for this coverage is unique. It is $15,000 per policy year. This means that, regardless of the number of locations and occurrences, the limit for the policy year is $15,000. Once the limit is exhausted, no additional limit is available.

Example: Max’s Jewelers has 15 retail locations. A covered mold loss occurs at store number five and the total claim paid amounts to $13,000. A month later, a mildew loss occurs at store number 10. The total amount claimed is $9,000 but only $2,000 is paid because that is the amount remaining of the aggregate amount for the policy period.

The $15,000 limit does not increase the limit of insurance. In other words, if the limit is $100,000, and that limit is used to cover a direct damage claim, no limit remains to apply to any fungus, dry or wet rot or bacteria loss.

If business income and/or extra expense coverage is provided, this extension provides coverage in two different situations. If the specified cause of loss direct damage loss does not result in a business income or extra expense loss but the fungus, wet rot, dry rot and bacteria does, coverage applies for 30 days. In addition, if the specified cause of loss direct damage loss results in a business income or extra expense loss, this extension provides 30 additional days of coverage for the delays or extension of the down time due to the wet rot, dry rot, fungus and bacteria.

ADDITIONAL COVERAGE EXTENSIONS

Three extensions enhance the coverage provided by CP 10 30–Causes of Loss–Special Form.

1. Property in Transit

This extension applies to personal property treated as covered property in the form.

• Personal property in a motor vehicle owned, leased or operated by the insured is covered while in transit. This is provided that it is not property in the care, custody or control of a salesperson and that it is more than 100 feet away from the premises.
• The loss or damage must be caused by one of the following causes of loss:
• Fire, lightning, explosion, windstorm, hail, riot, civil commotion or vandalism.
• Collision with an object or another vehicle, upset or overturn. Striking the roadbed is considered collision.
• Theft of an entire bale, case or product. Visible evidence of forced entry must be present and the vehicle must have been securely locked.
• This extension provides an additional limit of insurance of $5,000.

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

If leakage of any of these substances causes direct physical loss or damage, the insurance company pays the cost of tearing out and replacing any part of the building or structure, whether damaged or undamaged, to repair the damage to the leaking system or appliance. This does not increase the limit of insurance but is still a valuable coverage because coverage does not usually apply to undamaged property.

Example: Cecil at Cecil's Farm Supply notices water damage to his stock. He searches for the source of the leakage and discovers water flowing from the bottom of a wall. Cecil calls a plumber to check out and repair the problem. The plumber finds the leaky pipe but only after destroying much dry wall in the process. The plumber repairs the pipe. Cecil is responsible for the expense of the plumber's services but the insurance company pays the expense to replace the dry wall.

3. Glass

This pays for the expense of temporary plates of glass or to board up window openings if there is a delay in repairing the damaged area after a covered cause of loss occurs. It also pays the expense of removing obstructions in order to repair or replace glass. However, this coverage does not include the cost to remove or replace window displays.

Note: This is not an additional limit of insurance.

DEFINITIONS

The last section of CP 10 30–Causes of Loss–Special Form is reserved for Definitions. The 04 02 edition includes an additional definition to this section, for a total of two.

• Fungus is the new definition. It includes almost any type of fungus, mold or mildew but also includes mycotoxins, spores, scents and by-products produced by fungus.
• Specified Causes of Loss means fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, volcanic action, and weight of snow, ice or sleet. In addition, three additional causes of loss are also considered specified causes of loss and require additional explanation:
• Sinkhole collapse is the sudden sinking or collapse into spaces created by water on limestone or dolomite. The coverage provided does not include the cost of filling the sinkhole nor does it cover any sinking or collapse into man-made underground areas.
• Falling objects are covered. However, this does not include loss or damage to personal property left in the open or to the interior of a building or to personal property in the building unless the roof or an outer wall is first damaged by the falling object.

Example: The chandelier hanging in the dining room falls and lands on the top of the dining room table. There is no coverage for either the chandelier or the dining room table.

• Water damage is covered. This means the accidental discharge or leakage of water or steam due to the breaking apart or cracking of part of a system or appliance. However, this does not include the sump system.

COMPARISON OF CP 10 30 TO CP 10 10 AND CP 10 20

The main difference between these forms is that CP 10 10–Causes of Loss–Basic Form and CP 10 20–Causes of Loss–Broad Form provide coverage based on designated or named causes of loss instead of CP 10 30–Causes of Loss–Special Form approach of risks of direct physical damage. With CP 10 10 and CP 10 20, the insured must find coverage in one of the listed causes of loss. With CP 10 30, the insurance company must review the exclusions to determine that a particular loss is not covered. Whereas CP 10 30 lists more exclusions for the purpose of clarifying what is not covered, the covered causes of loss sections of CP 10 10 and CP 10 20 are longer.

CP 10 10–CAUSES OF LOSS–BASIC FORM

CP 10 10–Causes of Loss–Basic Form covers 11 causes of loss. These causes are also covered in CP 10 30 but are not specifically listed.

A. Covered Causes of Loss

• 1. Fire
• 2. Lightning
• 3. Explosion as defined but not explosion caused by a pressure device rupturing or bursting or expansion or swelling of any contents due to the action of water.
• 4. Windstorm or hail is covered except for frost or cold weather, ice, snow or sleet, whether accompanied by wind or not and interior damage by wind or rain through an opening not created by the wind or rain.
• 5. Smoke. This does not include smoke from agricultural smudging or industrial operations.
• 6. Physical damage or contact caused by aircraft or vehicles. This means that the aircraft or vehicle or parts of the aircraft or vehicle must cause the damage. Sonic boom, also known as shock wave, is not covered.
• 7. Riot or civil commotion, including acts of striking employees and looting by rioters during civil commotion.
• 8. Vandalism as defined is covered but loss caused by or resulting from theft is not covered.
• 9. Sprinkler Leakage damage is covered. If building is the covered property, coverage applies for the repair or replacement of damaged parts due to the leakage or due to freezing. This is in addition to the cost to tear out and repair parts of the building in order to repair the leakage from the sprinkler system.
• 10. Sinkhole collapse is covered but coverage does not apply to or include the costs to fill the sinkhole. Coverage also does not apply to sinking or collapse of land into man-made mines and underground cavities.
• 11. Volcanic Action is covered in the same manner and as defined in CP 10 30, under the Earth Movement Exclusion.

B. Exclusions

This section in CP 10 10 is much shorter than in CP 10 30 because the causes of loss are defined. It includes only two exclusions compared to three exclusions in CP 10 30. The exclusion related to concurrent causation is not needed in CP 10 10 because it defines the types of losses covered.

1. Exclusions in this section of CP 10 10 are identical to the same section in CP 10 30. Both exclude Ordinance or Law, Earth Movement, Governmental Action, Nuclear Hazard, Utility Services, War and Military Action, Water and Fungus, Wet Rot, Dry Rot and Bacteria (04/02 addition).

2. Exclusions in this section of CP 10 10 consist of only six subparts compared to 13 subparts in the same section of CP 10 30. This does not mean that CP 10 10 provides more complete coverage. It means not as many exclusions are needed because the coverage is much more limited to begin with. The insurance company does not pay for any loss or damage caused by or resulting from:

• a. Artificially generated electrical current that disturbs electrical devices, appliances or wires. This includes electric arcing. However, if the artificially generated electrical current causes a fire, the insurance provided pays for the loss or damage caused by the fire.
• b. Rupture or bursting of water pipes, other than sprinkler systems, unless caused by a covered cause of loss. It is always to the insurance company’s advantage to have the sprinkler system operating correctly.
• c. Leakage or discharge of water or steam from systems or appliances containing water or steam. This exclusion does not apply to sprinkler systems or in cases where the appliance or system is damaged by a covered cause of loss. Even in cases where coverage applies, coverage ends once the flow, leakage, humidity, moisture or vapor occurs continuously for 14 or more consecutive days.
• d. Explosion of boilers, steam pipes, steam engines or steam turbines owned, leased or controlled by the insured. However, if a fire or combustion explosion occurs, coverage applies to the loss or damage caused by the fire or combustion explosion.
• e. Mechanical breakdown, including rupture or bursting due to centrifugal force. However, if the breakdown, rupture or bursting results in a covered cause of loss, the loss or damage resulting from the covered cause of loss is covered.
• f. Failure of the insured to do everything possible to protect covered property and keep it from further damage during and after the time that a loss occurs.

3. The Special Exclusions in CP 10 10 and CP 10 30 are identical.

C. Additional Coverage

CP 10 10 includes only one additional coverage. Limited Coverage For Fungus, Wet Rot, Dry Rot and Bacteria is provided in the same manner as in CP 10 30.

Note: CP 10 10 itself does not cover collapse.

D. Limitations

CP 10 30 has a number of limitations but CP 10 10 has only one. That limitation states that the only payment for loss of animals is for those that are killed or that must be destroyed. This is the same limitation as found in CP 10 30.

E. Definitions

Fungus is the only defined term and its definition is identical to the definition in CP 10 30.

CP 10 20–CAUSES OF LOSS–BROAD FORM

CP 10 20–Causes of Loss–Broad Form covers 14 causes of loss. These causes are also covered in CP 10 30 but are not specifically listed.

A. Covered Causes of Loss

CP 10 20 provides more coverage than CP 10 10 but is still more limited than CP 10 30 because it also lists only the covered causes of loss. It includes 14 covered causes of loss compared to the 11 in CP 10 10. The first 11 in CP 10 20 are the same as the first 11 in CP 10 10. The additional three covered causes of loss are:

• 12. Falling Objects but coverage on personal property applies only to property in the building and not to property in the open. However, coverage does not apply until and unless the falling object damages an outside wall or the roof of the building.

Example: A falling object strikes a covered warehouse and the impact causes a lamp to fall off a table. The insured files a claim for the loss. The adjuster denies the loss after noticing that the object, an old tree limb, did not cause any damage to the warehouse.

• 13. Weight of Snow, Ice or Sleet causing damage is covered unless the personal property damaged is outside a covered building. Before this change, coverage to damaged gutters or downspouts was also excluded.
• 14. Water Damage consisting of accidental discharge of water or steam due to a breaking apart or cracking of plumbing, air conditioning, heating or other system or appliance is covered. This is subject to certain conditions that are identical to those in CP 10 30.

B. Exclusions

This section is virtually identical to the same section in CP 10 10. The only difference is that the rupture or bursting of water pipes exclusion and any leakage or discharge is covered in CP 10 20.

C. Additional Coverage–Collapse

This coverage is similar to the coverage provided in CP 10 30. The only difference is that CP 10 30 indicates that the specified causes of loss apply while CP 10 20 lists the covered causes of loss that apply.

D. Additional Coverage–Limited Coverage For Fungus, Wet Rot, Dry Rot and Bacteria

This coverage is similar to that provided in CP 10 30. The only difference is that the causes of loss are listed in CP 10 20 instead of the reference to the specified causes of loss in CP 10 30.

E. Limitation

The limitation section of the CP 10 20 is identical to the CP 10 10.

F. Definitions

Fungus is the only defined term and its definition is identical to the definition in both CP 10 10 and CP 10 30.

CONCLUSION

CP 10 30 is the broadest of the three forms and should be viewed as the first choice for most insureds. However, at times an alternative must be chosen. A good understanding of all three forms allows the agent to provide sound advice to the insured that enables it to make the right selection for it.

BASIC, BROAD, AND SPECIAL CAUSES OF LOSS FORMS ANALYSIS (06 07 EDITION)

Index

CP 10 30–Causes of Loss–Special Form

A. Covered Causes of Loss

B. Exclusions

1. Broad Exclusions

2. Limited Exclusions

3. Anti-concurrent Causation Exclusions

4. Special Exclusions

5. Additional Exclusion

C. Limitations

D. Additional Coverage–Collapse

E. Additional Coverage–Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria

F. Additional Coverage Extension

G. Definitions

Compare: CP 10 30 to CP 10 10

Compare: CP 10 30 to CP 10 20

INTRODUCTION

The Insurance Services Office (ISO) Commercial Property Program Causes of Loss Forms are designed to complete the coverage that the coverage form provides. The separate causes of loss forms allow the insured to customize its coverage. After selecting the appropriate coverage, the insured then selects a causes of loss form for each insured property. This gives it maximum flexibility to arrange its insurance coverage.

The Causes of Loss Forms answer the question, "What must happen in order for coverage to apply?" The more causes of loss provided, the more expensive the policy. The three Causes of Loss forms are:

• CP 10 10–Causes Of Loss–Basic Form
• CP 10 20–Causes Of Loss–Broad Form
• CP 10 30–Causes Of Loss–Special Form

The form used most often is CP 10 30–Causes of Loss–Special Form. For this reason, this analysis builds on this form. The other two forms are analyzed at the end of this section, with emphasis on how they differ from CP 10 30.

Note: This analysis is based on the 06 07 edition of each form. Changes from the previous edition are in bold print.

CP 10 30–CAUSES OF LOSS–SPECIAL FORM

A. COVERED CAUSES OF LOSS

The declarations must list a causes of loss form for each item of covered property. If it is CP 10 30–Causes of Loss–Special Form, coverage applies based on risks of direct physical loss or damage. The coverage this form provides is extremely broad because any physical event that causes loss or damage to covered property is covered (unless modified elsewhere in the coverage form).

B. EXCLUSIONS

The form has three categories of exclusions. Each has multiple subparts.

Editorial note: ISO does not give titles to these exclusions. To assist in the analysis, we have included the title given to help identify the main intent of the exclusion.

1. Broad Exclusions

The causes of loss in this exclusion do not apply to loss or damage caused directly, indirectly, or in any sequence in a chain of events that contribute to the loss. Exceptions to the chain of events condition are stated in the specific exclusion subpart. The lead wording emphasizes that coverage for any event analyzed in these exclusions does not apply even if the event is widespread.

a. Ordinance or Law

Local governments develop ordinances and laws that relate to construction, remodeling, and repair of buildings. Most are not retroactive. As a result, existing buildings are grandfathered out of the ordinance until they must undergo renovations or repairs. When a substantial loss occurs (and rebuilding, remodeling, or repair is necessary), the grandfathered laws activate and come into play. This exclusion states that the coverage form does not apply to any costs associated with meeting such laws and ordinances.

This exclusion also states that coverage does not apply to the expense to remove undamaged portions of the building or to rebuild them. There is also no coverage for the additional cost to rebuild at a different location because ordinances or laws do not permit the building to be rebuilt at the existing location. Finally, it does not pay remodeling costs needed to bring the building up to current standards.

Example: Harvey’s Hogs started business operations in 1930. It was located on the family farm 15 miles from Little Town. Over the years, both Little Town and Harvey’s Hogs grew. As new subdivisions sprouted, the town limits expanded and new city ordinances were enacted. One prohibited livestock and other farm animals inside the city limits.

Over Harvey’s objection, the land area where Harvey’s hatchery was located was incorporated into the city. Harvey’s continued to operate as it did in the past and tried to be a good neighbor but hogs were an unpleasant intrusion on city life.

The farm sustained a significant covered loss that destroyed 60% of the building. Harvey was ready to start building but the city inspector informed him that he could not rebuild at the present location.

Because of this exclusion Harvey recovers only 60% of the loss. He must cover the cost to demolish the 40% undamaged portion of the building and also pay 40% of the cost to rebuild at the new location.

Note: The 06 07 edition changed the wording slightly without any intent to change coverage. However, the outlining method is unconventional and could lead to disputes.

b. Earth Movement consists of five separate components:

(1) Earthquake includes any sinking, rising, or shifting of the earth directly related to the earthquake.

(2) Landslide includes any sinking, rising, or shifting of the earth directly related to the landslide.

(3) Mine Subsidence is a specific problem in the Midwest. This exclusion applies to only man-made mines and applies whether the mine is operating or not. Mine subsidence coverage is an option that may be purchased separately. In some states, mine subsidence coverage must be offered in certain counties. If coverage applies to property located in Illinois, Indiana, Kentucky, Pennsylvania, or West Virginia, the laws in those states should be reviewed carefully to determine the way to handle this exposure.

(4) Sinkhole Collapse is covered but all other sinking, rising, shifting, eroding, contracting, or expanding of the earth is excluded. Loss or damage caused by (or that results from) water movement beneath the ground and poor soil conditions is also excluded.

However, if any of the events described above cause or result in a fire or explosion, the insurance company pays for the ensuing loss or damage caused by the fire or explosion.

Example: An earthquake rocks Bardsville. While the buildings are virtually undamaged, the rigid gas lines break. A spark causes the escaping gas to explode and the explosion results in Sam’s Hardware building burning to the ground, despite heroic efforts by the fire department to respond. This loss is covered because it results from a fire, even though the fire was a direct result of an earthquake.

(5) Volcanic eruption is not covered unless fire, breakage of building glass, or volcanic action ensues. Volcanic action includes airborne blasts and shockwaves, dust, ash, and particulate material the volcano emits, as well as lava flow. The costs to remove dust, ash, and particulate matter is not covered unless there is direct damage to the covered property.

Note: Volcanic eruptions are unpredictable, cause widespread damage, and usually occur over a period of days. An eruption that takes place over a period of 168 consecutive hours is treated as one occurrence. This is very important to an insured that has a substantial deductible for this coverage. Instead of a number of deductibles applying to multiple events, only one deductible applies to each 168-hour period. On the other hand, this also means that only one limit is available for all losses that occur within that same time period.

Example: Prime Real Estate Management owns two commercial strip centers and insures the buildings for a blanket limit of $6,000,000 on an agreed value basis. A volcano erupts nearby and lava flow destroys one center and a fire caused by flaming debris destroys the other. Each has a value of $6,000,000. Since both losses are caused by the same occurrence, Prime receives only $6,000,000 instead of $12,000,000.

c. Government Action

Coverage does not apply if the government seizes or destroys property. However, coverage does apply if the action it took was to prevent the spread of fire.

Note: Coverage applies only if the policy covers the fire the government is trying to stop.

Example: An anarchist group declares its secession from the United States and establishes a separate country within the state of Indiana known as "Free To Live." The group is armed and takes over a small community by force. Since one of its tactics is to set fires, the government has no choice but to burn other structures in order to establish a fire stop. There is no coverage in this case since the government action was taken to thwart a military action.

d. Nuclear Hazard

There is no coverage for loss or damage for anything related to nuclear hazards. Reactions, radiation, and contamination are not covered. However, if a fire ensues, the loss or damage that fire causes is covered.

e. Utility Services (06 07 changes)

Loss or damage due to utility failure is not covered if the failure begins away from the described premises. When the failure begins on the insured premises, there is still no coverage if the source of the failure is equipment that supplies off premises utility service to the described premises. Utility failure is loss of power, water, communications, and other utility services. It also includes lack of capacity and reduction in supply.

The 06 07 edition of this coverage form does not cover Utility Services loss due to damage to equipment the utility owns that is on the named insured’s premises.

Communication services include Internet, cellular, satellite, and other access services. Power surge that occurs because of the power failure is not covered. If power failure or surge results in a covered cause of loss, coverage applies to the damage caused by that covered cause of loss.

Example: A fire occurs at the electric power plant and causes a blackout. Fred's Fine Food loses refrigeration and the food spoils. When looters discover that Fred's alarm system is not working, they break in and steal food items. The spoiled food is not covered. The loss due to theft is covered.

Note: This exclusion did not apply to business income and extra expense coverages in prior editions. It now applies to all coverage forms and the business income and extra expense special exclusion is eliminated.

Example: A windstorm rips the satellite dish and its connecting lines from the hotel's roof. A number of scheduled meetings are cancelled because teleconferencing is not available. There is no coverage for the resulting loss of income from the cancelled meetings or extra expenses incurred.

f. War and Military Action

This exclusion lists three specific warlike activities.

• War. This can be a declared, an undeclared, or a civil war.
• Military force of a warlike nature. These activities must utilize military personnel or agents of a government or other type of authority. The actions taken to thwart any of these activities are also considered war.
• Insurrection, rebellion, revolution, and attempts to usurp power. Any government action taken to respond to such actions is also considered war.

Note: The words "terrorism" or "terrorist" do not appear in this exclusion.

g. Water

Loss or damage caused by the action of water outside the building is excluded. To further clarify this exclusion, it is broken down into four separate components. Each defines exactly what water means.

(1) Flood is not covered. Flood is surface water, tides, and tidal waves. Overflow of any body of water is also excluded. A body of water is a natural or man-made river, creek, ocean, or lake. Spray from the water and wind-driven water is also not covered.

(2) Mudslide and mudflow occurs when a sudden large volume of water mixes with unstable soil conditions and is not covered.

(3) Sewers, drains, and sumps can be overwhelmed by the volume of water that comes into them and begin to back up or overflow. The loss or damage due to or that results from such back up or overflow is not covered.

(4) Water saturated ground can create hydrostatic pressure against a building's surface or subsurface portions. Loss or damage caused by or that results from such water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows, and other building openings is not covered.

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

Important Note: This exclusion is replaced by mandatory endorsement CP 10 32–Water Exclusion Endorsement beginning in January 2009 (or as approved for use by state insurance departments and adopted by insurance companies).

h. Fungus, Wet Rot, Dry Rot and Bacteria

Loss or damage caused by or that results from the existence or any activity of fungus, mold, rot, bacteria, and other similar growing organisms is not covered. However, if the existence of one of them causes a specified cause of loss to occur, coverage applies to the loss or damage caused by the specified cause of loss.

This exclusion does not apply if the fungus, mold, rot, bacteria, or similar organisms result from a fire or lightning loss. It also does not apply to coverage that Additional Coverage–Limited Coverage For Fungus, Wet Rot, Dry Rot, and Bacteria provides.

Examples:

• Scenario 1: Millicent has a fire at her store. She notices an odor three weeks later and discovers that mold behind ceiling tiles is destroying them. The tiles must be destroyed and the area disinfected. Investigation reveals it was the result of the fire-fighting actions three weeks earlier. This loss is covered because the fire caused it.
• Scenario 2: Millicent purchases a store but does not notice an unusual odor until about six months later. She hires a contractor who discovers that mold behind ceiling tiles is destroying them. The tiles must be destroyed and the area disinfected. The claim is denied because the cause of the mold is unknown.

2. Limited Exclusions

There is no coverage for loss or damage caused by the following exclusions. Note that the lead language is not as strong or inclusive for these exclusions as the language in 1. Broad Exclusions.

Editorial note: ISO does not give titles to these exclusions. To assist in the analysis, we have included a title to help identify the main intent of the exclusion.

a. Artificially Generated Energy (06 07 changes)

Coverage does not apply if electrical, magnetic, or electromagnetic energy generated artificially causes damage, interferes with, disturbs, or disrupts:

• Networks, devices, systems, wires, or appliances of an electrical or electronic nature
• Cellular or satellite devices, appliances, systems, or networks

Examples of artificially generated energy include electrical current, charges a magnetic field produces, electromagnetic, and microwaves, among others, but this listing is not inclusive. However, loss or damage caused by a fire that results is covered.

Note: Open-ended exclusions like this have been largely ineffective when courts interpret them. The courts maintain that it is the insurance company's responsibility to be precise in its language since it authors the form.

b. Delay, Loss of Use or Loss of Market

Delay, loss of use, and loss of market are all consequential losses that may occur following a direct damage loss. None are covered.

c. Agricultural Smudging and Industrial Operations

Agricultural smudging operations produce significant amounts of smoke in order to protect crops from freezing. Loss or damage it causes is excluded. Loss or damage from industrial produced smoke, vapor, or gas is also excluded.

Example: A freeze warning is in effect, so Lenny sets out his smudge pots to protect his orange grove. A strong wind blows the smoke into the restaurant Lenny operates for tourists. The damage from the smoke is not covered.

d. Miscellaneous Losses

This exclusion has seven subparts. Most of the causes of loss listed should be viewed simply as costs associated with doing business and not as losses.

(1) Wear and tear is simply loss caused by aging and everyday use and is not covered.

Note: Wear and tear is damage, diminishment in value, or erosion due to long or hard use or exposure, including breakdown over time, and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

(2) There is no coverage for rust, fungus, and other hidden or latent defects. This includes any feature of the property that causes it to destroy itself.

(3) Damage caused by smog is not covered.

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

(4) All buildings (and some personal property) may shrink, expand, crack, or settle. This is normal and should be expected. Accommodations for them should be made in building construction and design and with respect to storage of personal property. Losses from these causes are not covered because these are costs of doing business.

(5) Insects, birds, rodents, and other animals may cause considerable damage to buildings and the sudden damage they cause is covered. However, their long-term presence (as evidenced by nesting, infestation, and waste products or secretions) is a building maintenance issue and is not covered.

Example: Perry notices an unusual shimmering substance on the side of the church. He touches the amber liquid and realizes it is honey. He notices the amount increases almost daily and notifies the trustees. They bring in a contractor who investigates and finds a beehive in one of the walls of the church. The contractor brings in a beekeeper to remove the bees. The beekeeper removes part of the interior wall to remove the hive, repairs the damaged wood, and seals the entry. None of this is a covered loss because everything results from an insect infestation.

(6) Machines regularly break down because of use. This is an anticipated cost of doing business that should be prevented with regular scheduled maintenance. As a result, mechanical breakdown is not covered. Rupture and bursting caused by centrifugal force is considered mechanical breakdown and is also excluded. The exception to this exclusion is that coverage does apply to the damage caused if the mechanical breakdown results in elevator collision. Elevator collision covers both the elevator and damage to the shaft and other property the elevator damages.

(7) Exclusions (1) through (6) above apply primarily to buildings. This exclusion applies to Business Personal Property. Coverage does not apply to loss or damage caused by or that results from atmospheric dampness or dryness, temperature extremes, any changes in temperature, or from scratching or marring. These causes of loss are not covered because the insured should expect and anticipate these causes of property damage.

If any of the causes of loss in (1) through (7) above results in either a specified cause of loss or breakage of building glass, the loss or damage the specified cause of loss or glass breakage causes is covered.

Example: Susie's Fancy Finery is a tenant on the first floor of a three-story building. The upper floors are sealed off and not used. Unknown to the building’s owner or Susie, birds nest in the attic and also find their way into the chimney. The chimney's opening at the top leads directly into Susie's shop. One day nearly a dozen birds enter the shop, panic and careen into objects and windows in their attempt to escape. The birds crack and break the windows before escaping. Coverage does not apply to the damage caused by the infestation but does apply to the broken glass.

e. Explosion of Owned or Operated Steam Boilers

This exclusion applies to only explosions of steam boilers, pipes, engines, or turbines the named insured owns, leases, or operates. This means that most building tenants are not subject to this exclusion.

There are two exceptions:

• If the explosion causes a fire or combustion explosion, the resulting damage is covered.
• If gases or fuel within the furnace, flues, or combustible gas passage explode, the resulting damage is covered.

f. Continuous Water Seepage

Loss or damage due to water that leaks or seeps over a period of 14 days or more (including any humidity, moisture, or vapor that is present) is not covered. This means that water that leaks internally is covered unless allowed to run unchecked and unnoticed for more than 14 days.

g. Freezing Liquids

There is no coverage for loss or damage caused by or that results from water that flows from plumbing, heating, or other equipment because of freezing. This exclusion also applies if other liquids, powder, or molten material flow for the same reason. However, this exclusion does not apply if any of the following apply:

• The other equipment is a fire protective system.
• The named insured maintains heat in the building or structure.
• The named insured drains the equipment and shuts off the source of supply when heat is not maintained.

Note: This exclusion requires that the insured address maintenance issues that are not the responsibility of insurance. The insurance company has the right to expect the insured to act responsibly towards its property even if insurance coverage does apply.

h. Internal Dishonest Acts

Coverage does not apply to dishonest or criminal acts by the named insured, partners, members of a limited liability company (LLC), officers of a corporation, managers, employees, or anyone else entrusted with property. This exclusion applies whether these parties act alone, in collusion with others, during business hours, or after hours. Coverage applies if employees (including leased employees) destroy property. However, this exception does not extend to theft.

Example: Sheila and Fred are long time employees of Frankel Egg Farm but decide they've had enough of the company. They steal the payroll, burn down the plant to conceal their tracks, and are captured three days later. The fire loss is covered but the theft of payroll is not covered.

Note: The theft loss could be covered under employee dishonesty coverage.

i. Voluntary Parting

There is no coverage if the insured (or someone the insured entrusts property to) is tricked or deceived into giving property away.

Example: Great Cameras, Inc. ordered a number of lenses from Linda’s company. Linda was preparing to ship the product when Joe appeared and explained that Great Cameras needed the lenses immediately so had driven from company headquarters to personally pick them up. Five days later, Great Cameras, Inc. inquired about the lenses because they had never heard of Joe and had not received their lenses. Linda mailed the requested lenses and submitted a claim to her carrier for the lenses Joe had stolen. The claim was denied because Linda had voluntarily given Joe the lenses.

j. Rain, Snow, Ice or Sleet

Personal property in the open is covered personal property but there is a significant coverage limitation because it is in the open. There is no coverage for loss of damage caused by rain, snow, ice or sleet.

k. Collapse (06 07 change)

Collapse is initially totally excluded but limited coverage is added back in Section D. as Additional Coverage–Collapse. The 06 07 edition better defines exactly what collapse is excluded.

Collapse is excluded. This means the following property conditions are also excluded:

(1) Any type of sudden caving in or falling down

(2) When the structural integrity of the building is lost or compromised. The evidence of this could be parts of the property separating from the rest of the building or the building appearing to be in danger of caving in or falling down.

(3) Cracking, sagging, expansion, settling, shrinking, bulging, or bending, but only as they relate to items (1) and (2) above

This exclusion has three exceptions.

• Loss or damage caused by a covered cause of loss is covered if that covered cause of loss results from a collapse that is excluded.
• Loss or damage caused by coverage provided in Section D., Additional Coverage–Collapse is covered.
• Collapse caused by specified causes of loss, building glass breaking, weight of rain on a roof, or weight of people or personal property is covered.

l. Pollutant Damage

Loss or damage due to any defined pollutant is not covered unless a specified cause of loss causes its release. In addition, if pollutant damage results in a specified cause of loss occurring, coverage applies for the loss or damage caused by the specified cause of loss. However, coverage does not apply to pollutant damage leading up to a specified cause of loss occurring. Loss or damage to glass caused by chemicals applied to glass is an exception to this exclusion and is covered.

Example: A strong windstorm rips the doors and windows from an outbuilding at Mayfield, Inc. It causes the adhesives and solvents to be scattered around the building compound. The adhesives cling to the buildings while the solvents caused indentations on the entire stucco exterior. Even though this is a pollution loss, there is coverage because wind (a specified peril) caused the damage to occur.

While waiting for the outbuilding to be rebuilt, Mayfield receives a new shipment of adhesives. The shipment is stored in the main building but is placed too close to a heat source. The vapor from the adhesives ignites and causes a fire. Coverage applies to this loss because the pollutant resulted in a covered cause of loss.

m. Neglect

There is no coverage if an insured does not use all reasonable means to save and preserve property from further damage during and after the time of loss.

Example: The Mayfield family is exhausted after the two losses described above and decides to just walk away and take a week’s vacation. Thieves notice the unlocked doors and unattended supplies. Coverage does not apply to the theft loss of the supplies because the Mayfields failed to preserve property.

3. Anti-Concurrent Causation Exclusions

The subparts of this exclusion are sometimes referred to as the anti-concurrent causation exclusions. These exclusions are unique in that, if a loss is covered as a covered cause of loss, with the exception of these exclusions, it is still covered. On the other hand, if the loss would have been excluded anyway, it is still excluded. The three subparts of this exclusion are:

a. Weather Conditions

Loss or damage due to weather conditions is excluded but only when the loss is caused by a weather condition combined with a cause of loss excluded in exclusion 1.

Example: Heavy rains cause creeks to rise well above flood stage. The subsequent flooding damages businesses. While the proximate cause of loss is a condition of the weather, the weather exclusion applies and the flooding damage is not covered (because flood is excluded under exclusion 1).

b. Acts or Decisions

Governmental entities and related groups make decisions and take actions that not only affect others but may also cause loss or damage. Loss or damage that results from such acts or decisions is excluded.

Example: The dams along the river are getting old but the U.S. Army Corps of Engineers decides it is too expensive to replace them. Heavy spring rains cause the dams to fail and many homes and businesses are flooded. Melanie’s Hosiery submits a claim for the damage and is rejected because of the flood exclusion. She then resubmits the claim on the basis that the Corps made a faulty decision in not replacing dams. This claim is also rejected.

c. Design Flaws

Loss or damage due to faulty, inadequate, or defective planning, design, materials, and maintenance is excluded. An important provision is that it applies both on and away from the designated premises.

Example: Mainline Construction Company prepares the land for an industrial park. Severe drought, followed by drenching rains, causes the newly constructed buildings to shift and slide down the slope. It is later determined that the ground preparation was inappropriate for the slope involved. This loss is not covered because landslide is not a covered cause of loss (although it could be argued that the design flaw was the proximate cause of loss).

4. Special Exclusions

These three exclusions apply only to Business Income, Leasehold Interest, and Legal Liability.

a. The following additional exclusions apply to the Business Income (And Extra Expense) Coverage Form, Business Income (Without Extra Expense) Coverage Form, and Extra Expense Coverage Form:

Note: The utility service exclusion [previously item (1)] is removed. The utility service exclusion 1.e. is rewritten so that it applies to both direct damage and time element. This means a separate exclusion is no longer needed (06 07 change).

(1) Loss due to damage to finished stock (or the amount of time needed to replace finished stock) is not covered.

Note: Since this incident is time-related, it does not apply to Extra Expense.

(2) There is no coverage for any loss that results from physical loss or damage to radio or television antennas (including satellite dishes).

(3) Coverage does not apply to any increase of loss due to:

· Interference by strikers or others that delays rebuilding (but only for such actions at the actual building site)

· Suspension, lapse, or cancellation of a license, lease, or contract. However, if the lapse or cancellation is a result of the loss, coverage applies during the period of restoration and any extended coverage.

Example: Rudy's Bar has a fire and is being rebuilt. During the fire investigation, the police discover some irregularities that cast a shadow on Rudy’s reputation. The liquor board suspends Rudy’s liquor license until it completes its investigation and conducts a full hearing on the matter. The fire repairs are complete but Rudy cannot reopen without the liquor license. The period of restoration ends when the building is complete, even though Rudy is still unable to re-open due to his suspended license.

(4) Extra Expense coverage does not extend beyond the period of restoration when a license, lease, or contract is suspended, lapsed, or cancelled.

(5) Any consequential loss is not covered.

Note: Since Business Income and Extra Expense coverage are both consequential losses, it might be more appropriate to say that all other consequential loss is not covered.

b. Leasehold Interest Coverage Form

The causes of loss form changes in two ways when Leasehold Interest Coverage is provided.

(1) The Ordinance or Law exclusion B. 1. a. does not apply.

(2) There is no coverage for loss that results if the named insured cancels a lease; has a license suspended, lapsed, or cancelled, or any consequential loss.

c. Legal Liability Coverage Form

The Legal Liability coverage form is more of a liability coverage form than a property coverage form. As a result, there are a number of changes to the causes of loss form.

(1) Five exclusions are removed and do not apply. They are exclusions 1.a. Ordinance or Law, 1.c. Governmental Action, 1.d. Nuclear Hazard, 1.e. Utility Services and 1.f. War and Military Action.

(2) Two liability-related exclusions are added:

· Contractual Liability

There is no coverage for liability the named insured assumes under a contract. The only exception is a lease agreement where it assumes liability for building damage due to attempted break-in. This agreement must be made prior to any accident and the coverage form must apply to the building in question.

· Nuclear Hazard

There is no coverage for suits brought due to any damages or expenses that relate to nuclear reaction, radiation, or contamination.

5. Additional Exclusion (06 07 addition)

A new exclusion applies to only merchandise, goods, or other products. It is added to exclude loss or damage to such property because of an error or omission in production.

Loss or Damage to Products

There is no coverage for loss or damage to merchandise, goods, or other products caused by any party's error or omission. These errors or omissions are excluded beginning with planning or testing through repair and maintenance. This exclusion also applies to errors or omission made at locations where work is outsourced. It applies to any compromising of the product in form, substance, or quality.

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

Example: Maybell designs jewelry and contracts with an Asian manufacturer to produce jewelry based on Maybell’s designs and manufacturing specifications. The first shipment that arrives is tested and the results indicate an unacceptable amount of lead. Maybell cannot sell the product in the United States and the Asian manufacturer does not return phone calls. Maybell presents a claim to the insurance company because the items are useless to them. The company denies this claim because of this exclusion (and others).

C. LIMITATIONS

Now that what is covered and what is excluded has been analyzed, four coverage limitations must be reviewed. Each of the four has multiple subparts.

1. Broad Limitation

Loss or damage to any property described and limited in this section is excluded. Losses that are a consequence of loss to such property are also excluded.

a. Steam Boilers, Steam Pipes, Steam Engines or Steam Turbines

There is no coverage if a loss is caused by or results from a condition or an event that occurs inside covered steam boilers, steam pipes, steam engines, or steam turbines. However, coverage does apply if gases or fuel inside the furnace or within a flue or other passage explode and cause the loss or damage.

b. Water Heating Devices

Water-heating devices (including hot water boilers) are not covered if a condition or event within them causes the loss. However, coverage does apply if an explosion causes the loss.

c. Interior of Any Building and Personal Property

The interior of a building (and personal property inside it) is not covered for damage that rain, snow, sleet, ice, sand, or dust causes. However, there are two exceptions. Coverage applies:

• If the roof or walls of the building are first damaged by a covered cause of loss that allows the rain, snow, sleet, ice, sand, or dust to enter
• If snow, sleet, or ice on the building thaws and then causes the loss

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

Example:

Scenario 1: Pamela awakens to drops of water on her nose. She looks up and notices water dripping from her ceiling. She contacts the apartment manager who discovers that ice under the snow on the roof has thawed and is flowing through the roof into Pamela’s bedroom. The apartment's policy covers the damage to the ceiling and floor coverings because of the exception to this limitation.

Scenario 2: Pamela steps onto to her carpeting and notices that her feet are very wet. She awakens quickly when she realizes that she left her window slightly opened, that snow had entered through the window, and that it melted on the windowsill and floor. There is no coverage for any damage caused in this case.

d. Building Materials Awaiting Installation In A Building

Building materials awaiting installation (and not yet attached to the building) are not covered when the loss is due to theft. This limitation does not apply if the building materials are being held for sale (unless the material is covered under CP 00 20–Builders Risk Coverage Form). This means that this limitation applies without exception under
CP 00 20. This limitation does not apply to the business income coverage forms or the extra expense coverage form.

e. Inventory Shortage

Any missing property loss that can be proven only because an inventory revealed a shortage is excluded. This is because it really means there is no actual knowledge that something was taken. The loss could be due to a mathematical or computation error, employee theft, or a break-in. There is no coverage if there is nothing to physically suggest what actually happened.

f. Unauthorized Instructions

Coverage does not apply if a loss occurs because property was given to another person (or sent to another place) based solely on unauthorized instructions.

2. Coverage Limited to Specified Causes of Loss

The insurance company does not pay for loss or damage to any of the following property unless caused by a specified cause of loss or breakage of building glass:

a. Animals

This item has a limitation within a limitation. In addition to being covered only if the loss is caused by specified perils or glass breakage, coverage applies only if the animal dies or must be destroyed. This means that veterinarian bills or expenses incurred to save the animal are not covered.

b. This limitation applies to fragile objects only if they are broken. Statuary, marbles, chinaware, and porcelains are examples of such fragile items. Glass and items that contain property for sale are not subject to this limitation.

c. Builders’ machinery, tools, and equipment that the named insured owns (or has entrusted to it) that qualifies as covered property is subject to this limitation. However, the same property located on or within 100 feet of the described premises is covered without being subject to this limitation (unless the items CP 00 20–Builders Risk Coverage Form covers the property). This means that this limitation applies without exception under CP 00 20.

Note: This limitation does not apply to the business income coverage forms or the extra expense coverage forms.

3. Limited Theft Coverage for Specific Types of Property

The following categories have special limitations that apply to only theft losses. These are per occurrence sub-limits that do not increase the limit of insurance available to cover a loss:

• Furs, fur garments, and fur-trimmed garments are subject to a $2,500 limit.
• Jewelry, watches, watch movements, jewels, pearls, gold, and similar items are subject to a $2,500 limit. This limitation does not apply to items of jewelry or watches that are valued at less than $100 each.

• Patterns, dies, molds, and forms are subject to a $2,500 limit.

• Stamps, tickets, letters of credit, and lottery tickets held for sale are subject to a $250 limit.

These limitations do not apply to either of the business income or extra expense coverage forms.

Note: Coverage applies for all other causes of loss, subject to the standard exclusions and the limit of insurance on the declarations.

Example: Pitta Pat clothing store has a $75,000 business personal property limit. A break-in occurs at the store. A number of items are stolen. However, the thieves destroyed many others as they vandalized the store. The loss was as follows:

• $50,000 clothing stolen or destroyed
• $25,000 fixtures destroyed
• $5,000 fine jewelry stolen
• $1,000 costume jewelry (under $100 per item) stolen
• $10,000 fur-trimmed garments stolen

Pitta Pat submits a claim and requests $75,000 for the clothing and fixtures, $2,500 for the fine jewelry, and $2,500 for the fur-trimmed garments that were stolen.

Her loss settlement is not for more than $75,000 because that is the policy's limit of insurance. The theft limitations are only sub-limits within the policy limit.

4. Defect in Systems or Appliances

There is no coverage for the cost to repair a defect in a system or appliance from which water, other liquids, powder, or molten material escapes. However, fire-extinguishing systems are covered if the damage results in a discharge from the automatic protection system or if the damage is caused directly by freezing. This limitation does not apply to either of the business income or extra expense coverage forms.

D. ADDITIONAL COVERAGE–COLLAPSE

This additional coverage is completely rewritten in the 06 07 edition. The language and coverage intent has not changed but the explanations are clearer.

This additional coverage is necessary because collapse is specifically excluded elsewhere in the coverage form. Policies and coverage forms once provided collapse coverage. However, broad legal interpretations forced rewriting collapse coverage as a named cause of loss.

1. Collapse coverage applies to abrupt collapse. As used in this coverage, abrupt collapse means that the building (or part of the building) first abruptly falls down or caves in. As a result of such falling down or caving in, the building (or part of the building) cannot be occupied for its intended purpose.

2. Payment for such abrupt collapse as described in item 1. is for only direct physical damage to the collapsed building (or business personal property inside the building). However, payment is made only if any of the following cause the collapse:

a. Hidden decay (as long as the insured was not aware of the hidden decay prior to the collapse)

b. Hidden insect or vermin damage (but only if the insured was not aware of the hidden insect or vermin damage prior to the collapse)

c. Defective construction material or construction methods (but only if the collapse occurs while a building is being built, remodeled, or renovated)

d. Defective construction material or construction methods (but only If the collapse occurs after a building is being built, remodeled, or renovated, provided that one of the following contributed to the collapse):

· Items a. or b. of this paragraph

· Specified cause of loss

· Glass breakage

· Weight of people or personal property

· Weight of rain that collects on a roof

3. There is no coverage for any of the following:

• A building (or any part of a building) in danger of falling down or caving in
• A part of a building that remains standing (even if it has separated from another part of the building)
• A building (or part of a building) that is standing but shows evidence that it may collapse due to bulging, sagging, cracking, bending, leaning, settling, shrinking, or expanding

Example: The Good Shepherd Church was built 90 years ago in a small rural area next to the main road. It is now in the suburbs of a town along a major highway. The church never moved but the town grew out to it. During choir practice one evening, a few tiles in the sanctuary ceiling loosened and fell. The next day, a building inspector called to evaluate the situation condemned the building. Over the years, the building shifted on its foundation and is now in imminent danger of collapse. Collapse coverage does not apply to this situation.

4. The following property is covered only if it is considered covered property, the loss or damage is due to the collapse of a covered building, and items 2.a through 2d above cause the collapse:

• Outdoor radio or television antennas
• Awnings, gutters, and downspouts
• Yard fixtures
• Outdoor swimming pools
• Fences
• Pier, wharves, and docks
• Beach or diving platforms or appurtenances
• Retaining walls
• Roadways, walks, and paved surfaces

5. There is coverage if personal property abruptly falls down (but the building it is situated in does not) if all of the following apply:

• The collapse was due to a cause of loss listed in 2.a through 2.d above.
• The personal property that collapsed is in a building.
• The personal property is not one of the types listed in 4. above.

Coverage does not apply if the only damage to the personal property is marring or scratching.

6. Any cracking, bulging, sagging, leaning, settling, expanding, or shrinking of personal property is not treated as collapse. The personal property must either abruptly fall down or cave in to be covered.

7. This additional coverage does not increase the coverage part limit of insurance.

8. Whenever the term "covered cause of loss" is used throughout this coverage form, this Additional Coverage–Collapse is included, subject to the description and limitations this additional coverage provides.

E. ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT AND BACTERIA

Collapse was removed as a covered cause of loss and then added back in as an additional coverage many years ago. Similarly (and for the same reasons), fungus coverage was removed as a covered cause of loss and is added back as a specified cause of loss coverage. Although the method is similar, the coverage provided is very different.

1. Coverage applies only if the fungus, wet rot, dry rot, or bacteria result from a specified cause of loss or flood (if flood coverage is provided). Because fire and lightning losses are excepted from exclusion 1.h. Fungus, Wet Rot, Dry Rot and Bacteria, losses that result from them are excluded under this Additional Coverage.

This coverage also applies only if the insured takes all reasonable steps to prevent further damage to property during or following a loss.

Example: Smoke filled a small store and the employees took all of the personal property outside to avoid smoke damage to it. The employees left work at quitting time but did not put the personal property back in the store. The next morning, they picked up the property and placed it back in the store without inspecting it. Mold and mildew were found on most of the items a week later because they were exposed to moisture during the night. A claim was filed and subsequently denied because the employees did not take reasonable care to protect the property from further damage, even though the mold was the result of a smoke loss.

2. Loss or damage includes more than the direct damage to the property by the fungus, wet rot, dry rot, or bacteria. It also includes removing them. The cost to tear out and replace walls and other parts of the building in order to get to the problem is covered. Any necessary testing to verify that the property is clean and the situation mitigated is also covered.

3. The limit of insurance for this coverage is not per occurrence. It is $15,000 per policy year. This means that the limit for the policy year is $15,000, regardless of the number of locations and occurrences. There is no additional limit available once the limit is exhausted. If the condition continues over multiple policy years, the limit available in the policy year when the loss occurred that caused the fungus, wet rot, dry rot, or bacteria is the only limit that applies.

Note: CP 04 31–Changes–Fungus, Wet Rot, Dry Rot and Bacteria endorsement is available to increase the limit and also provide coverage per location.

Example: Max’s Jewelers has 15 retail locations. A covered mold loss occurs at store number five and the total claim paid amounts to $13,000. A month later, a mildew loss occurs at store number 10. The total amount claimed is $9,000 but only $2,000 is paid because that is the amount remaining of the aggregate amount for the policy period.

4. The $15,000 limit is a sub-limit. It does not increase the limit of insurance.

Example: A windstorm caused $100,000 in direct damage to George’s Card Shop. George noticed mildew on some of his property a month after the loss and filed a separate claim. There are no limits available to pay for the mildew loss because paying the windstorm claim exhausted George’s $100,000 limit of insurance.

5. This Additional Coverage does not affect the coverage available under Additional Coverage Extension–Water Damage, Other Liquids, Powder or Molten Material Damage or under Additional Coverage–Collapse.

6. If business income and/or extra expense coverage is provided, this extension provides coverage in two different situations.

• If the specified cause of loss direct damage loss does not result in a business income or extra expense loss (but the fungus, wet rot, dry rot, and bacteria loss does), coverage applies for 30 days.
• In addition, if the specified cause of loss direct damage loss results in a business income or extra expense loss, this extension provides 30 additional days of coverage for the delays or extension of the down time due to the fungus, wet rot, dry rot, and bacteria.

Example:

• Scenario One: Felicia’s Beauty Salon was vandalized but all parties believed they could keep working while repairs were being made. One week after the loss, one of the hairdressers became very ill. Mold and mildew had formed due to some of the water pipes that had been opened during the vandalism. This discovery (and the beautician’s illness) caused Felicia to close the shop until the mold situation could be remedied. This business income loss is covered for up to 30 days and is subject to the business income limit.
• Scenario Two: Same scenario but Felicia decides to close following the vandalism. The mold is discovered while repairs are being made. This discovery causes a delay because of the necessary remediation. Felicia’s period of restoration is increased by not more than 30 days before the mold loss.

F. ADDITIONAL COVERAGE EXTENSIONS

Three coverage extensions broaden the coverage CP 10 30–Causes of Loss–Special Form provides.

1. Property in Transit

This extension applies to only the named insured's covered personal property.

a. Covered personal property in transit in or on a motor vehicle the named insured owns, leases, or operates is covered. This extension applies only if the property is not in a salesperson's care, custody, or control, and is more than 100 feet away from the premises (but still in the coverage territory).

b. The loss or damage must result from one of the following causes of loss:

• Fire, lightning, explosion, windstorm, hail, riot, civil commotion, or vandalism
• Upset, overturn, or collision of the transporting vehicle with an object or another vehicle. A vehicle that strikes the roadbed is not considered collision.
• Theft of an entire bale, case, or product. However, visible signs or evidence of forced entry must be present and the vehicle's body (or compartment where the property was kept) must have been securely locked.

c. The additional limit of insurance under this Additional Coverage Extension is $5,000. It is not subject to coinsurance.

Note: The causes of loss an inland marine transportation coverage form provides are much broader. For example, flood and earthquake are covered.

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

This extension is unusual because it pays to repair undamaged property that was damaged in order to stop a cause of loss. If water, other liquids, powder, or molten material escapes from its confines, this coverage pays the cost to tear out any part of the building or structure when needed to reach the system or appliance that allowed the escape. This coverage also pays to replace the part of the building or structure torn out. It does not pay to repair the system or appliance because that is the named insured's responsibility. It does not pay for the damage the escape caused because the standard causes of loss form should cover it.

Note: This does not increase the limit of insurance but is still important because coverage does not usually apply to undamaged property.

Example: Cecil at Cecil's Farm Supply notices water damage to his stock. He searches for the source of the leak and discovers a trickle of water coming from the bottom of a wall. He calls a plumber to come out, investigate the source of the leak, and repair it. The plumber finally finds the leaky pipe after having to remove quite a bit of dry wall to do so but successfully repairs the pipe. Cecil pays the cost of the plumber's services but the insurance company pays the expense to replace the dry wall and also the water damage to the stock.

3. Glass

The cost to install temporary plates of glass or boards to cover window opening following a covered glass loss is covered. Coverage also applies to the expense to remove obstructions to repair or replace damaged covered glass. This coverage extension does not include the cost to remove or replace window displays.

Note: This is not an additional limit of insurance.

G. DEFINITIONS

1. Fungus

This is any form or type of fungus. It includes mold, mildew, mycotoxins, spores, scents, and by-products that fungus produces.

2. Specified Causes of Loss

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

• Sinkhole collapse is the sudden sinking or collapse of land into spaces created by water acting on dolomite or limestone. The coverage provided does not include the cost to fill the sinkhole or any sinking or collapse into man-made underground spaces.
• Damage caused by falling objects is covered. However, coverage does not apply to loss or damage to personal property left in the open. It also does not apply to loss or damage to the interior of a building (or to personal property inside the building) unless the falling object first damages the roof or an outer wall.

Example: The chandelier hanging in the dining room falls and lands on the top of the dining room table. There is no coverage for either the chandelier or the dining room table.

• Water damage caused by or that results from the accidental discharge or leakage of water or steam that occurs because the system or appliance cracks or breaks apart is covered. However, this coverage does not apply to sump systems.

COMPARE: CP 10 30 TO CP 10 10

The main difference between these forms is that CP 10 10–Causes of Loss–Basic Form covers losses based on designated or named causes of loss instead of risks of direct physical damage causes of loss that CP 10 30–Causes of Loss–Special Form provides. With CP 10 10, the insured must find coverage in one of the listed causes of loss. With CP 10 30, the insurance company must review the exclusions to determine that a specific loss is not covered. While CP 10 30 has more exclusions in order to explain what is not covered, the covered causes of loss sections of CP 10 10 is longer.

CP 10 10–CAUSES OF LOSS–BASIC FORM

CP 10 10–Causes of Loss–Basic Form covers 11 causes of loss. CP 10 30 also covers these causes of loss but does not list them specifically.

A. COVERED CAUSES OF LOSS

1. Fire

2. Lightning

3. Explosion. Explosion does not include operation of a pressure device or it rupturing or bursting. It also does not include a building or structure rupturing or bursting because water has caused contents inside it to expand.

4. Windstorm or hail. The following are not considered windstorm or hail:

• Frost or cold weather
• Ice that is not hail, snow, or sleet. These are not wind even when wind accompanies them.
• Damage to the interior of a building (or to personal property inside the building) caused by snow, rain, sand, or dust (unless the roof or walls are first damaged by wind or hail that then allows the snow, rain, sand, or dust to enter).

5. Smoke damage is covered if it is both sudden and accidental. Smoke damage from agricultural smudging or industrial operations is specifically excluded.

6. Damage by vehicles or aircraft is covered only if the vehicle or aircraft actually physically contacts the damaged property. There is also coverage for property damage that is inside a building when a vehicle or aircraft physically contacts the building. This means that the aircraft or vehicle (or their parts) must actually touch the property or the building where the property is located. As a result, sonic boom damage (also known as shock wave) is not covered because there is no physical damage.

There is no coverage for vehicle damage that the named insured’s owned vehicles (or any vehicles it uses in its operations) causes.

7. Riot or civil commotion is covered. This cause of loss also includes acts of striking employees when they occupy a premises and looting by rioters that occurs at the same time as a civil commotion event.

8. Vandalism is covered. Such damage must be willful and malicious. Loss that results from theft is not considered vandalism. However, damage that burglars cause while breaking into and exiting from a building is covered.

9. Sprinkler leakage damage is covered. Sprinkler leakage occurs when any substance leaks or discharges from an automatic sprinkler system (including complete collapse of the system's tank). There is no requirement that the event be accidental. If building is the covered property, repairing or replacing damaged parts of the systems is covered when the damage causes leakage or is caused by freezing. The cost to tear out and repair parts of the building in order to access and repair a leaking sprinkler system is also covered.

Note: The form defines what is considered an automatic sprinkler system. CP 10 30 does not define it.

10. Sinkhole collapse is covered. This coverage does not apply to (or include) the costs to fill sinkholes. Coverage also does not apply to land that sinks or collapses into man-made mines and underground spaces.

11. Volcanic Action is covered similarly and as CP 10 30 defines it under the Earth Movement Exclusion.

B. EXCLUSIONS

This section in CP 10 10 is considerably shorter than in CP 10 30 because the causes of loss are defined. It has two exclusions compared to three exclusions in CP 10 30. CP 10 10 does not have the anti-concurrent causation exclusions found in CP 10 30 because it specifically states the types of losses covered.

1. Broad Exclusions

These exclusions are identical to those in CP 10 30. Both forms exclude Ordinance or Law, Earth Movement, Governmental Action, Nuclear Hazard, Utility Services, War and Military Action, Water and Fungus, Wet Rot, Dry Rot and Bacteria.

2. Limited Exclusions

This exclusions section has only six subparts compared to 13 in CP 10 30. However, this does not mean that CP 10 10 provides broader coverage. It simply means that less exclusions are needed because the coverage is much narrower to begin with. The CP 10 10 exclusions are:

a. Artificially Generated Energy (06 07 change)

This exclusion is identical to exclusion 2. a. in CP 10 30.

b. Rupture or bursting of water pipes, (other than sprinkler systems) unless caused by a covered cause of loss

Note: It is always to the insurance company’s advantage to have the sprinkler system operate properly.

c. Water or Steam Leakage or Discharge

There is no coverage unless a covered cause of loss damages the system or appliance. There is no coverage if such seepage or leakage continues for more than 14 days. The first part of this exclusion does not apply to automatic sprinkler systems. The second part of this exclusion is identical to CP 10 30 exclusion 2. f.

d. Explosion of Owned Or Operated Steam Boilers

This exclusion is identical to exclusion 2. e. in CP 10 30. However, the CP 10 10 exclusion does not have the coverage exception for explosion of gases within the furnace.

e. Mechanical Breakdown

This exclusion is identical to the exclusion 2. d. (6) in CP 10 30. However the exceptions are different. The CP 10 30 exception is for elevator collision, glass breakage, and specified causes of loss. The CP 10 10 exception is for mechanical breakdown that results in a covered cause of loss.

f. Neglect

This exclusion is identical to exclusion 2. m. in CP 10 30.

3. Special Exclusions

These exclusions are identical in both forms.

C. ADDITIONAL COVERAGE

CP 10 10 has only one Additional Coverage. Limited Coverage for Fungus, Wet Rot, Dry Rot and Bacteria is identical to CP 10 30.

Note: CP 10 10 does not cover collapse.

D. LIMITATION

CP 10 30 has a number of limitations but CP 10 10 has only one. It states that the insurance company pays for only loss of animals that are killed or must be destroyed. It does not pay veterinarian bills.

Note: This limitation is identical to the second part of limitation 2. a. in CP 10 30. The first part in CP 10 30 limits coverage to only specified cause of loss. This is not necessary in CP 10 10 because it has only the basic causes of loss.

E. DEFINITIONS

Fungus is the only term defined and it is identical to the definition in CP 10 30.

COMPARE: CP 10 30 TO CP 10 20

The main difference between these forms is that CP 10 20–Causes of Loss–Broad Form covers losses based on a designated or named causes of loss instead of risks of direct physical damage causes of loss that CP 10 30–Causes of Loss–Special Form provides. With CP 10 20, the insured must find coverage in one of the listed causes of loss. With CP 10 30, the insurance company must review the exclusions to determine that a specific loss is not covered. While CP 10 30 has more exclusions in order to explain what is not covered, the covered causes of loss sections of CP 10 20 is longer.

CP 10 20–CAUSES OF LOSS–BROAD FORM

CP 10 20–Causes of Loss–Broad Form covers 14 causes of loss. CP 10 30 also covers these causes of loss but does not list them specifically.

A. COVERED CAUSES OF LOSS

CP 10 20 provides broader coverage than CP 10 10 but not as broad as CP 10 30 because it also lists only the causes of loss that are covered. It includes 14 covered causes of loss compared to 11 in CP 10 10. The first 11 in CP 10 20 are identical to the first 11 in CP 10 10. The three additional covered causes of loss are:

12. Falling Objects Coverage on personal property applies only to property in the building. It does not apply to property in the open. However, coverage does not apply until (and unless) the falling object first damages an outside wall of the building or its roof. This is identical to falling objects as described in the definition of specified causes of loss in CP 10 30.

Example: A falling object strikes a covered warehouse and the impact causes a lamp to fall off a table. The insured files a claim for the loss. The adjuster denies the loss after noticing that the object (an old tree limb) did not first cause any damage to the warehouse.

13. Weight of Snow, Ice or Sleet that causes damage is covered unless the personal property damaged is outside a covered building.

Note: Previous editions also excluded damage to gutters or downspouts.

14. Water Damage consists of accidental discharge of water or steam due to a plumbing, air conditioning, heating, or other systems or appliances cracking or breaking apart and is covered. The limitations on coverage are similar to those in CP 10 30 but all are brought together in CP 10 20.

B. EXCLUSIONS

This section in CP 10 20 is considerably shorter than in CP 10 30 because the causes of loss are defined. It has two exclusions compared to three exclusions in CP 10 30. CP 10 20 does not have the anti-concurrent causation exclusions found in CP 10 30 because these causes of action could not be advanced due to only the named causes of loss that are covered.

1. Broad Exclusions

These exclusions are identical to those in CP 10 30. Both forms exclude Ordinance or Law, Earth Movement, Governmental Action, Nuclear Hazard, Utility Services, War and Military Action, Water and Fungus, Wet Rot, Dry Rot and Bacteria.

2. Limited Exclusions

This exclusions section has only four subparts compared to 13 in CP 10 30 but this does not mean that CP 10 20 provides broader coverage. It simply means that less exclusions are needed because the coverage is much narrower to begin with. The CP 10 20 exclusions are:

a. Artificially Generated Energy (06 07 change)

This exclusion is identical to exclusion 2. a. in CP 10 30.

b. Explosion of Owned or Operated Steam Boilers

This exclusion is identical to exclusion 2. e. in CP 10 30. However, the CP 10 20 exclusion does not have the coverage exception for explosion of gases within the furnace.

c. Mechanical Breakdown

This exclusion is identical to exclusion 2. d. (6) in CP 10 30. However the exceptions are different. The CP 10 30 exception is for elevator collision, glass breakage, and specified causes of loss. The CP 10 20 exception is for mechanical breakdown that results in a covered cause of loss.

d. Neglect

This exclusion is identical to exclusion 2. m. in CP 10 30.

C. ADDITIONAL COVERAGE–COLLAPSE

This coverage is similar to the coverage CP 10 30 provides. The only difference is that CP 10 30 states that specified causes of loss apply while CP 10 20 lists the covered causes of loss that apply.

D. ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT AND BACTERIA

This coverage is similar to the coverage provided in CP 10 30. The only difference is that CP 10 20 lists the causes of loss instead of referring to the specified causes of loss in CP 10 30.

E. LIMITATION

This section of CP 10 20 is identical to the same section in CP 10 10.

F. DEFINITIONS

Fungus is the only term defined and it is identical to the definition in both CP 10 10 and CP 10 30.

CONCLUSION

CP 10 30 is the broadest of the three causes of loss forms and should be viewed as the first choice for most insureds. However, an alternative must be used from time to time. A good understanding of each form allows the agent to provide sound advice to the insured to enable it to make an informed selection.

BASIC, BROAD, AND SPECIAL CAUSES OF LOSS FORMS ANALYSIS

(June 2016)

INTRODUCTION

The Insurance Services Office (ISO) Commercial Property Program Causes of Loss Forms are designed to work with the coverage form. The separate causes of loss forms allow the insured to customize its coverage. After selecting the appropriate coverage, the insured then selects a causes of loss form for each insured property. This gives it maximum flexibility to arrange its insurance coverage.

The Causes of Loss Forms answer the question, "What must happen in order for coverage to apply?" The more causes of loss provided, the more expensive the policy. One of the following Causes of Loss forms must be attached to any Commercial Property Coverage form:

• CP 10 10–Causes of Loss–Basic Form
• CP 10 20–Causes of Loss–Broad Form
• CP 10 30–Causes of Loss–Special Form

The form used most often is CP 10 30–Causes of Loss–Special Form. For this reason, this analysis builds on this form. The other two forms are analyzed at the end of this section, with emphasis on how they differ from CP 10 30.

Note: This analysis is based on the 10 12 edition of each form. Changes from the previous edition are in bold print.

CP 10 30–CAUSES OF LOSS–SPECIAL FORM

A. COVERED CAUSES OF LOSS

The declarations must list a causes of loss form for each item of covered property. If it is CP 10 30–Causes of Loss–Special Form, coverage applies based on risks of direct physical loss or damage. The coverage this form provides is extremely broad because any physical event that causes loss or damage to covered property is covered unless it is modified elsewhere in this causes of loss form.

B. EXCLUSIONS

CP 10 30 has three categories of exclusions. Each has multiple subparts.

Editorial note: ISO does not give titles to the major categories of exclusions. To assist in the analysis, we have provided a title to help identify the exclusion’s main intent.

1. Broad Exclusions

The causes of loss in this exclusion do not apply to loss or damage caused directly, indirectly, or in any sequence in a chain of events that contribute to the loss. Exceptions to the chain of events condition are stated in the specific exclusion subpart. The lead wording emphasizes that coverage for any event analyzed in these exclusions does not apply even if the event is widespread.

a. Ordinance or Law (10 12 change)

Local governments develop ordinances and laws that relate to construction, remodeling, and repair of buildings. Most are not retroactive. As a result, existing buildings are grandfathered out of the ordinance until they must undergo renovations or repairs. When a substantial loss occurs and rebuilding, remodeling, or repair is necessary, the grandfathered laws activate and come into play. This exclusion states that the coverage form does not apply to any costs that must be incurred because the laws and ordinances are being enforced. The compliance with the ordinances or laws is also not covered or associated with enforcing or complying with such laws and ordinances.

This exclusion also states that coverage does not apply to the expense to remove undamaged portions of the building or to rebuild them. There is also no coverage for the additional cost to rebuild at a different location because ordinances or laws do not permit the building to be rebuilt at the existing location. Finally, it does not pay remodeling costs needed to bring the building up to current standards.

Example: Harvey’s Hogs started business operations in 1930. It was located on the family farm 15 miles from Little Town. Over the years, both Little Town and Harvey’s Hogs grew. As new subdivisions sprouted, the town limits expanded and new city ordinances were enacted. One prohibited livestock and other farm animals inside the city limits.

Over Harvey’s objection, the land area where Harvey’s farm was located was incorporated into the city. Harvey’s continued to operate as it did in the past and tried to be a good neighbor but hogs were an unpleasant intrusion on city life.

The farm sustained a significant covered loss that destroyed 60% of the building. Harvey was ready to start rebuilding but the city inspector informed him that he could not do so at the present location.

Because of this exclusion Harvey recovers only 60% of the loss. He must cover the cost to demolish the 40% undamaged portion of the building and also pay 40% of the cost to rebuild at the new location.

b. Earth Movement consists of five separate components:

(1) Earthquake includes any sinking, rising, or shifting of the earth directly related to the earthquake. The
10 12 edition adds tremors and aftershocks to this list.

(2) Landslide includes any sinking, rising, or shifting of the earth directly related to the landslide.

(3) Mine Subsidence applies to only man-made mines and applies whether the mine is operating or not. Mine subsidence coverage is an option that may be purchased separately. In some states, mine subsidence coverage is required to be offered in certain counties. If coverage applies to property located in Illinois, Indiana, Kentucky, Pennsylvania, or West Virginia, the laws in those states should be reviewed carefully to determine the way to properly handle this exposure.

(4) Sinkhole Collapse is covered but all other sinking, rising, shifting, eroding, contracting, or expanding of the earth is excluded. Loss or damage caused by or that result from water movement beneath the ground and poor soil conditions is also excluded.

However, if any of the events described in (1)-(4) above cause or result in a fire or explosion, the insurance company pays for the ensuing loss or damage the fire or explosion causes.

Example: An earthquake rocks Bardsville. While the buildings are virtually undamaged, the rigid gas lines break. A spark causes the escaping gas to explode and despite heroic efforts by the fire department, the explosion results in Sam’s Hardware building burning to the ground. This loss is covered because it resulted from a fire, even though the fire was a direct result of an earthquake.

(5) Volcanic eruption is not covered unless fire, breakage of building glass, or volcanic action ensues. Volcanic action includes airborne blasts and shockwaves, dust, ash, and particulate material the volcano emits, as well as lava flow. The costs to remove dust, ash, and particulate matter is excluded unless there is direct damage to the covered property.

Note: Volcanic eruptions are unpredictable, cause widespread damage, and usually occur over a period of days. An eruption that takes place over a period of 168 consecutive hours is treated as one occurrence. This is very important to an insured that has a substantial deductible for this coverage. Instead of a number of deductibles applying to multiple events, only one deductible applies to each 168-hour period. On the other hand, this also means that only one limit is available for all losses that occur within that same time period.

Example: Prime Real Estate Management owns two commercial strip centers and insures the buildings for a blanket limit of $6,000,000 on an agreed value basis. A volcano erupts nearby and lava flow destroys one center and a fire caused by flaming debris destroys the other. Each has a value of $6,000,000. Because both losses are caused by the same occurrence, Prime has only $6,000,000 available to cover its loss, not $12,000,000.

All aspects of this exclusion apply regardless of whether nature or any other force causes the event. (10 12 addition)

Example: An earthquake damages Rapid Lines’ building. Joe, the owner, is sure the earthquake is due to hydraulic fracking taking place in various places throughout the county where his building is located. He submits the earthquake claim as a fracking claim instead of as an earthquake claim. Coverage is denied. The previous edition would probably have denied the claim but this change makes it more explicit.

c. Government Action

Coverage does not apply if the government seizes or destroys property. However, coverage does apply if the action it took was to prevent the spread of fire.

Note: Coverage applies only if the policy covers the fire that the government is trying to stop.

Example: An anarchist group declares its secession from the United States and establishes a separate country within the state of Indiana known as "Free to Live." The group is armed and takes over a small community by force. Because one of its tactics is to set fires, the government has no choice but to burn other structures in order to establish a fire stop. There is no coverage in this case because the government action was taken to thwart fire set within a military action. Because the military action is not covered, the fire due to it is also not covered.

d. Nuclear Hazard

There is no coverage for loss or damage for anything related to nuclear hazards. Reactions, radiation, and contamination are not covered. However, if a fire ensues, the loss or damage that the fire causes is covered.

e. Utility Services

Loss or damage due to utility failure that begins away from the described premises is excluded. When the failure begins on the insured premises, there is still no coverage if the source of the failure is equipment that supplies off premises utility service to the described premises. Utility failure is loss of power, water, communications, and other utility services. It also includes lack of capacity and reduction in supply. CP 10 30 does not cover Utility Services loss due to damage to equipment the utility owns that is on the named insured’s premises.

Communication services include Internet, cellular, satellite, and other access services. Power surge that occurs because of the power failure is excluded. If power failure or surge results in a covered cause of loss, coverage applies to the damage that covered cause of loss causes.

Examples:

Scenario 1: A fire occurs at the electric power plant and causes a blackout. Fred's Fine Foods loses refrigeration and the food spoils. When looters discover that Fred's alarm system is not working, they break in and steal food items. The spoiled food loss is not covered. The loss due to theft is covered.

Scenario 2: A windstorm rips the satellite dish and its connecting lines from the hotel's roof. A number of scheduled meetings are cancelled because teleconferencing is not available. There is no coverage for the loss of income that results from the cancelled meetings or extra expenses incurred.

f. War and Military Action

This exclusion lists three specific warlike activities that are excluded.

• War. This can be a declared, an undeclared, or a civil war.
• Military force of a warlike nature. These activities must utilize military personnel or agents of a government or other type of authority. The actions taken to thwart any of these activities are also considered war.
• Insurrection, rebellion, revolution, and attempts to usurp power. Any government action taken to respond to such actions is also considered war.

Note: The words "terrorism" or "terrorist" do not appear in this exclusion.

g. Water (10 12 changes)

Note: This exclusion was changed in January 2009 by introducing mandatory endorsement CP 10 32–Water Exclusion Endorsement. The mandatory wording in that endorsement is now incorporated into this exclusion and CP 10 32 is no longer needed.

Loss or damage caused by the action of water outside the building is excluded. To further clarify this exclusion, it is broken down into five separate components. Each defines exactly what water means.

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

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

(3) The sewers, drains, and sumps part of this exclusion is broadened in two ways. The first is the how and the second is the what. In the 06 07 edition, water had to back up or overflow. In the 10 12 edition, the water can be discharged in other ways. A description of those other ways is not provided. Second, in the 06 07 edition, the water had to come from a sewer, drain, or sump. In the 10 12 edition, it may also come from a sump pump or related equipment. Related equipment is not defined.

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

(5) Waterborne material. This section introduces the term "waterborne material." Damage caused by this material carried by waters described in (1), (3), and (4) above is excluded. Such material moved or carried by mudslides or mudflow described in (2) above is also excluded.

Example: In an updated version of the Wizard of Oz, a storm surge (instead of a tornado) picks up Dorothy’s house and deposits it on top of the Wicked Witch’s castle. The Wicked Witch’s policy does not cover the property loss that Dorothy’s house causes because of this new exclusion.

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

Much like other exclusions, if fire or explosion occurs because of any action of water, coverage applies to the loss or damage the fire or explosion causes. In addition, if a sprinkler leakage loss occurs due to these actions of water, coverage applies to the loss or damage the sprinkler leakage causes. Sprinkler leakage coverage applies only if sprinkler leakage is a covered cause of loss on the coverage form or policy.

h. Fungus, Wet Rot, Dry Rot, and Bacteria

Loss or damage caused by or that results from the existence or any activity of fungus, mold, rot, bacteria, and other similar growing organisms is excluded. However, if the existence of one of them causes a specified cause of loss to occur, coverage applies to the loss or damage the specified cause of loss causes.

This exclusion does not apply if the fungus, mold, rot, bacteria, or similar organisms result from a fire or lightning loss. It also does not apply to coverage that Additional Coverage–Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria provides.

Examples:

• Scenario 1: Millicent has a fire at her store. She notices an odor three weeks later and discovers that mold behind ceiling tiles is destroying them. The tiles must be destroyed and the area disinfected. Investigation reveals it was the result of the fire-fighting actions three weeks earlier. This loss is covered because the fire caused it.
• Scenario 2: Millicent purchases a store but does not notice an unusual odor until about six months later. She hires a contractor who discovers that mold behind ceiling tiles is destroying them. The tiles must be destroyed and the area disinfected. The claim is denied because the cause of the mold is unknown.

2. Limited Exclusions

There is no coverage for loss or damage caused by the following exclusions. Note that the lead-in language is not as strong or inclusive for these exclusions as the language in 1. Broad Exclusions.

Editorial note: ISO does not give titles to these exclusions. To assist in the analysis, we have provided a title to help identify the exclusion’s main intent.

a. Artificially Generated Energy

Coverage does not apply if electrical, magnetic, or electromagnetic energy generated artificially causes damage, interferes with, disturbs, or disrupts any of the following:

• Networks, devices, systems, wires, or appliances of an electrical or electronic nature
• Cellular or satellite devices, appliances, systems, or networks

Examples of artificially generated energy include electrical current, charges a magnetic field produces, electromagnetic, and microwaves, among others, but this listing is not inclusive. However, coverage applies to loss or damage caused by a fire that result from them.

Note: Open-ended exclusions like this have been largely ineffective when courts interpret them. The courts maintain that it is the insurance company's responsibility to be precise in its language because it authors the form.

b. Delay, Loss of Use, or Loss of Market

Delay, loss of use, and loss of market are all consequential losses that may occur following a direct damage loss. All are excluded.

c. Agricultural Smudging and Industrial Operations

Agricultural smudging operations produce significant amounts of smoke in order to protect crops from freezing. Loss or damage it causes is excluded. Loss or damage from industrial produced smoke, vapor, or gas is also excluded.

Example: A freeze warning is in effect, so Lenny sets out his smudge pots to protect his orange grove. A strong wind blows the smoke into the restaurant Lenny operates for tourists. The damage the smoke causes is excluded.

d. Miscellaneous Losses

This exclusion has seven subparts. Most of the causes of loss listed should be viewed simply as costs associated with doing business and not as losses.

(1) Wear and tear is simply loss caused by aging and everyday use and is excluded.

Note: Wear and tear is damage, diminishment in value, or erosion due to long or hard use or exposure. It includes breakdown over time and eventually becoming unusable because of previous use. This also includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

(2) There is no coverage for rust, fungus, and other hidden or latent defects. This includes any feature of the property that causes it to destroy itself.

(3) Damage caused by smog is excluded.

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

(4) All buildings and some personal property may shrink, expand, crack, or settle. This is normal and should be expected. Accommodations for them should be made in building construction and design and with respect to storage of personal property. Losses from these causes are excluded because these are costs of doing business.

(5) Insects, birds, rodents, and other animals may cause considerable damage to buildings and the sudden damage they cause is covered. However, their long-term presence, as evidenced by nesting, infestation, and waste products or secretions, is a building maintenance issue and is excluded.

Example: Perry notices an unusual shimmering substance on the side of the church. He touches the amber liquid and realizes it is honey. He notices the amount increases almost daily and notifies the trustees. They bring in a contractor who investigates and finds a beehive in one of the walls of the church. The contractor brings in a beekeeper to remove the bees. The beekeeper removes part of the interior wall to remove the hive, repairs the damaged wood, and seals the entry. None of this is a covered loss because everything results from an insect infestation.

(6) Machines regularly break down because of use. This is an anticipated cost of doing business that should be prevented with regular scheduled maintenance. As a result, mechanical breakdown is excluded. Rupture and bursting caused by centrifugal force is considered mechanical breakdown and is also excluded. The exception to this exclusion is that coverage does apply to the damage caused if the mechanical breakdown results in elevator collision. Elevator collision covers both the elevator and damage to the shaft and other property the elevator damages.

(7) Exclusions (1) through (6) above apply primarily to buildings. This exclusion applies specifically to Business Personal Property. Coverage does not apply to loss or damage caused by or that result from atmospheric dampness or dryness, temperature extremes, any changes in temperature, or from scratching or marring. These causes of loss are excluded because the insured should expect and anticipate these causes of property damage.

If any of the causes of loss in (1) through (7) above results in either a specified cause of loss or breakage of building glass, coverage applies to the loss or damage the specified cause of loss or glass breakage causes.

Example: Susie's Fancy Finery is a tenant on the first floor of a three-story building. The upper floors are sealed off and are not used. Unknown to the building’s owner or Susie, birds nest in the attic and also find their way into the chimney. The chimney's opening at the top leads directly into Susie's shop. One day nearly a dozen birds enter the shop, panic, and careen into objects and windows in their attempt to escape. The birds crack and break the windows before escaping. Coverage does not apply to the damage the infestation causes but does apply to the damage caused by the glass breaking.

e. Explosion of Owned or Operated Steam Boilers

This exclusion applies to only explosions of steam boilers, pipes, engines, or turbines the named insured owns, leases, or operates. This means that most building tenants are not subject to this exclusion.

There are two exceptions:

• If the explosion causes a fire or combustion explosion, the resulting damage is covered.
• If gases or fuel within the furnace, flues, or combustible gas passage explode, the resulting damage is covered.

f. Continuous Water Seepage

Loss or damage due to water that leaks or seeps over a period of 14 days or more is excluded. Any damage or damage caused by any humidity, moisture, or vapor that is present over a period of 14 days or more is also excluded. This means that loss or damage due to water that leaks internally is covered unless it is allowed to run unchecked and unnoticed for more than 14 days.

g. Freezing Liquids

There is no coverage for loss or damage caused by or that result from water that flows from plumbing, heating, or other equipment because of freezing. This exclusion also applies if other liquids, powder, or molten material flow for the same reason. However, this exclusion does not apply if any of the following apply:

• The other equipment is a fire protective system.
• The named insured maintains heat in the building or structure.
• The named insured drains the equipment and shuts off the source of supply when heat is not maintained.

Note: This exclusion requires that the insured address maintenance issues that are not the responsibility of insurance. The insurance company has the right to expect the insured to act responsibly towards its property even if insurance coverage does apply.

h. Internal Dishonest Acts (10 12 changes)

Coverage does not apply to dishonest or criminal acts by the named insured, partners, members of a limited liability company (LLC), officers of a corporation, managers, employees, or authorized representatives. This exclusion applies whether these parties act alone, in collusion with each other, or in collusion with any other party.

Whenever the term employee is used in this exclusion it applies to permanent, leased, and temporary employees. The phrase “dishonest or criminal act” includes theft.

There is also no coverage for theft committed by anyone else entrusted with property. This exclusion applies whether a person acting alone or if in collusion with others committed the theft.

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

There is one exception. There is coverage if employees or authorized representatives destroy property. This destruction exception does not extend to theft.

Example: Sheila and Fred are long time employees of Frankel Egg Farm but decide they've had enough of the company. They steal the payroll, burn down the plant to conceal their tracks, and are captured three days later. The fire loss is covered but the theft of payroll is not.

Note: The theft loss could be covered under employee dishonesty coverage.

i. Voluntary Parting

There is no coverage if the named insured or someone the named insured entrusts property to is tricked or deceived into giving property away.

Example: Great Cameras, Inc. ordered a number of lenses from Linda’s company. Linda was preparing to ship the product when Joe appeared. He explained that Great Cameras needed the lenses immediately so he had driven from company headquarters to personally pick them up. Five days later, Great Cameras inquired about the lenses because they had never heard of Joe and had not received their lenses. Linda mailed the requested lenses and submitted a claim to her carrier for the lenses Joe had stolen. The claim was denied because Linda had voluntarily given the lenses to Joe.

j. Rain, Snow, Ice, or Sleet

Personal property in the open is covered personal property but there is a significant coverage limitation because it is in the open. There is no coverage for loss of damage caused by rain, snow, ice, or sleet.

k. Collapse

Collapse is initially totally excluded but limited coverage is added back in Section D. as Additional Coverage–Collapse.

Collapse is excluded. This means the following property conditions are also excluded:

(1) Any type of sudden caving in or falling down

(2) When the structural integrity of the building is lost or compromised. The evidence of this could be parts of the property that separate from the rest of the building or the building appearing to be in danger of caving in or falling down.

(3) Cracking, sagging, expanding, settling, shrinking, bulging, or bending, but only as they relate to items (1) and (2) above

A collapse can trigger another cause of loss. When that other cause of loss is covered and damages covered property, the portion of the loss that is due to the covered cause of loss is covered.

Example: The bookshelf suddenly collapses. A lit candle was sitting on top of the bookshelf when it collapsed. The lit candle ignited the books and papers that had fallen to the floor during the collapse. The collapse damage is not covered but the resulting fire damage is covered.

There are two exceptions to this exclusion.

• The coverage provided in Section D., Additional Coverage–Collapse is not excluded. This exception prevents a conflict between that Additional Coverage and this exclusion.
• When a collapse is caused by specified causes of loss, building glass breaking, weight of rain on a roof, or weight of people or personal property loss or damage from that collapse is covered.

l. Pollutant Damage

Loss or damage that is caused when a pollutant is released or escapes, discharged, dispersed, seeps or migrates is excluded unless a specified cause of loss caused that pollutant event. In addition, if the pollutant event causes a specified cause of loss to occur any resulting damage from the specified cause of loss is covered but not the damage from the pollutant event.

The only exception to this exclusion is loss or damage to glass caused when chemicals are applied to glass.

Example: A strong windstorm rips the doors and windows from an outbuilding at Mayfield, Inc. It causes the adhesives and solvents to be scattered around the building compound. The adhesives cling to the buildings while the solvents caused indentations on the entire stucco exterior. Even though this is a pollution loss, there is coverage because wind (a specified peril) caused the damage to occur.

While waiting for the outbuilding to be rebuilt, Mayfield receives a new shipment of adhesives. The shipment is stored in the main building but is placed too close to a heat source. The vapor from the adhesives ignites and causes a fire. Coverage applies to the fire loss even though the pollutant was the trigger.

m. Neglect

There is no coverage if an insured does not use reasonable measures to save and preserve property from further damage during and after the time of loss.

Example: The Mayfield family is exhausted after the two losses described above and decides to just walk away and take a week’s vacation. Thieves notice the unlocked doors and unattended supplies. Coverage does not apply to the theft loss of the supplies because the Mayfields failed to preserve property.

3. Anti-Concurrent Causation Exclusions

The subparts of this exclusion are sometimes referred to as the anti-concurrent causation exclusions. These exclusions are unique in that, if a loss is covered as a covered cause of loss, with the exception of these exclusions, it is still covered. On the other hand, if the loss would have been excluded anyway, it is still excluded.

The three subparts of this exclusion are:

a. Weather Conditions

Loss or damage due to weather conditions is excluded but only when the loss is caused by a weather condition combined with a cause of loss excluded in exclusion 1.

Examples:

Scenario 1: Heavy rains cause creeks to rise well above flood stage. The subsequent flooding damages businesses. While the proximate cause of loss is a weather condition, the weather exclusion applies and the flooding damage is excluded because exclusion 1 excludes flood.

Scenario 2: Heavy rains and winds destroy the roof on the building. The loss is due to a weather condition, but it is not accompanied by an exclusion 1 cause of loss so the damage to the roof is covered.

b. Acts or Decisions

Governmental entities and related groups make decisions and take actions that not only affect others but may also cause loss or damage. Loss or damage that results from such acts or decisions is excluded.

Examples:

Scenario 1: The dams along the river are getting old but the U.S. Army Corps of Engineers decides it is too expensive to replace them. Heavy spring rain causes the dams to fail and many homes and businesses are flooded. Melanie’s Hosiery submits a claim for the damage and is rejected because of the flood exclusion. She then resubmits the claim on the basis that the Corps made a faulty decision to not replace the dams. This claim is also rejected.

Scenario 2: Smelling Good, a candle manufacturing plant, received a zoning variance from the city council even though Melanie’s Hosiery, its nearest neighbor, petitioned against it on the grounds that it would be a fire hazard. The city council gave Smelling Good its variance and five months after it opened a fire erupted that damaged Melanie’s Hosiery. Melanie’s loss is covered because even though the act or decision made by the city council may have contributed to the loss, fire is not part of exclusion 1.

c. Design Flaws

Loss or damage that is due to faulty, inadequate, or defective planning, design, materials, and maintenance is excluded. An important provision is that it applies both on and away from the designated premises.

Example: Mainline Construction Company prepares the land for an industrial park. Severe drought, followed by drenching rains, causes the newly constructed buildings to shift and slide down the slope. It is later determined that the ground preparation was inappropriate for the slope involved. This loss is not covered because landslide is not a covered cause of loss, although it could be argued that the design flaw was the proximate cause of loss.

4. Special Exclusions

These three exclusions apply only to Business Income, Leasehold Interest, and Legal Liability.

a. The following additional exclusions apply to the Business Income (And Extra Expense) Coverage Form, Business Income (Without Extra Expense) Coverage Form, and Extra Expense Coverage Form:

(1) Loss that is due to damage to finished stock or that is due to the amount of time needed to replace the finished stock is excluded.

Note: Because this incident is time-related, it does not apply to Extra Expense.

(2) There is no coverage for any loss that results from physical loss or damage to radio or television antennas or satellite dishes.

(3) Coverage does not apply to any increase of loss due to:

· Interference by strikers or others that delay rebuilding. This applies only when such actions are taken at the actual building site.

· Suspension, lapse, or cancellation of a license, lease, or contract. However, if the lapse or cancellation is a result of a loss, coverage applies during the period of restoration.

Example: Rudy's Bar has a fire and is being rebuilt. During the fire investigation, the police discover some irregularities that cast a shadow on Rudy’s reputation. The liquor board suspends Rudy’s liquor license until it completes its investigation and conducts a full hearing on the matter. The fire repairs are complete but Rudy cannot reopen without the liquor license. The period of restoration ends when the building is complete, even though Rudy is still unable to re-open due to his suspended license.

(4) Extra Expense coverage does not extend beyond the period of restoration when a license, lease, or contract is suspended, lapses, or is cancelled.

(5) Any type of consequential loss that is not loss of income or extra expense is excluded.

b. Leasehold Interest Coverage Form

CP 10 30 changes in two ways when Leasehold Interest Coverage is provided.

(1) The Ordinance or Law exclusion B. 1. a. does not apply.

(2) There is no coverage for loss that results if the named insured cancels a lease, has a license suspended, lapsed, or cancelled, or any consequential loss.

c. Legal Liability Coverage Form

The Legal Liability coverage form is more of a liability coverage form than a property coverage form. As a result, there are a number of changes to CP 10 30.

(1) Five exclusions are removed and do not apply. They are exclusions 1.a. Ordinance or Law, 1.c. Governmental Action, 1.d. Nuclear Hazard, 1.e. Utility Services, and 1.f. War and Military Action.

(2) Two liability-related exclusions are added:

· Contractual Liability

There is no coverage for liability the named insured assumes under a contract. The only exception is a lease agreement where it assumes liability for building damage due to attempted break-in. This agreement must be made prior to any accident and the coverage form must insure the building in question.

· Nuclear Hazard

There is no coverage for suits brought due to any damages or expenses that relate to nuclear reaction, radiation, or contamination.

5. Additional Exclusion

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

Loss or Damage to Products

There is no coverage for loss or damage to merchandise, goods, or other products caused by any party's error or omission. These errors or omissions are excluded beginning with planning or testing through repair and maintenance. This exclusion also applies to errors or omission made at locations where work is outsourced. It applies to any compromising of the product’s form, substance, or quality.

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

Example: Maybell designs jewelry and contracts with an Asian manufacturer to produce jewelry based on its designs and manufacturing specifications. The first shipment that arrives is tested and the results indicate an unacceptable amount of lead. Maybell cannot sell the product in the United States and the Asian manufacturer does not return phone calls. Maybell presents a claim to the insurance company because the items are useless to them. The company denies this claim because of this exclusion (and others).

C. LIMITATIONS

Now that what is covered and what is excluded has been analyzed, four coverage limitations must be reviewed. Each of the four has multiple subparts.

1. Broad Limitation

Loss or damage to any property described and limited in this section is excluded. Losses that are a consequence of loss to such property are also excluded.

a. Steam Boilers, Steam Pipes, Steam Engines, or Steam Turbines

There is no coverage if a loss is caused by or results from a condition or an event that occurs inside covered steam boilers, steam pipes, steam engines, or steam turbines. However, coverage applies if gases or fuel inside the furnace or within a flue or other passage explode and cause loss or damage.

b. Water Heating Devices

Loss or damage caused by water-heating devices such as including hot water boilers caused by a condition or event within them is excluded. However, coverage applies if an explosion causes the loss.

c. Interior of Any Building and Personal Property

The interior of a building and the personal property inside it is not covered for damage that rain, snow, sleet, ice, sand, or dust causes. However, there are two exceptions. Coverage applies:

• If the roof or walls of the building are first damaged by a covered cause of loss that allows the rain, snow, sleet, ice, sand, or dust to enter
• If snow, sleet, or ice on the building thaws and then causes the loss

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

Example:

Scenario 1: Pamela awakens to drops of water on her nose. She looks up and notices water dripping from her ceiling. She contacts the apartment manager who discovers that ice under the snow on the roof has thawed and is flowing through the roof into Pamela’s bedroom. The apartment's policy covers the damage to the ceiling and floor coverings because of the exception to this limitation.

Scenario 2: Pamela steps onto to her carpeting and notices that her feet are very wet. She awakens quickly when she realizes that she left her window slightly opened, that snow had entered through the window, and that it melted on the windowsill and floor. There is no coverage for any damage this situation caused.

d. Building Materials Awaiting Installation in a Building

Theft of building materials that are awaiting installation and not yet attached to the building is excluded. Under all coverage forms except for CP 00 20–Builders Risk Coverage Form, this limitation does not apply if the building materials are being held for sale. That means that under CP 00 20 theft of building material is always excluded unless CP 11 21–Builders Risk – Theft of Building Materials, Fixtures, Machinery, Equipment is attached.

This limitation does not apply to the business income coverage forms or the extra expense coverage form.

e. Inventory Shortage

Any missing property loss that can be proven only because an inventory revealed a shortage is excluded. This is because it really means there is no actual knowledge that something was taken. The loss could be due to a mathematical or computation error, employee theft, or a break-in. There is no coverage if there is nothing to physically suggest what actually happened.

f. Unauthorized Instructions

Coverage does not apply if a loss occurs because property was given to another person or sent to another place based solely on unauthorized instructions.

g. Vegetated Roofs (10 12 addition)

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

• The atmosphere or the soil being too damp or too dry
• The temperature changes too often or is considered extreme
• Disease
• Hail, frost, rain, snow, ice, or sleet

2. Coverage Limited to Specified Causes of Loss

The insurance company does not pay for loss or damage to any of the following property unless a specified cause of loss or breakage of building glass causes the loss or damage:

a. Animals

This item has a limitation within a limitation. In addition to being covered only if specified perils or glass breakage causes the loss, coverage applies only if the animal dies or must be destroyed. This means that coverage does not apply to veterinarian bills or expenses incurred to save the animal.

b. This limitation applies to fragile objects only if they are broken. Statuary, marbles, chinaware, and porcelains are examples of such fragile items. Glass and items that contain property for sale are not subject to this limitation.

c. Builders’ machinery, tools, and equipment that the named insured owns or has entrusted to it that qualifies as covered property is subject to this limitation.

Under all coverage forms except for CP 00 20–Builders Risk Coverage Form, this limitation does not apply if the property is located on or within 100 feet of the described premises. This means that this limitation applies without exception under CP 00 20.

This limitation does not apply to the business income or extra expense coverage forms.

3. Limited Theft Coverage for Specific Types of Property (10 12 change)

The following categories have special limitations that apply to only theft losses. These are per occurrence sub-limits that do not increase the limit of insurance available to cover a loss. These sub-limits can be increased:

• Furs, fur garments, and fur-trimmed garments are subject to a $2,500 limit.
• Jewelry, watches, watch movements, jewels, pearls, gold, and similar items are subject to a $2,500 limit. This limitation does not apply to jewelry or watches that are valued at less than $100 each.
• Patterns, dies, molds, and forms are subject to a $2,500 limit.

• Stamps, tickets, letters of credit, and lottery tickets held for sale are subject to a $250 limit.

These limitations do not apply to the business income or extra expense coverage forms.

Note: Coverage applies for all other causes of loss, subject to the standard exclusions and the limit of insurance on the declarations.

Example: Pitta Pat clothing store has a $75,000 business personal property limit. A break-in takes place and a number of items are stolen. However, the thieves destroyed many others as they vandalized the store. The loss was as follows:

• $50,000 clothing stolen or destroyed
• $25,000 fixtures destroyed
• $5,000 fine jewelry stolen
• $1,000 costume jewelry (under $100 per item) stolen
• $10,000 fur-trimmed garments stolen

Pitta Pat submits a claim and requests $75,000 for the clothing and fixtures, $2,500 for the fine jewelry, and $2,500 for the fur-trimmed garments that were stolen.

Her loss settlement is for $75,000 because that is the policy's limit of insurance. The theft limitations are only sub-limits within the policy limit.

4. Defect in Systems or Appliances

There is no coverage for the cost to repair a defect in a system or appliance from which water, other liquids, powder, or molten material escapes. However, fire-extinguishing systems are covered if the damage results in a discharge from the automatic protection system or if the damage is caused directly by freezing.

This limitation does not apply to the business income or extra expense coverage forms.

D. ADDITIONAL COVERAGE–COLLAPSE

This additional coverage is necessary because the coverage form specifically excludes collapse. Policies and coverage forms once provided collapse coverage. However, broad legal interpretations forced rewriting collapse coverage as a named cause of loss.

1. Collapse coverage applies to abrupt collapse. As used in this coverage, abrupt collapse means that the building or part of the building must abruptly fall down or cave in. As a result of such falling down or caving in, the building or part of the building cannot be occupied for its intended purpose.

2. Payment for such abrupt collapse as described in item 1. is for only direct physical damage to the collapsed building or the business personal property that is inside the building. However, payment is made only if any of the following cause the collapse:

a. Hidden decay. This applies only if the insured was not aware of the hidden decay prior to the collapse.

b. Hidden insect or vermin damage. This applies only if the insured was not aware of the hidden insect or vermin damage prior to the collapse.

c. Defective construction material or construction methods. This applies only if the collapse occurs while the building is being built, remodeled, or renovated.

d. Defective construction material or construction methods. This applies only if the collapse occurs after a building has been built, remodeled, or renovated and depends on one of the following contributing to the collapse:

· Items a. or b. of this paragraph

· Specified cause of loss

· Glass breakage

· Weight of people or personal property

· Weight of rain that collects on a roof

3. There is no coverage for any of the following:

• A building or any part of a building that is in danger of falling down or caving in
• A part of a building that remains standing even if it has separated from another part of the building
• A building or part of a building that is standing but shows evidence that it may collapse due to bulging, sagging, cracking, bending, leaning, settling, shrinking, or expanding

Example: The Good Shepherd Church was built 90 years ago in a small rural area next to the main road. It is now in the suburbs of a town along a major highway. The church never moved but the town grew out to it. During choir practice one evening, a few tiles in the sanctuary ceiling loosened and fell. The next day, the building inspector who had been called to evaluate the situation, condemned the building. He opined that over the years, the building had shifted on its foundation and was now in imminent danger of collapse. Collapse coverage does not apply to this situation.

4. The following property is covered only if it is considered covered property, the loss or damage is due to collapse of a covered building, and items 2.a through 2d above cause the building to collapse:

• Outdoor radio or television antennas
• Awnings, gutters, and downspouts
• Yard fixtures
• Outdoor swimming pools
• Fences
• Pier, wharves, and docks
• Beach or diving platforms or appurtenances
• Retaining walls
• Roadways, walks, and paved surfaces

5. There is coverage if personal property abruptly falls down but the building in which it is situated does not but only if all of the following apply:

• The collapse was due to a cause of loss listed in 2.a through 2.d. above.
• The personal property that collapsed is in a building.
• The personal property is not one of the types listed in 4. above.

Coverage does not apply if the only damage to the personal property is marring or scratching.

6. Any cracking, bulging, sagging, leaning, settling, expanding, or shrinking of personal property is not treated as collapse. Coverage applies only if the personal property either abruptly fell down or caved in.

7. This additional coverage does not increase the coverage part limit of insurance.

8. Whenever the term "covered cause of loss" is used throughout this coverage form, this Additional Coverage–Collapse is included, subject to the description and limitations this additional coverage provides.

E. ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT, AND BACTERIA

Collapse was removed as a covered cause of loss and then added back in as an additional coverage many years ago. Similarly, and for the same reasons, fungus coverage was removed as a covered cause of loss and is added back as a specified cause of loss coverage. Although the method is similar, the coverage provided is very different.

1. Coverage applies when the fungus, wet rot, dry rot, or bacteria result from a specified cause of loss. If flood is a covered cause of loss, fungus, wet rot, dry rot or bacteria from that flood is also covered. Because fire and lightning losses are excepted from exclusion 1.h. Fungus, Wet Rot, Dry Rot, and Bacteria and therefore covered, this Additional Coverage excludes losses that result from them in order to prevent duplication of coverage.

This coverage applies only if the insured takes all reasonable steps to prevent further damage to property during or following a loss.

Example: Smoke filled a small store and the employees took all of the personal property outside to avoid smoke damage to it. The employees left work at quitting time but did not put the personal property back in the store. The next morning, they picked up the property and placed it back in the store without inspecting it. Mold and mildew were found on most of the items a week later because they were exposed to moisture during the night. A claim was filed and subsequently denied because the employees did not take reasonable care to protect the property from further damage, even though the mold was the result of a smoke loss.

Lawns, trees, shrubs, or plants that are part of a vegetated roof are not eligible for this additional coverage. (10 12 addition)

2. Loss or damage includes more than the direct damage to the property by the fungus, wet rot, dry rot, or bacteria. It also includes removing them. The cost to tear out and replace walls and other parts of the building in order to get to the problem is covered. Any necessary testing to verify that the property is clean and the situation mitigated is also covered.

3. The limit of insurance for this coverage is not per occurrence. It is $15,000 per policy year. This means that the limit for the policy year is $15,000, regardless of the number of locations and occurrences. There is no additional limit available once the limit is used up. If the condition continues over multiple policy years, the limit available in the policy year when the loss occurred that caused the fungus, wet rot, dry rot, or bacteria is the only limit that applies.

Note: CP 04 31–Changes–Fungus, Wet Rot, Dry Rot, and Bacteria endorsement is available to increase the limit and also provide coverage per location.

Example: Max’s Jewelers has 15 retail locations. A covered mold loss occurs at store number five and the total claim paid amounts to $13,000. A month later, a mildew loss occurs at store number ten. The total amount claimed is $9,000 but only $2,000 is paid because that is the amount of the aggregate amount for the policy period that remains.

4. The $15,000 limit is a sub-limit. It does not increase the limit of insurance.

Example: A windstorm caused $100,000 in direct damage to George’s Card Shop. George noticed mildew on some of his property a month after the loss and filed a separate claim. There are no limits available to pay for the mildew loss because paying the windstorm claim exhausted George’s $100,000 limit of insurance.

5. This Additional Coverage does not affect the coverage available under Additional Coverage Extension–Water Damage, Other Liquids, Powder, or Molten Material Damage or under Additional Coverage–Collapse.

6. If business income and/or extra expense coverage is provided, this extension provides coverage in two different situations.

• Coverage applies for 30 days if the specified cause of loss direct damage loss does not result in a business income or extra expense loss but the fungus, wet rot, dry rot, and bacteria loss does.
• In addition, if the direct damage loss from the specified cause of loss results in a business income or extra expense loss, this extension provides 30 additional days of coverage for the delays or extension of the down time due to the fungus, wet rot, dry rot, and bacteria.

Example:

Scenario 1: Felicia’s Beauty Salon was vandalized but all parties believed they could keep working while repairs were being made. One week after the loss, one of the hairdressers became very ill. Mold and mildew had formed because some of the water pipes had been opened during the vandalism. This discovery, and the beautician’s illness, caused Felicia to close the shop until the mold situation could be remedied. This business income loss is covered for up to 30 days and is subject to the business income limit.

Scenario 2: Same scenario but Felicia decides to close following the vandalism. The mold is discovered while repairs are being made. This discovery causes a delay because of the necessary remediation. Felicia’s period of restoration is increased by not more than 30 days because of the mold loss.

F. ADDITIONAL COVERAGE EXTENSIONS

Three coverage extensions broaden the coverage CP 10 30–Causes of Loss–Special Form provides.

1. Property in Transit

This extension applies to only the named insured's covered personal property.

a. Covered personal property in transit in or on a motor vehicle the named insured owns, leases, or operates is covered. This extension applies only if the property is not in a salesperson's care, custody, or control, and is more than 100 feet away from the premises but still in the coverage territory.

b. The loss or damage must result from one of the following causes of loss:

• Fire, lightning, explosion, windstorm, hail, riot, civil commotion, or vandalism
• Upset, overturn, or collision of the transporting vehicle with an object or another vehicle. A vehicle that strikes the roadbed is not considered collision.
• Theft of an entire bale, case, or product. However, visible signs or evidence of forced entry must be present and the vehicle's body or compartment where the property was kept must have been securely locked.

c. The additional limit of insurance under this Additional Coverage Extension is $5,000. It is not subject to coinsurance.

Note: The causes of loss an inland marine transportation coverage form provides are much broader. For example, flood and earthquake are covered.

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

This extension is unusual because it pays to repair undamaged property that was damaged in order to stop a cause of loss. If water, other liquids, powder, or molten material escapes from its confines, this coverage pays the cost to tear out any part of the building or structure when needed to reach the system or appliance that allowed the escape. This coverage also pays to replace the part of the building or structure torn out. It does not pay to repair the system or appliance because that is the named insured's responsibility. It does not pay for the damage the escape caused because the standard causes of loss form should cover it.

Note: This does not increase the limit of insurance but is still important because coverage does not usually apply to undamaged property.

Example: Cecil at Cecil's Farm Supply notices water damage to his stock. He searches for the source of the leak and discovers a trickle of water coming from the bottom of a wall. He calls a plumber to come out, investigate the source of the leak, and repair it. The plumber finally finds the leaky pipe after having to remove quite a bit of dry wall to do so but he successfully repairs the pipe. Cecil pays the cost of the plumber's services but the insurance company pays the expense to replace the dry wall and also the water damage to the stock.

3. Glass

Coverage applies to the cost to install temporary plates of glass or boards to cover window opening following a covered glass loss. Coverage also applies to the expense to remove obstructions that hinder the ability to repair or replace damaged covered glass. This coverage extension does not include the cost to remove or replace window displays.

Note: This is not an additional limit of insurance.

G. DEFINITIONS

1. Fungus

This is any form or type of fungus. It includes mold, mildew, mycotoxins, spores, scents, and by-products that fungus produces.

2. Specified Causes of Loss (10 12 changes)

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

a. Sinkhole collapse is the sudden sinking or collapse of land into spaces created by water acting on dolomite or limestone. The cost to fill sinkholes and the sinking or collapse into man-made underground spaces is not part of this cause of loss.

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

Example: The chandelier hanging in the dining room falls and lands on top of the dining room table. There is no coverage for either the chandelier or the dining room table.

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

Note: The prior definition was only the first bullet in this definition. The second bullet and the examples are added with the 10 12 definition.

• Water or steam but only when caused by the cracking or breaking apart of the plumbing or HVAC system or appliance on the described premises. The system must contain water or steam. However, this coverage does not apply to sump systems.
• Water or waterborne material but only when caused by cracking or breaking apart a water or sewer pipe located off premises. The water or sewer pipe must be part of a municipal water supply system or municipal sanitary sewer system. Wear and tear must cause the pipe to crack or break.

This definition is limited by conditions in the Water Exclusion. Any situation the Water Exclusion excludes is not considered water damage. CP 10 30 then provides two examples of when situations that may appear to be water damage are not water damage because they are not covered under the Water Exclusion.

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

Example: The water on the White River crested at 10 feet above flood stage. Paul’s Pastries’ basement is flooded. The impact of the flood breaks 75 year old pipes and results in water damage to the upper areas that the flood did not reach. There is no coverage because the flood caused the pipes to break.

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

Example: The water on the White River crested at 10 feet above flood stage. Maggie had noticed a leak in her bathroom earlier in the day and had contacted a plumber. She had turned off water to the pipe in order to prevent damage. The flood entered her basement and the impact of the water sheared off the cut off valve. The water damage that occurred when the water restarted in the bathroom is excluded because the flood aggravated it.

COMPARE: CP 10 30 TO CP 10 10

A key to understanding the differences between these two forms is that CP 10 10–Causes of Loss–Basic Form covers losses based on designated or named causes of loss instead of the risks of direct physical damage causes of loss that CP 10 30–Causes of Loss–Special Form provides. With CP 10 10, the insured must find coverage in one of the listed causes of loss. With CP 10 30, the insurance company must review the exclusions to determine that a specific loss is excluded. While CP 10 30 has more exclusions in order to explain what is excluded, the covered causes of loss sections of CP 10 10.

CP 10 10–CAUSES OF LOSS–BASIC FORM

CP 10 10–Causes of Loss–Basic Form only covers 11 causes of loss. CP 10 30 also covers these causes of loss but does not list them specifically.

A. COVERED CAUSES OF LOSS

1. Fire

2. Lightning

3. Explosion. Explosion does not include operation of a pressure device or it rupturing or bursting. It also does not include a building or structure rupturing or bursting because water caused contents inside it to expand.

4. Windstorm or hail. There following are not considered windstorm or hail and are therefore not covered:

• Frost or cold weather
• Ice that is not hail, snow, or sleet. These are not wind even when wind accompanies them.
• Damage to the interior of a building and/or to personal property inside the building caused by snow, rain, sand, or dust is covered but only when the roof or walls of the building are first damaged by wind or hail that then allows the snow, rain, sand, or dust to enter.
• Hail damage to lawns, trees, shrubs, or plants that are part of a vegetated roof (10 12 addition)

5. Smoke damage that is both sudden and accidental is covered. Smoke damage from agricultural smudging or industrial operations is specifically excluded.

6. Damage by vehicles or aircraft is covered only if the vehicle or aircraft actually physically contacts the damaged property. There is also coverage for property damaged that is inside a building when a vehicle or aircraft physically contacts the building. This means that the aircraft or vehicle or their parts must actually touch the property or the building where the property is located. As a result, sonic boom damage (also known as shock wave) is excluded because there is no physical damage.

There is no coverage for vehicle damage that the named insured’s owned vehicle (or any vehicle it uses in its operations) causes.

7. Riot or civil commotion. This cause of loss also includes acts of striking employees when they occupy a premises and looting by rioters that occurs at the same time as a civil commotion event.

8. Vandalism. Such damage must be willful and malicious. Loss that results from theft is not considered vandalism. However, damage that burglars cause while breaking into and exiting from a building is covered.

9. Sprinkler leakage damage. Sprinkler leakage occurs when any substance leaks or discharges from an automatic sprinkler system. This includes complete collapse of the system's tank. There is no requirement that the event be accidental. If the covered property is building, repairing or replacing damaged parts of the systems is covered when the damage causes leakage or is caused by freezing. The cost to tear out and repair parts of the building in order to access and repair a leaking sprinkler system is also covered.

Note: CP 10 10 defines what is considered an automatic sprinkler system. CP 10 30 does not define it.

10. Sinkhole collapse. This coverage does not apply to or include the costs to fill sinkholes. Coverage also does not apply to land that sinks or collapses into man-made mines and underground spaces.

11. Volcanic Action is covered similarly and as CP 10 30 defines it under the Earth Movement Exclusion.

B. EXCLUSIONS

This section in CP 10 10 is considerably shorter than in CP 10 30 because the causes of loss are defined. It has the broad, limited and special exclusions but not the anti-concurrent causations exclusions.

1. Broad Exclusions

These exclusions are identical to those in CP 10 30. Both forms exclude Ordinance or Law, Earth Movement, Governmental Action, Nuclear Hazard, Utility Services, War and Military Action, Water, and Fungus, Wet Rot, Dry Rot, and Bacteria.

2. Limited Exclusions

This exclusions section has only six subparts compared to 13 in CP 10 30. However, this does not mean that
CP 10 10 provides broader coverage. It simply means that fewer exclusions are needed because the coverage is much narrower to begin with. The CP 10 10 exclusions are:

a. Artificially Generated Energy

This exclusion is identical to exclusion 2. a. in CP 10 30.

b. Rupture or bursting of water pipes

This does not apply to sprinkler systems unless caused by a covered cause of loss.

Note: It is always to the insurance company’s advantage to have the sprinkler system operate properly.

c. Water or Steam Leakage or Discharge

There is no coverage unless a covered cause of loss damages the system or appliance. There is no coverage if such seepage or leakage continues for more than 14 days. The first part of this exclusion does not apply to automatic sprinkler systems. The second part of this exclusion is identical to exclusion 2. f. in CP 10 30.

d. Explosion of Owned or Operated Steam Boilers

This exclusion is identical to exclusion 2. e. in CP 10 30. However, the exclusion in CP 10 10 does not have the coverage exception for explosion of gases within the furnace.

e. Mechanical Breakdown

This exclusion is identical to the exclusion 2. d. (6) in CP 10 30. However the exceptions are different. The exceptions in CP 10 30 are for elevator collision, glass breakage, and specified causes of loss. The exception in CP 10 10 is for mechanical breakdown that results in a covered cause of loss.

f. Neglect

This exclusion is identical to exclusion 2. m. in CP 10 30.

3. Special Exclusions

These exclusions are identical in both forms.

C. ADDITIONAL COVERAGE

CP 10 10 has only one Additional Coverage. Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria is identical to CP 10 30.

Note: CP 10 10 does not cover collapse.

D. LIMITATION

CP 10 30 has a number of limitations but CP 10 10 has only one. It states that the insurance company pays for only loss of animals that are killed or must be destroyed. It does not pay veterinarian bills.

Note: This limitation is identical to the second part of limitation 2. a. in CP 10 30. The first part in CP 10 30 limits coverage to only specified cause of loss. This is not necessary in CP 10 10 because it covers only the basic causes of loss.

E. DEFINITIONS

Fungus is the only term defined and it is identical to the definition in CP 10 30.

COMPARE: CP 10 30 TO CP 10 20

A key to understanding the differences between these forms is that CP 10 20–Causes of Loss–Broad Form covers losses based on a designated or named causes of loss instead of risks of direct physical damage causes of loss that CP 10 30–Causes of Loss–Special Form provides. With CP 10 20, the insured must find coverage in one of the listed causes of loss. With CP 10 30, the insurance company must review the exclusions to determine that a specific loss is excluded. While CP 10 30 has more exclusions in order to explain what is not covered, the covered causes of loss sections of CP 10 20 is longer.

CP 10 20–CAUSES OF LOSS–BROAD FORM

CP 10 20–Causes of Loss–Broad Form covers 14 causes of loss. CP 10 30 also covers these causes of loss but does not list them specifically.

A. COVERED CAUSES OF LOSS

CP 10 20 provides broader coverage than CP 10 10 but not as broad as CP 10 30 because it also lists only the covered causes of loss. It includes 14 covered causes of loss compared to 11 in CP 10 10. The first 11 in CP 10 20 are identical to the first 11 in CP 10 10. The three additional covered causes of loss are:

12. Falling Objects

Coverage on personal property applies only to property in the building. It does not apply to property in the open. However, coverage does not apply until and unless the falling object first damages an outside wall of the building or its roof. This is identical to falling objects as described in the definition of specified causes of loss in CP 10 30.

Example: A falling object strikes a covered warehouse and the impact causes a lamp to fall off a table. The insured files a claim for the loss. The adjuster denies the loss after noticing that the object (an old tree limb) did not first cause any damage to the warehouse.

13. Weight of Snow, Ice, or Sleet

Any of these that cause damage is covered unless the personal property damaged is outside a covered building. There is also no coverage for such damage to lawns, trees, shrubs, or plants that are part of a vegetative roof. (10 12 change)

Note: Previous editions also excluded damage to gutters or downspouts.

14. Water Damage

This is accidental discharge of water or steam due to a plumbing, air conditioning, heating, or other systems or appliances cracking or breaking apart. The limitations on coverage are similar to those in CP 10 30 but all are brought together in CP 10 20.

B. EXCLUSIONS

This section in CP 10 20 is considerably shorter than in CP 10 30 because the causes of loss are defined.

It has the broad, limited and special exclusions but not the anti-concurrent causations exclusions.

.

1. Broad Exclusions

These exclusions are identical to those in CP 10 30. Both forms exclude Ordinance or Law, Earth Movement, Governmental Action, Nuclear Hazard, Utility Services, War and Military Action, Water, and Fungus, Wet Rot, Dry Rot, and Bacteria.

2. Limited Exclusions

This exclusions section has only four subparts compared to 13 in CP 10 30 but this does not mean that CP 10 20 provides broader coverage. It simply means that fewer exclusions are needed because the coverage is much narrower to begin with. The CP 10 20 exclusions are:

a. Artificially Generated Energy (06 07 change)

This exclusion is identical to exclusion 2. a. in CP 10 30.

b. Explosion of Owned or Operated Steam Boilers

This exclusion is identical to exclusion 2. e. in CP 10 30. However, the exclusion in CP 10 20 does not have the coverage exception for explosion of gases inside furnaces.

c. Mechanical Breakdown

This exclusion is identical to exclusion 2. d. (6) in CP 10 30. However, the exceptions are different. The exceptions in CP 10 30 are for elevator collision, glass breakage, and specified causes of loss. The exception in CP 10 20 is for mechanical breakdown that results in a covered cause of loss.

d. Neglect

This exclusion is identical to exclusion 2. m. in CP 10 30.

C. ADDITIONAL COVERAGE–COLLAPSE

This coverage is similar to the coverage CP 10 30 provides. The only difference is that CP 10 30 states that specified causes of loss apply while CP 10 20 lists the covered causes of loss that apply.

D. ADDITIONAL COVERAGE–LIMITED COVERAGE FOR FUNGUS, WET ROT, DRY ROT, AND BACTERIA

This coverage is similar to the coverage CP 10 30 provides. The only difference is that CP 10 20 lists the causes of loss instead of referring to the specified causes of loss in CP 10 30.

E. LIMITATION

This section of CP 10 20 is identical to the same section in CP 10 10.

F. DEFINITIONS

Fungus is the only term defined and it is identical to the definition in both CP 10 10 and CP 10 30.

CONCLUSION

CP 10 30 is the broadest of the three causes of loss forms and should be viewed as the first choice for most insureds. However, an alternative must be used from time to time. A good understanding of each form allows the agent to provide sound advice to the insured to enable it to make an informed selection.

Pre-2000 Edition Glass Coverage Form

Note: This form was withdrawn from use with the introduction of the 2000 edition of the Commercial Property Program. In the latest program, glass coverage is provided along with other property under the various Causes of Loss Forms. Also note that some specific form number references have been eliminated since they are obsolete under the newer program. However, we believe that it is helpful to maintain access to older program information for educational and comparison’s sake.

Prior to the 2000 Commercial Property Program, glass coverage in the commercial property program under the Building And Business Personal Property Coverage Form, CP 00 10, with attached causes of loss form was limited.

When the Causes of Loss - Basic Form is used, the peril of vandalism is restricted. Not covered is loss or damage to glass other than the glass building blocks that are part of the building/structure or to outside signs. Covered, however, is any damage or loss that may result to other property because of or from glass breakage by vandals.

Example: A department store is covered by a Commercial Property policy that includes the Causes of Loss - Basic Form. One day, vandals break a plate glass window. In this loss, the window is not covered, but the damage from the falling glass that knocks over a shelf of glass statuary is covered.

If the Causes of Loss - Broad Form is attached, there is more glass coverage available than that found in the basic form. However, it is still a limited protection. Glass coverage under the broad form is as follows:

Coverage is provided for breakage of glass that is a part of a building or structure. However, if breakage occurs, it has to be caused by or result from vandalism in order to qualify for coverage. Breakage due to a cause of loss that is not otherwise listed is also eligible for coverage. Even under the broad form, there is no coverage for the breakage of neon tubing attached to the building or structure.

The most that will be paid for glass breakage is:

a. $100 for each plate, pane, multiple-plate insulating unit, radiant or solar heating panel, jalousie, louver, or shutter

b. up to a maximum of $500 for any one occurrence

Should the insured choose the Causes of Loss -- Special Form, the limitation for glass is as follows:

The most that will be paid for one occurrence of loss or damage to glass that is part of a building or structure is an aggregate of $500, no matter how many panes, plates or units of glass are involved. A cap of $100 is applicable to any one pane, plate, multiple-plate insulating unit, radiant or solar heating panel, jalousie, louver, or shutter.

This limitation does not apply to any of the specified causes of loss except vandalism.

As a result of these limitations in coverage, a serious gap results in glass protection. To cover this gap, the Glass Coverage Form, CP 00 15, was developed. The form protected against all direct physical loss or damages to glass, lettering, and ornamentation that has been described or scheduled in the glass coverage schedule or the declarations.

Policy Makeup

A glass policy consists of the following parts or forms:

· Common policy declarations form, such as the ISO version IL 00 19 (or company adaptation thereof)

· Common Policy Conditions Form (IL 00 17) containing the conditions that are common to all commercial lines of insurance. This form is a mandatory part of all simplified monoline or multi-line policies.

· Commercial property declarations form, which companies may combine with common policy declarations in one document.

· Commercial property conditions form (CP 00 90), providing those conditions that apply to all coverages in the commercial property coverage part.

· Glass Coverage Form, which includes the necessary description of coverage, including what is covered and what is not, and conditions that apply specifically to that coverage. These conditions are categorized as loss conditions or additional conditions. Separate sections apply to the limit of insurance, deductible, optional coverages, and definitions.

· Glass Coverage Schedule – CP 19 15. In order for the glass, lettering, ornamentation, or other property to be considered covered under this coverage form, it must either be scheduled in the declarations or on an endorsement - the Glass Coverage Schedule, CP 19 15 - which was developed for this purpose. Each item may be listed and described individually, or all of a specific type may be described in a blanket description.

· Policy cover or jacket, designed by companies individually and possibly including a table of contents or an index, a requirement in some states.

In addition to the above-named forms, any number of endorsements may be attached. Endorsements are used to add additional coverage, restrict coverage, clarify coverage, or tailor the policy specifically to the needs of the insured or insurer.

GLASS COVERAGE FORM OVERVIEW, CP 00 15

The Glass Coverage Form, CP 00 15 (prior to the latest edition of the commercial property program) paid for direct physical loss or damage to covered property (glass) caused by any covered cause of loss. The policy may be written on a scheduled or a blanket basis.

Coverage

The policy pays for direct physical loss of or damage to glass, as described in the declarations of the policy or on a Glass Coverage Schedule, CP 19 14. Only two causes of loss are provided in this coverage form:

· breakage of glass or

· chemicals accidentally or maliciously applied to glass.

Additional Coverages

The policy additionally covers:

· Insured's expenses to remove debris of glass resulting from breakage.

· Expenses incurred to put up temporary plates or board up openings if the repair or replacement of glass is delayed.

· Expenses for the necessary repair or replacement of frames immediately encasing the damaged glass.

· Removal of obstructions when replacing or repairing glass is also covered. Excluded is the cost of removing or replacing window displays.

Extensions

Newly acquired glass that is the same type as described in the declarations or on the schedule may be covered as an extension of coverage. Lettering or ornamentation, if specifically included for the same type of glass, is also covered.

The extension applies automatically for a period of 30 days on newly acquired glass. At the end of that time, coverage ceases, unless the new glass is reported to the company and an additional pro rata premium is charged for the time period until the policy expires.

Exclusions

The policy does not pay for loss caused directly or indirectly by fire, nuclear hazard, or war and military action.

Limits Of Insurance

The policy pays in accordance with the limits shown in the declarations or for individual plates of glass described on the schedule. Payments under the additional coverages are required in addition to the limits of insurance on glass.

Deductible

Deductibles may be used to provide a premium credit. The available deductible amounts in which credits are provided in the rules are: $50, $100, $250, $500, $750 and $1,000.

Conditions

Duties in the Event of Loss:

· The insured must notify the police in the event of a loss and give prompt notice to the insurer.

· The insured is further obligated to take reasonable steps to protect the covered property from further damage and to keep a record of expenses for emergency and temporary repairs.

· A signed proof of loss must be sent to the company within 60 days after the company's request.

Loss Payment

At its option, the company will either:

· pay the actual value of lost or damaged property

· pay the cost of repairing or replacing the property

· take the property at an agreed or appraised value, or

· repair, rebuild or replace the property with other property of like kind and quality.

The company has 30 days after acceptance of the sworn proof of loss to pay for the loss.

The company will not pay for loss or damage if the building has been vacant for more than 60 days prior to the loss, but this condition is not applicable if an additional premium for coverage on vacant buildings is shown in the declarations.

Valuation

The value of covered property is determined as follows:

· At actual cash value at the time of the loss, except the company must pay the minimum cost of replacement with safety glazing material if required by enforcement of applicable statutes, ordinances or building codes.

· Optional Coverage

· Loss Payment For Larger Plates is an optional coverage that applies separately to each item. For glass with a surface area of 100 square feet or more, it is the company's option to: replace the property with two or more glass plates with a combined surface area equal to the surface area of the described glass; or pay for the value of two smaller plates with the combined surface area equal to the surface area of the described glass. The company will, in addition, pay the expense of alterations needed to install the smaller plates.

· Broken or Cracked Glass Exclusion endorsement, CP 10 52 is used to exclude glass that is broken or cracked at the policy inception and any extension of those breaks or cracks.

· Underwriting

· Glass coverage may NOT be written for the following types of glass:

·

art glass	memorial windows	stained glass
half tone screens	mosaic art	stained glass in leaded sections
lenses	rotogravure screens

· The schedule or declarations page is used to give a complete description of the kind and size of glass, lettering and ornamentation, and other covered property. The address of the building and the property's location in the building also should be fully described and it can either be described by individual items or as all glass of the type described.

· Rates And Premiums

· Each kind of glass is classified as to Classes A, B, C, D and E.

· To determine the base rate by size of glass, measure the length and width of the glass surface and multiply length by width. Divide the result by 144 inches to determine the number of square feet in the plate.

· Glass also can be measured by size of object for structural glass, such as doors, shutters and windows. In this case, determine the number of square feet of the object from the overall measurement, including frames, to determine the base rate.

· The base rate is modified by both location and use multipliers and territorial multipliers, which are applied to the base rate. Other multipliers also may apply for different situations.

· GLASS COVERAGE FORM ELIGIBILITY

· Insureds And Operations

· Currently, no restrictions or limitations are stated as to the types of insureds who are eligible for this coverage form, nor are there any limitations to the types of operations that may use this insurance.

· Any insured or operation otherwise eligible for the commercial property program may use or attach the glass coverage part to the commercial property policy or commercial package policy.

· Property Types

· Restrictions are placed on the types of property that may use this coverage form. A list of the ineligible types of property appears above in the Underwriting section. The ineligible types of property are better protected by inland marine coverage forms.

· Causes Of Loss

· A cause of loss form is not attached to the Glass Coverage Form. The perils protected against are built into the coverage form itself, thus eliminating the need for a cause of loss form.

· Broken Or Cracked Glass

· Broken and cracked glass and any extensions that may result from the breaks and cracks may be excluded by endorsement at policy inception. The Broken Or Cracked Glass Exclusion Endorsement, CP 10 52, was developed for this purpose.

· Schedule

· In order for the glass, lettering, ornamentation, or other property to be considered covered under this coverage form, it must either be scheduled in the declarations or on an endorsement -- the Glass Coverage Schedule, CP 10 15 -- which was developed for this purpose.

· Each item may be listed and described individually, or all of a specific type may be described in a blanket description.

· Vacancy

· In the Building Or Business Personal Property Coverage Form, CP 00 10, whenever a building has been vacant as defined for more than 60 consecutive days prior to the onset of any damage or loss, then regardless of whether or not the coverage form has been endorsed to cover glass breakage, there is NO coverage for it.

· As a result, a serious glass coverage gap may exist on vacant buildings. In the Glass Coverage Form, for an additional premium, coverage may be purchased for loss or damage to glass on a building that is vacant for more than 60 consecutive days before the loss or damage.

· This option is triggered by an entry onto the declarations or the glass schedule.

· No limitations apply to the types of insureds who may purchase this option.

· Glass Coverage Form Analysis - CP 00 15

· The coverage form begins by explaining that throughout the policy, various provisions will restrict coverage. It is cautioned that the policy must be read very carefully in order to obtain a complete picture of the entire scope of rights and duties of and to the insured, as well as to identify accurately what is and is not covered by this coverage form.

· "You" and "Your" define who is being insured. "You" and "Your" are the persons or organizations named in the declarations page and identified as insureds. Therefore, it is critical that all insureds be positively identified. If a business should purchase, sell, or create new entities during the course of the policy period, it is imperative that these new entities be added. Using et al, or “all entities that may be acquired during the policy period,” or similar omnibus language is not acceptable. Define each covered entity, and add or delete as necessary during the policy period.

· "We," "us" and "our" are the insurance company providing coverage.

Section H - DEFINITIONS contains defined words and terms. These defined words are in quotation marks throughout the coverage form. For the purposes of this analysis, defined words are summarized in the right-hand column.

A. Coverage

The protection provided under this insurance coverage form is for the direct physical loss or damage to covered property consisting of glass, lettering and ornamentation, as long as it is described either in the declarations or in the Glass Coverage Schedule, CP 10 15.

The peril or cause of loss must be a covered cause of loss as described in this coverage form. Notice that no additional or separate causes of loss form is attached. Perils covered are built into the coverage form itself.

1. Covered Property

When used in this insurance policy, covered property is glass. Further, to be covered, the glass must be described either in the declarations or the Glass Coverage Schedule, CP 10 15. Glass includes lettering and ornamentation, as long as that is also described.

2. Covered Causes Of Loss

Two causes of loss are specifically mentioned as covered:

· Breakage of glass

· Chemicals that are accidentally or maliciously applied to the glass.

No further explanation or definition of breakage of glass is mentioned in the causes of loss section. Thus, broad, all-risk direct physical damage protection is provided, unless elsewhere excluded.

3. Additional Coverages

a. Debris Removal

Coverage is provided for the insured's expenses to remove debris consisting of glass or other covered property resulting from breakage by a covered cause of loss.

b. Temporary Plates

Expenses incurred to put up temporary plates, or to board up openings if the repair or replacement of glass is delayed, are provided for.

c. Frames

Also covered are the expenses for the necessary repair or replacement of frames immediately encasing the damaged glass.

d. Removal of Obstructions

Removal of obstructions when replacing or repairing glass is also covered. Excluded is the cost of removing or replacing window displays.

Coverage Extension

Newly Acquired Glass

1. The Glass Coverage Form may be extended to apply to the following:

a. If the insured acquires additional glass of the same type described in the policy, or changes the existing glass to a described type, either at the covered premises (described in the declarations or schedule) or at a location the insured becomes owner of or controls, coverage is extended.

b. The same thing applies to any lettering and ornamentation, if it is specifically included for the same type of glass described in the declarations or schedule - there is coverage.

2. Coverage for the newly acquired glass ceases as soon as any one of the following three circumstances first occurs:

a. the policy expires

b. 30 days passes after the insured acquires the property, or

c. the insurer is notified by the insured of the acquisition.

A charge will be made for the additional premium to provide the glass protection on newly acquired glass, from the date of acquisition.

B. Exclusions

These exclusions contain a preface to explain that loss or damage caused directly or indirectly by any of the following causes of loss is excluded, regardless of whether any other covered cause of loss occurs in any sequence or contributes concurrently to the loss. This preface makes clear the insurer’s intent not to cover these types of loss or damage under this coverage form. Eliminated is the ability to bring in the doctrine of concurrent causation on these specific causes of loss. Thus the applicability of this doctrine has been reduced with respect to commercial property insurance.

1. Fire

2. Nuclear Hazard - no coverage is provided for any nuclear reaction, radiation or radioactive contamination, no matter how it is caused. In the event that fire occurs as a result of any of the named nuclear hazards, there is coverage for the fire damage or loss.

3. War and Military Action - no coverage exists under this coverage form for any loss or damage to covered property that occurs as a result of war or military action. In an effort to further clarify what is considered war or military action, the following items are specifically mentioned as excluded:

• war, whether declared or not
• civil war
• warlike action by any military force, which also includes any action to hinder or defend against actual or expected attack by a government, sovereign or other authority that uses military personnel/agents
• insurrection
• rebellion
• revolution
• usurped power, or
• action taken by any governmental authority to hinder or defend against any of the above.

C. Limit Of Insurance

When a limit of insurance is shown for glass, either in the declarations or in the glass schedule, the most available for any one occurrence of a glass loss is that limit of insurance.

If payments are made under one of the additional coverages, they are in addition to the limits of insurance (if any limit has been shown).

The limit of insurance is optional. If one is not selected, the actual amount of loss is covered for the replacement of the glass.

Limits may be used to limit or control the insurer’s liability or to keep the pricing in line for the insured when large amounts of glass are exposed.

D. Deductible

Coverage for the glass loss or damage for any one occurrence will not be paid until the amount of loss or damage exceeds the glass deductible shown either in the declarations or in the glass schedule (if one has been selected). When one has been selected, and the loss exceeds the deductible, the insurer will cover the loss that exceeds the deductible up to the state limit of insurance if a specified limit has been selected.

A deductible is not mandatory for glass. It is an option and is used either by the insurer to control small, frequent, nuisance-type claims or to keep the pricing in line for the insured.

E. Loss Conditions

Four loss conditions that apply in addition to the common policy conditions and the commercial property conditions are added to this coverage form. They are:

1. Duties In The Event Of Loss Or Damage

a. Anytime there is a loss or damage to covered property, the following items become the duty of the insured, and must be performed in order to collect payment:

· Notify the police if a law has or may have been broken.

· Give the insurer prompt notice of the loss or damage. This notice must include a description of the property that was lost or damaged.

· Provide the insurer with a description of how, when, and where the loss or damage occurred as soon as possible. Unfortunately, "as soon as possible" is not defined or clarified by policy language.

· The insured must take all reasonable steps to protect covered property from further damage. These steps include keeping a record of expenses that were necessary to protect the property. These expenses will be taken into consideration when settling the claim. However, they in no way increase the limit of insurance. It is further clarified that if any subsequent loss or damage results from a cause of loss that is not covered by the cause of loss form, the insurer is under no obligation to make payment for that subsequent loss or damage. One additional item: when and where possible, the insured should set aside any damaged property in the best possible order to be examined (by the insurer, claims adjuster, or public official).

· The insurer may inspect the property, books, and records of the insured to prove the loss or damage as often as reasonably required. The insured must cooperate and allow the insurer to take samples of both the damaged and undamaged property for inspection, tests and analysis. In addition, the insured must allow the insurer to make copies of the books and records.

· The insured must send the insurer a signed, sworn proof of loss containing the information requested by the insurer to investigate the claim. This document must be sent within 60 days of the insurer's request. Any forms necessary for this process will be supplied by the insurer.

· The insured must cooperate with the insurer in the investigation or settlement of the claim.

b. The insurer has the right to question or examine any one of the insureds under oath, as often as reasonably required, regarding any matter that has any relevancy to the insurance policy, claim, or loss. This stipulation includes the insured's books and records. Any of this investigation may be done outside the presence of another insured. When an actual examination is completed, an insured's answers must be signed.

2. Loss Payment

a. When loss or damage occurs to property that is covered by this coverage form, the insurer will determine which payment option will be used, based on one of the following four:

1) to pay either the value of the property that has been lost or damaged (this option is subject to paragraph b. as follows), or

2) to pay the cost to repair or replace that property

3) or the insurer may take possession of all or part of the damaged property (normally for salvage) and pay the insured the appraised or agreed values of that property, or

4) repair, place, rebuild, or otherwise restore the property with similar or like kind and quality property (this option is subject to paragraph b. as follows)

b. The insurer agrees to notify the insured of their intentions regarding the handling of the loss payment within 30 days of their receipt of the sworn proof of loss.

c. It is further clarified that the insurer will not pay more than the insured's financial interest in the covered property. This clarification is intended to reduce the potential for fraud or other intentional loss by limiting the amount of recovery to only the actual financial loss sustained by the insured.

d. The insurer agrees to make payment of the claim for loss or damages to covered property within 30 days of the receipt of the sworn proof of loss, as long as all of the terms and conditions of the coverage form have been complied with, and the insured and insurer have reached agreement upon the value of the property or the amount of loss, or an appraisal award has been made.

3. Vacancy

a. Description of Terms

1) The section regarding vacancy has undergone substantial revision with this edition of the property coverage form. Note that the term “unoccupancy” is no longer a part of the coverage form verbiage. The coverage form now describes and clarifies what is meant by the term “vacant” as used in this condition for a tenant, building owner, or property under construction.

a) Tenant: When the insured is a tenant and covering the insured's interest as a tenant in any covered property, the definition of building is the unit or suite that has been rented or leased to the tenant. That building is considered vacant when it no longer contains enough business personal property to conduct the customary operations of the insured.

b) Building Owner: When the insured is a building owner, “building” is defined as the entire building. The building is considered vacant when 70% or more of that building's square footage is not rented or is not used to conduct the customary operations of the insured.

2) Buildings Under Construction: Buildings that are under construction or renovation are not considered to be vacant.

b. Vacancy Provisions

1) When a building has been vacant for more than 60 consecutive days prior to a loss, there is no coverage for any loss or damage that occurs after that 60 days.

2) When a premium charge has been made and is shown either in the declarations or the glass coverage

schedule for vacant buildings, the above condition does not apply, and there will be coverage.

4. Valuation

When a loss or damage occurs to covered property, the insurer will value the property and make payment based on the following:

a. actual cash value at the time of loss or damage, unless provided for specifically in item b. to follow.

b. the minimum cost to replace with safety glazing material that is required by the enforcement of an applicable statute, ordinance, or building code.

Optional Coverage

When selected and triggered by an entry either in the declarations or the glass schedule, an optional coverage is available for large plates. Should this option be selected, this coverage will apply separately to each item or plate of glass.

Loss Payment For Large Glass

For glass (covered property) with a surface area of 100 square feet or more, the insurer has the option to either:

1. replace the property with two or more glass plates with a combined surface area equal to the total surface area of the described glass. The number of replacement plates will not exceed the number shown in the declarations or glass schedule for this optional coverage. This means that the insured and insurer may come to some agreement ahead of time regarding the replacement of very large plates of glass. They may agree that the glass can be replaced with smaller sections, and they also may agree to the maximum number of smaller sections by which the one plate may be replaced.

2. make a payment to the insured for the value of two smaller plates with a combined surface area equal to the surface area of the one large, described plate. When this is done, the insured also will pay any expense of alterations needed to install the smaller plates.

ISO COMMERCIAL PROPERTY PROGRAM AVAILABLE ENDORSEMENTS AND THEIR USES (06 07 EDITION)

INTRODUCTION

This listing identifies endorsements available to modify the Insurance Services Office (ISO) Commercial Property Program. It is arranged by form number and title and includes a brief explanation of the use of each form. This section does not include any state specific endorsements.

Note: New endorsements with the 06 07 edition are in bold type.

FORM NUMBERING

The ten-digit numbering sequence of ISO forms and endorsements has a very specific meaning.

• The first two entries are alphabetical characters that indicate the line of insurance involved. For example, "CP" denotes "Commercial Property."
• The next two digits designate the specific insurance category. Additional detail and information on these categories is in the next section below.
• The next two digits are the form or endorsement number within the insurance category.
• The last four digits are the edition date of the form or endorsement expressed in month and year format. These digits are not used in this analysis.

CATEGORIES

Endorsements are grouped in categories according to their purpose, as follows:

• Category CP 00–Coverage Forms and Declarations
• Category CP 01–Amendatory Endorsements (this analysis does not address state specific endorsements)
• Category CP 02–Cancellation Endorsements (this analysis does not address these endorsements)
• Category CP 03–Deductible Endorsements
• Category CP 04–Additional Coverage Endorsements
• Category CP 10–Causes of Loss Endorsements
• Category CP 11–Builders Risk Endorsements
• Category CP 12–General Endorsements
• Category CP 13–Value Reporting Form and Related Endorsements
• Category CP 14–Additional Covered Property and Property Not Covered
• Category CP 15–Time Element Endorsements
• Category CP 17–Standard Property Policy Condominium Endorsements
• Category CP 19–Supplemental Schedules
• Category CP 60–Leasehold Interest Factor Tables
• Category CP 99–Miscellaneous Endorsements
• Category IL–Interline Forms and Endorsements

CATEGORY CP 00–COVERAGE FORMS AND DECLARATIONS

This section does not list Declarations. The major coverage forms listed below are not analyzed in detail in this section because each has a detailed analysis elsewhere in PF&M.

CP 00 10–Building and Personal Property Coverage Form

CP 00 17–Condominium Association Coverage Form

CP 00 18–Condominium Commercial Unit-Owners Coverage Form

CP 00 20–Builders Risk Coverage Form

CP 00 30–Business Income (and Extra Expense) Coverage Form

CP 00 32–Business Income (Without Extra Expense) Coverage Form

CP 00 40–Legal Liability Coverage Form

CP 00 50–Extra Expense Coverage Form

CP 00 60–Leasehold Interest Coverage Form

CP 00 70–Mortgageholders Errors and Omissions Coverage Form

CP 00 80–Tobacco Sales Warehouse Coverage Form

CP 00 90–Commercial Property Conditions

CP 00 99–Standard Property Policy

CATEGORY CP 01–AMENDATORY ENDORSEMENTS

CP 01 40–Exclusion of Loss Due to Virus or Bacteria

This is a mandatory endorsement in a number of states. It is an absolute exclusion that eliminates all loss or damage caused by disease or illness that causes viruses and microorganisms. Most states use this version of the endorsement but others may use a different version that has the same title but a different form number. The intent of all versions is similar.

CATEGORY CP 03–DEDUCTIBLE ENDORSEMENTS

CP 03 20–Multiple Deductible Form

This endorsement changes the single deductible to a customized deductible by cause of loss, location, or type of coverage.

CP 03 21–Windstorm or Hail Percentage Deductible

This endorsement changes the single deductible but only as it relates to windstorm or hail causes of loss. Percentage options of 1%, 2%, or 5% are available. States that have not accepted this endorsement have their own unique percentage deductibles. Refer to the state exceptions to determine if this endorsement can be used in a specific state.

CATEGORY CP 04–ADDITIONAL COVERAGE ENDORSEMENTS

CP 04 01–Brands and Labels

This endorsement allows the insured to control its labeling. If a loss occurs, the insurance company agrees to settle the claim the way it usually does. The difference lies with any salvage the insurance company plans to distribute. The insurance company allows its salvage potential to be reduced by permitting the insured to stamp “salvage” on the property and to remove the labels. In addition, the insured is reimbursed for its expenses to do so. A higher limit of insurance may be needed to cover the insured's expenses to stamp and remove labels.

CP 04 02–Increased Cost of Loss and Related Expenses for Green Upgrades (09 09 addition)

This endorsement allows the insured to anticipate replacing existing non-green construction with green construction following a loss. A percentage of the limit of insurance must be entered on the endorsement schedule, along with the maximum limit that will be paid for such upgrades. In addition, business income coverage period of restoration can be extended for the additional time needed for such upgrades.

CP 04 05–Ordinance or Law Coverage

An insured needs this endorsement if it is required to meet building ordinances or laws that are grandfathered prior to a loss but that will be activated following it.

CP 04 07–Pollutant Clean Up and Removal Additional Aggregate Limit of Insurance

This endorsement adds the limit entered on the endorsement schedule to the $10,000 pollutant clean up and removal limit in the coverage form.

CP 04 10–Electrical Apparatus (06 07 change)

This coverage form is mandatory on policies that cover public service light, power, and utility property. It modifies the artificially generated exclusion in the causes of loss form by expanding the exception for resulting fire to resulting fire, explosion, or electricity to covered property electrical apparatus. This endorsement includes a $1,000 minimum deductible. The 06 07 change was to match the B.2.a. exclusion wording in the 06 07 causes of loss forms.

CP 04 15–Debris Removal Additional Insurance

This endorsement increases the debris removal limit in the coverage form to the limit on the endorsement schedule. The limit may apply to only specific premises or specific buildings.

CP 04 17–Utility Services–Direct Damage

This endorsement covers loss or damage to covered property caused by an interruption of utility service to the premises listed and described on the endorsement schedule.

CP 04 18–Condominium Commercial Unit-owners Optional Coverages

(Use with CP 00 18 and CP 00 99) This endorsement provides loss assessment coverage and miscellaneous real property coverage. Coverage must be scheduled by location based on entries on the endorsement schedule.

CP 04 25–Newly Acquired or Constructed Property–Increased Limit

This endorsement increases the $250,000 automatic limit of insurance in the newly acquired or constructed buildings coverage extension to the limit entered on the endorsement schedule.

CP 04 30–Electronic Commerce (E-Commerce)

This endorsement covers direct damage and time element electronic commerce losses.

CP 04 31–Changes–Fungus, Wet Rot, Dry Rot and Bacteria

This endorsement increases the $15,000 limit for Additional Coverage–Limited Coverage for Fungus, Wet Rot, Dry Rot and Bacteria in any of the causes of loss forms to the limit on the endorsement schedule. The limit can apply per location.

CP 04 32–Business Personal Property Limited International Coverage

This endorsement extends the coverage territory. Your Personal Property coverage is extended to the listed foreign territory/territories while the property is in transit to, while in, and in transit from it/them. This coverage is for U.S. based operations that send employees or management overseas for short periods of time to present and/or exhibit products.

CP 04 33–Property in Process of Manufacture by Others Limited International Coverage

This endorsement covers the insured's raw material, stock in process, and finished products while at a non-owned location in the scheduled foreign territory. This is coverage for property on premises, not transit coverage. This is also temporary coverage and there is no coverage if the stock is kept at the foreign location to be sold.

CP 04 38–Functional Building Valuation

CP 04 39–Functional Personal Property Valuation Other Than Stock

CP 04 40–Spoilage Coverage (06 07 change)

This endorsement extends coverage to include spoilage of perishable stock within the building at the described premises. The insured must own the stock (or the stock must be in its care, custody, or control). The spoilage can be caused by power outage and/or breakdown/contamination. The endorsement was changed significantly in 06 07 but the changes were primarily in formatting with little impact on coverage.

CP 04 50–Vacancy Permit

CP 04 60–Vacancy Changes

CATEGORY CP 10–CAUSES OF LOSS ENDORSEMENTS

CP 10 10–Causes of Loss–Basic Form

CP 10 20–Causes of Loss–Broad Form

CP 10 30–Causes of Loss–Special Form

CP 10 32–Water Exclusion Endorsement (08 08 addition)

This endorsement must be attached to all policies. It changes coverage significantly and should be reviewed carefully.

CP 10 33–Theft Exclusion

(Use with CP 10 30) This restrictive endorsement allows the named insured to have all the advantages of the causes of loss–special form without paying the price for theft coverage. It may be used as an underwriting tool, as a cost savings device, or to prevent duplicate coverage because an inland marine coverage form provides theft coverage. It excludes all theft losses (except those that occur during looting that accompanies a riot). Coverage also applies to loss or damage caused by or that results from burglars attempting to enter or exit the premises.

CP 10 35–Watercraft Exclusion

(Use with CP 10 30) This endorsement excludes loss or damage to retaining walls, bulkheads, pilings, piers, wharves, and docks struck by a watercraft. It is mandatory only if such waterfront property has been added to the coverage using CP 14 10–Additional Property.

CP 10 37–Radioactive Contamination

This endorsement adds limited or broad radiation coverage to the property and/or income on the endorsement schedule. The limited form provides coverage only if another cause of loss triggers the contamination. The broad form does not require that another cause of loss be involved.

CP 10 39–Sprinkler Leakage–Earthquake Extension

This endorsement was withdrawn in 2001. CP 10 40–Earthquake and Volcanic Eruption Endorsement now provides this coverage.

CP 10 40–Earthquake and Volcanic Eruption Endorsement

CP 10 41–Earthquake Inception Extension

This endorsement changes the inception date limitation in CP 10 40 so that, even if an earthquake or volcano begins prior to the policy inception date of the coverage, the damage that occurs after the inception date is covered.

CP 10 45–Earthquake and Volcanic Eruption Endorsement (Sub-limit Form)

CP 10 51–Grain Properties–Explosion Limitation

(Use with CP 10 10, CP 10 20, and CP 00 99) This restrictive endorsement is mandatory when covering grain properties. It excludes coverage under the explosion cause of loss for any explosion due to changes in temperature.

CP 10 52–Broken or Cracked Glass Exclusion Form (06 07 change)

This endorsement excludes loss or damage to existing broken or cracked glass listed and described on the endorsement schedule. The 06 07 revision included only formatting changes.

CP 10 54–Windstorm or Hail Exclusion (06 07 change)

This endorsement excludes windstorm and hail as covered causes of loss at the locations listed on the endorsement schedule. The 06 07 edition added an extra paragraph that states that any terms in this specific exclusion cannot be used to create coverage in another part of the policy.

CP 10 55–Vandalism Exclusion (06 07 change)

This endorsement excludes vandalism as a covered cause of loss at the locations listed on the endorsement schedule.

CP 10 56–Sprinkler Leakage Exclusion (06 07 change)

This endorsement excludes sprinkler leakage as a covered cause of loss at the locations listed on the endorsement schedule.

CP 10 60–Molten Material

(Use with CP 10 10, CP 10 20, and CP 00 99) This endorsement adds Molten Material as a covered cause of loss. This means that loss of damage caused by molten material accidently discharged from equipment (and the heat from such discharged material) is covered.

CP 10 65–Flood Coverage Endorsement (06 07 change)

CP 10 70–Pier and Wharf Additional Covered Causes of Loss

(Use with CP 10 10, CP 10 20, and CP 00 99) The coverage this endorsement provides is specific to damage to piers and wharves. It should be used only if piers and wharves have been added as covered property using CP 14 10–Additional Covered Property. This additional cause of loss is for damage caused by floating ice as well as if a vessel or floating object collides with the pier or wharf.

CATEGORY CP 11–BUILDERS RISK ENDORSEMENTS

CP 11 05–Builders Risk Reporting Form

CP 11 06–Builders Risk Premium Adjustment Form

This form is used to report the monthly property values at risk that CP 11 05–Builders Risk Reporting Form insures.

CP 11 13–Builders Risk Renovations

CP 11 14–Builders Risk–Separate or Sub-Contractors Exclusion

CP 11 15–Builders Risk–Separate or Sub-Contractors Coverage

CP 11 20–Builders Risk–Collapse During Construction

CP 11 21–Builders Risk–Theft of Building Materials, Fixtures, Machinery, Equipment

CP 11 99–Builders Risk Changes–Standard Property Policy

This endorsement must be used whenever builders risk coverage is purchased in connection with CP 00 99–Standard Property Policy. It provides the necessary changes to that policy to complete the builders risk coverage.

CATEGORY CP 12–GENERAL ENDORSEMENTS

CP 12 01–Commercial Property Coverage Part Policy Changes

This general-purpose endorsement is used to list and summarize endorsement and premium changes to a commercial property coverage form or policy.

CP 12 05–Commercial Property Coverage Part Supplemental Declarations

This supplemental declarations was withdrawn with the 10 00 edition and replaced by CP DS 01.

CP 12 11–Burglary and Robbery Protective Safeguards

This endorsement is used to list and describe various burglary and robbery protective safeguards the insured installs to the covered premises.

Important: This is a warranty that voids coverage if the described systems are not in working order at the time of loss.

Note: IL 04 15–Protective Safeguards Endorsement is a more inclusive endorsement that can list and describe the burglary and robbery systems in addition to sprinkler and fire alarms.

CP 12 18–Loss Payable Provisions (06 07 change)

This endorsement is used to provide the names and addresses of loss payees, lender’s loss payees, or the interests involved in a contract of sale. The named insured’s building owner can be listed on this endorsement when the named insured is a tenant. (06 07 addition) Its language explains the terms and conditions of coverage for the various insurable interests but does not extend coverage beyond the loss payee's financial interest or the policy limit. (06 07 addition)

Note: A building owner that is listed on CP 12 19–Additional Insured–Building Owner cannot also be listed on this endorsement on the same policy.

CP 12 19–Additional Insured–Building Owner (06 07 addition)

This endorsement is available when the named insured is a tenant. It adds the building owner as a named insured but only for direct physical loss or damage to the building listed on the endorsement schedule. It cannot be attached if the building owner is named as a loss payee under CP 12 18–Loss Payable Provisions.

CP 12 30–Peak Season Limit of Insurance

CP 12 32–Limitation on Loss Settlement–Blanket Insurance (Margin Clause) (06 07 addition)

CP 12 40–Commercial Property Coverage Part Renewal Endorsement

This endorsement was withdrawn with the 10 00 edition and replaced by CP DS 02.

CP 12 60–Loss Adjustment Endorsement–Commercial Property Coverage

This schedule was withdrawn and replaced by CP 12 70.

CP 12 70–Joint or Disputed Loss Agreement

This endorsement should be attached when property covered under the commercial property coverage form is also covered under a boiler and machinery or equipment breakdown coverage form. It is especially important when different carriers provide the property and equipment breakdown coverage. It details how to handle losses that potentially involve both coverage forms. The intent of the endorsement is to compensate the named insured promptly and encourage the different carriers that provide coverage to resolve the coverage dispute without delaying the insured's settlement.

CP 12 99–Standard Property Policy Renewal Endorsement

This endorsement was withdrawn with the 10 00 edition and replaced by CP DS 03.

CATEGORY CP 13–VALUE REPORTING FORM AND RELATED ENDORSEMENTS

CP 13 10–Value Reporting Form

CP 13 20–Additional Locations–Special Coinsurance Provisions

This endorsement is used only for risks subject to the multiple location average rating technique. It extends coverage to reported, acquired, and incidental locations. It adds a coinsurance provision that applies solely to such locations. CP DS 04–Reported-Acquired-Incidental Locations Schedule must be attached to show the applicable limits.

CP 13 30–Agricultural Products Storage (06 07 change)

This endorsement is used only if CP 13 10–Value Reporting Form is also attached. It is intended to provide coverage for grain, hay, straw, and other crops harvested and stored in the open. Storage can be on premises or off premises but coverage does not apply to such property while in transit or at a fair. This endorsement also addresses ownership and valuation issues that are unique to this type of property.

CP 13 60–Report of Values

This form is used to submit periodic reports of value to the insurance company. It is required when CP 13 10–Value Reporting Form is part of the coverage form or policy.

CP 13 61–Supplemental Report of Values

This form is used when there are more locations than CP 13 60–Report of Values can accomodate.

CP 13 70–Multiple Location/Premium and Dispersion Credit Application

This application is used to request that ISO develop the Multiple Location/Premium and Dispersion Credit.

CATEGORY CP 14–ADDITIONAL COVERED PROPERTY AND PROPERTY NOT COVERED

CP 14 10–Additional Covered Property

Property described on this endorsement's schedule is moved from Property Not Covered to Property Covered. It must be completed very carefully and specifically because of the impact it has on both coverage and coinsurance. It is VERY important to add the value of the property back into the building or personal property limits in order to avoid underinsurance and coinsurance problems.

Note: Some examples of property that can be included by scheduling them on this endorsement include the cost of excavations, foundations, underground pipes, pilings, fences, retaining walls, bridges, vehicles, self-propelled machines, and animals.

CP 14 15–Additional Building Property

This endorsement is used to transfer Business Personal Property items to Building items. An example is permanently installed machinery and equipment. This can save premium because building property has a lower rate. The Building limits must be increased for the additional items and the Business Personal Property limits reduced.

CP 14 20–Additional Property Not Covered

This endorsement can be used to customize coverage in many situations. It allows an insured to eliminate property it does not wish to insure. Some examples of property that can be listed are awnings, chimneys, crop silos (and their contents), swimming pools, waterwheels, value of improvements, alterations, and repairs, personal property in safes and vaults, glass, metal, ores, gravel, property of others, signs, vending machines, and stock. This endorsement must be used very carefully (and with the insured's full knowledge) because it eliminates coverage. The endorsement schedule's description of the excluded property must be very specific.

CP 14 30–Outdoor Trees, Shrubs and Plants

This endorsement broadens the limited coverage provided for trees, shrubs, and plants. The coverage is customized with a limit for all items (subject to a sub-limit per item). The causes of loss form that applies to the coverage form does not apply to this endorsement. It must have a separate causes of loss form. The insured has the option to exclude vehicles as a covered peril. It is very important that the causes of loss form selected be attached to the policy.

CP 14 40–Outdoor Signs (06 07 change)

All outdoor signs are covered for up to $2,500 on the commercial property coverage forms. This endorsement replaces the $2,500 limit for the sign(s) listed on the schedule with the limit, subject to the scheduled coinsurance for that sign.

CP 14 50–Radio or Television Antennas

This endorsement transfers scheduled radio or television antennas (including satellite dishes, their lead-in wiring, and masts or towers) from Property Not Covered to Property Covered. The property is subject to the limits, coinsurance, and causes of loss on the endorsement schedule.

CP 14 60–Leased Property

Leased property in the insured's care, custody, or control that it is contractually required to insure is considered part of Business Personal Property coverage. This endorsement provides the insured the option to specifically schedule such leased personal property of others and to do so on an agreed value basis as an option.

CP 14 70–Building Glass–Tenants’ Policy (06 07 addition)

Commercial property coverage forms include building glass that makes up part of a building. There is no glass coverage if a named insured does not have building coverage. This endorsement is used to cover building glass when a tenant is contractually obligated to insure it. The glass must be described and a limit and the causes of loss form that applies entered on the endorsement schedule.

CATEGORY CP 15–TIME ELEMENT ENDORSEMENTS

CP 15 01–Business Income from Dependent Properties Limited International Coverage

CP 15 02–Extra Expense from Dependent Properties Limited International Coverage

CP 15 03–Business Income–Landlord as Additional Insured (Rental Value) (06 07 addition)

This endorsement is used to meet a tenant's contractual obligation to provide coverage for the landlord's rental value. The limit, business income form number, coinsurance, and causes of loss form that applies must be entered on the endorsement schedule. The tenant is not required to carry any other type of business income coverage.

CP 15 04–Discretionary Payroll Expense (06 07 addition)

This endorsement includes payroll expenses for the listed job classifications or employees without requiring that those expenses be necessary for operations to resume. An option is available to limit coverage to a maximum number of days.

CP 15 07–Expanded Limits on Loss Payment

This endorsement customizes the extra expense period of restoration. The number of time periods and the percentages that apply to each time period can be modified to suit a specific operation's needs.

CP 15 08–Business Income from Dependent Properties–Broad Form (06 07 change)

CP 15 09–Business Income from Dependent Properties–Limited Form (06 07 change)

CP 15 10–Ordinary Payroll Limitation or Exclusion (06 07 change)

This endorsement allows the insured to completely exclude coverage for ordinary payroll expenses (or to cover those expenses for only the scheduled number of days. This approach means that the insured can carry a lower limit of insurance in return for a premium surcharge.

CP 15 11–Power, Heat and Refrigeration Deduction

This endorsement excludes the costs of power, heat, or refrigeration used in production operations from continuing business expenses. If utility obligations do not continue after a loss, the insured might include this endorsement and deduct the cost of power, heat, and refrigeration from its business income limit of insurance. This approach means that the insured can carry a lower limit of insurance in return for a premium surcharge but the result is usually a lower net premium.

CP 15 13–Seasonal Leases–Monthly Limits on Loss Payment

This endorsement recognizes that many rental properties are seasonal. Coverage applies only for the months and limits entered in the spaces provided. Coverage applies if the named insured occupies the property or rents it to others.

CP 15 15–Business Income Report/Work Sheet

This work sheet is mandatory if the agreed value option on the declarations is selected. It is also mandatory when
CP 15 20–Business Income Premium Adjustment is attached. This worksheet is used to calculate an operation's prior 12-month business income and also to estimate its next 12-month business income. It contains step-by-step instructions and procedures to determine the proper limits of insurance required.

CP 15 20–Business Income Premium Adjustment

CP 15 24–Mining Properties–Business Income

CP 15 25–Business Income Changes–Educational Institutions

CP 15 29–Electronic Media and Records

This endorsement was withdrawn with the 04 02 edition.

CP 15 31–Ordinance or Law–Increased Period of Restoration

This endorsement extends the period of restoration to include the increased period that operations are suspended as a result of enforcing any law or ordinance that regulates the construction, use, or repair of covered property. It does so by redefining the period of restoration to recognize the enforcement of such laws or ordinances. This endorsement should be attached for business income any time that CP 04 05–Ordinance or Law Enforcement is attached for direct physical damage coverage.

CP 15 32–Civil Authority Changes (06 07 change)

Business income coverage forms provide coverage for up to four weeks when a business is closed due to order of a civil authority. However, coverage applies only if the reason it is closed is an event that occurred (or is occurring) within one mile of the named insured’s business and is the result of a covered cause of loss. This endorsement is used to change the number of days and/or the distance the business must be from the event.

CP 15 34–Extra Expense from Dependent Properties (06 07 change)

CP 15 45–Utility Services–Time Element (06 07 change)

CP 15 50–Radio or Television Antennas–Business Income or Extra Expense

Business income coverage forms exclude loss of income due to damage to radio or television antennas. This endorsement eliminates that exclusion.

CP 15 55–Business Income Changes–Time Period (06 07 change)

This endorsement is withdrawn since this coverage is combined with CP 15 56–Business Income Changes–Beginning of the Period of Restoration (No Waiting Period) in the 06 07 edition.

CP 15 56–Business Income Changes–Beginning of the Period of Restoration (No Waiting Period) (06 07 change)

Attaching this endorsement either eliminates the 72-hour waiting period in the period of restoration or reduces it to 24 hours. A selection for either must be entered on the endorsement schedule.

CP 15 57–Business Income and/or Extra Expense Coverage for Year 2000 Computer-Related and Other Electronic Problems

This endorsement can be added only if IL 09 35–Exclusion of Certain Computer-Related Losses is attached. It softens that exclusion by providing an annual aggregate of only $25,000 for such computer-related losses.

CATEGORY CP 17–STANDARD PROPERTY POLICY CONDOMINIUM ENDORSEMENTS

CP 17 98–Condominium Commercial Unit-owners Changes–Standard Property Policy

(Use with CP 00 99) This endorsement modifies the coverage form for the unique aspects of condominium ownership. It is mandatory any time a condominium unit-owner is a named insured.

CP 17 99–Condominium Association Changes–Standard Property Policy

(Use with CP 00 99) This endorsement modifies the coverage form for the unique aspects of condominium ownership. It is mandatory any time a condominium association is a named insured.

CATEGORY CP 19–SUPPLEMENTAL SCHEDULES

CP 19 10–Your Business Personal Property–Separation of Coverage

This endorsement allows the insured to schedule different types of business personal property at a location with different limits, coinsurance, and causes of loss. This should be used very carefully because of its potential impact on a loss settlement. If used, the values should be evaluated regularly because of potential underinsurance problems.

CP 19 13–Reported–Acquired–Incidental Locations Schedule

This endorsement was withdrawn with the 10 00 edition and replaced by CP DS 04.

CP 19 15–Glass Coverage Schedule

This schedule was withdrawn with the 10 00 edition of the Commercial Property Program.

CP 19 40–Legal Liability Coverage Schedule

This schedule was withdrawn with the 10 00 edition and replaced by CP DS 05.

CP 19 45–Earthquake–Volcanic Eruption Coverage Schedule

This schedule was withdrawn with the 10 00 edition and replaced by CP DS 06.

CP 19 60–Leasehold Interest Coverage Schedule

This schedule was withdrawn with the 10 00 edition and replaced by CP DS 07.

CATEGORY CP 60–LEASEHOLD INTEREST FACTOR TABLES

Each of these endorsements provides supplementary information to be used with CP 00 60–Leasehold Interest Coverage Form. Each contains a schedule of factors at the stated percentage for use with the form.

CP 60 05–Leasehold Interest Factors For 5.0%

CP 60 06–Leasehold Interest Factors For 6.0%

CP 60 07–Leasehold Interest Factors For 7.0%

CP 60 08–Leasehold Interest Factors For 8.0%

CP 60 09–Leasehold Interest Factors For 9.0%

CP 60 10–Leasehold Interest Factors For 10.0%

CP 60 11–Leasehold Interest Factors For 11.0%

CP 60 12–Leasehold Interest Factors For 12.0%

CP 60 13–Leasehold Interest Factors For 13.0%

CP 60 14–Leasehold Interest Factors For 14.0%

CP 60 15–Leasehold Interest Factors For 15.0%

CATEGORY CP 99–MISCELLANEOUS ENDORSEMENTS

CP 99 02–Manufacturers' Consequential Loss Assumption

When stock in process is damaged, the value of undamaged stock also in process is reduced because of its relationship to the damaged stock. This endorsement pays the resulting loss of value to undamaged stock in process.

Example: A furniture manufacturer has a fire at its facility. The section where the tables are manufactured is destroyed but the section where the chairs are manufactured is undamaged. The value of the chairs is reduced because they must be sold as singles instead as part of a complete set. That reduction in value is not covered if this endorsement is not attached.

CP 99 05–Distilled Spirits and Wines Market Value

CP 99 10–Alcoholic Beverages Tax Exclusion

CP 99 20–Contributing Insurance (06 07 change)

If more than one carrier provides the named insured's property coverage, this endorsement is used to state the percentage of coverage the carrier provides. The total limits for each listed location's buildings, business personal property, personal property of others, business income, and other specific additional coverages must be scheduled.

CP 99 30–Manufacturers' Selling Price (Finished "Stock" Only)

This endorsement modifies the valuation loss condition for stock. When it is attached, instead of requiring that stock be sold in order to be valued at selling price, the stock must only have been manufactured and considered finished. The Business Personal Property limit must reflect this type of valuation or underinsurance may result in a coinsurance penalty.

CP 99 31–Market Value–Stock

This endorsement modifies the valuation loss condition for stock in the coverage form. The value of stock is based on its market value at the time and place of any covered loss or damage (reduced by all discounts and expenses that normally apply). This might be used with the type of stock bought and sold at an established market exchange where market prices are posted and quoted. Some examples are certain commodities traded on the market, such as grains, coffee, concentrated orange juice, cotton, and pork bellies. The value of the business personal property must reflect this type of valuation or there may be a coinsurance penalty due to underinsurance when this endorsement is used.

CP 99 42–Storage or Repairs Limited Liability

This endorsement modifies the valuation loss condition in the coverage form for personal property of others the insured holds in storage or for repairs. Its value is changed to the lesser of actual cash value or the value on a receipt.

CP 99 92–Household Personal Property Coverage (06 07 change)

This endorsement adds household personal property to the definition of covered property in the property coverage form but only for the location and limit on the endorsement schedule. It defines household personal property and includes a provision that 10% of the limit can be applied to such property when it is away from the described premises.

CP 99 93–Tentative Rate

This endorsement explains that the premium charged at inception is based on preliminary tentative rates and that it will be adjusted when final rates are available. It is attached when ISO plans to publish a new or revised rate that is not yet available when the policy is issued.

CATEGORY IL–INTERLINE ENDORSEMENTS

IL 00 03–Calculation of Premium

This endorsement is used on multi-year or continuous policies to inform the insured that the premiums are subject to annual review, re-rating, and adjustment.

IL 00 17–Common Policy Conditions

IL 00 30–Exclusion of Terrorism

IL 00 31–Exclusion of Terrorism Involving Nuclear, Biological or Chemical Terrorism

IL 00 32–Limitation for Terrorism–Sub–limit on Annual Aggregate Basis

IL 04 15–Protective Safeguards

This endorsement lists and describes the various scheduled services or protective safeguards on the insured's premises and requires the insured to properly them. Protective safeguards are identified by symbol for automatic sprinkler systems, automatic fire alarms, security service, and service contracts with private fire departments.

Important: This is a warranty that voids coverage if the described systems are not in proper working order at the time of a loss.

IL 09 35–Exclusion of Certain Computer-Related Losses

This mandatory endorsement eliminates coverage for losses that occur because a computer is unable to recognize a date and similar computer-related losses.

IL 09 52–Caps on Losses from Certified Acts of Terrorism

IL 09 53–Exclusion of Certified Acts of Terrorism

IL 09 86–Exclusion of Certified Acts of Terrorism Involving Nuclear, Biological, Chemical or Biological Terrorism; Cap on Losses from Certified Acts of Terrorism

IL 09 87–Limitation of Coverage for Certified Acts of Terrorism (Sub–Limit on Annual Aggregate Basis)

IL 09 95–Conditional Exclusion of Terrorism (Relating to Disposition of Federal Terrorism Risk Insurance Act)

IL 09 96–Conditional Exclusion of Terrorism Involving Nuclear, Biological or Chemical Terrorism (Relating to Disposition of Federal Terrorism Risk Insurance Act)

IL 09 97–Conditional Limitation of Coverage for Terrorism–Sub-Limit on Annual Aggregate Basis (Relating to Disposition of Federal Terrorism Risk Insurance Act)

CP 10 32–WATER EXCLUSION ENDORSEMENT

BACKGROUND

Two lower court rulings following Hurricane Katrina losses concluded that the term flood in Insurance Services Office (ISO) coverage forms was ambiguous. Both rulings were overturned on appeal but ISO decided to revise the water damage exclusions in all of its forms to avoid future misunderstandings. Using this exclusion is mandatory starting in January 2009 (or whenever a specific state approves it and the issuing insurance carrier adopts it). The intent is to clarify the current exclusion (not to broaden or restrict it) and to bring it in line with the personal lines water exclusion so all ISO forms are consistent.

INTRODUCTION

This water damage exclusion is not specific to a particular covered cause of loss form but instead applies to the entire commercial coverage part. This means that this new exclusion replaces the present water exclusion in any property coverage form. This is not how ISO usually adds exclusions and reveals that it wants this exclusion to be uniform throughout all of its coverage forms and policies.

ANALYSIS

This endorsement has two parts.

A. The first part explains that this exclusion replaces the water exclusion in the coverage form or policy.

Note: It might be better to state that it replaces any and all water exclusions in the coverage form or policy because more than one of the covered causes of loss forms may apply to a coverage form or policy. However, the water damage exclusion is identical in each of the causes of loss forms.

B. Water

1. The first part of this exclusion has four terms that are unchanged, three that are modified, and one new term compared to the exclusion being replaced. The terms that are unchanged are "flood," "surface water," "tides," and "overflow of any body of water." The new term is ‘’tidal water." The modified terms are:

• "Waves" is broadened to be "waves, including tidal wave and tsunami." "Tidal wave" was included in the previous version but as a stand-alone term, not as part of the term "waves."
• "Or their spray" is broadened to "or spray from any of these."
• "All whether driven by wind or not" is broadened to "all whether or not driven by wind, including storm surge."

Note: "Tsunami" and "storm surge" are new terms. Judicial interpretation will be based on common usage and dictionary definitions because the endorsement does not define either term.

2. The second part of this exclusion is unchanged. Mudslide or mudflow is not covered (and were not covered in the previous edition).

3. The third part of the exclusion is expanded in two ways. The first is the how and the second is the what. In the previous edition, water had to back up or overflow. In this edition, the water can be discharged in other ways (and those other ways are not described). Secondly (in the version being replaced), the water came from a sewer, drain, or sump. In this edition, it can also come from a sump pump or related equipment (and the related equipment is not described).

4. The fourth section is unchanged and describes the exclusion of damage from underground water seeping into doors, foundations, basements, etc.

5. The exclusion being replaced did not have section five. This section introduces the term "waterborne material." Damage caused by this material carried by waters described in sections 1, 3 and 4 above (or by any material moved or carried by mudslides or mudflow described in section 2 above) is not covered.

Example: In an updated version of the Wizard of Oz, a storm surge (instead of a tornado) picks up Dorothy’s house and it lands on top of the Wicked Witch’s castle. The Wicked Witch’s policy does not cover the property loss that Dorothy’s house causes because of this new exclusion.

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

The final paragraph is similar to the exclusion being replaced. It states that coverage applies to loss or damage caused by or that results from fire, explosion, or sprinkler leakage.

Note: Sprinkler leakage coverage applies only if sprinkler leakage is a covered cause of loss on the coverage form or policy.

Example: Continuing the previous example, Dorothy’s house striking the castle severs the overhead power line, causing sparks to fly. The sparks ignite the Wicked Witch’s massive broom collection, resulting in the entire castle burning down. The Wicked Witch’s property form covers the fire damage.

Important Note: This endorsement can (and will be) added to all editions of ISO property forms. It is filed as mandatory, so it’s being attached should be expected, whether the carrier has adopted the latest edition of the ISO property forms or not.