CP 00 17–CONDOMINIUM ASSOCIATION COVERAGE FORM ANALYSIS AND CP 00 18–CONDOMINIUM COMMERCIAL UNIT-OWNERS COVERAGE FORM ANALYSIS

(June 2019)

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This analysis is of the 10 12 edition of CP 00 17–Condominium Association Coverage Form. Changes from the 06 07 edition are in bold print.

Insuring condominium property is difficult. This is why the Insurance Services Office (ISO) developed two different coverage forms. One insures condominium associations. The other insures individual commercial condominium unit-owners. Both explicitly refer to condominium bylaws and agreements and the interrelationships between the various parties. This provides maximum flexibility while maintaining the Commercial Property Policy’s structure.

CP 00 17–CONDOMINIUM ASSOCIATION COVERAGE FORM ANALYSIS

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 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 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 premises that is listed or described on the declarations. However, this is not open-ended coverage. The loss or damage must be caused by a cause of loss described in the causes of loss form attached to the policy in order for coverage to apply.

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

Only property located in or on the premises listed or described on the declarations is covered. For this reason, the declarations is a very important document. Coverage only applies at the location and for the type of property for which a limit of insurance is entered on the declarations.

1. Covered Property

Covered Property is defined in two ways. In the first, by listing what is covered. Next, Property Not Covered lists what is not covered. This means that to be covered the property must be listed as Covered Property and must not be listed as Property 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 that any addition to the described structure during the policy term is covered even though it did not exist at policy inception.

Fixtures

This includes outdoor fixtures and fixtures outside individual units. Light poles, fences, satellite dishes, and similar property are considered fixtures. Indoor light fixtures, cabinets, and permanently installed items are also considered fixtures but only if in common areas.

Permanently installed machinery and equipment.

Note: The key word is permanently. Machinery or equipment placed permanently is considered building. It is considered personal property if it is not placed permanently. 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 building property 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 with respect to coinsurance issues.

Owned personal property used to maintain or service the building

Some property in this category that appears 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. It is classified and treated as building property and should be listed as such. However, such listings are not necessarily inclusive. Other property used to service and maintain the premises not included on a list of property may still be treated as building property. However, this does not include any similar property kept in individual units.

Two other types of property are covered but only if not covered elsewhere:

Additions being built

Alterations and repairs to the building or structure are also covered.

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.

This item is unique to this form and is one of the reasons this form is purchased. IF the condominium Agreement or Bylaws specifically state that these items within a unit are covered by the Association insurance, they are covered regardless of who owns the item:

Fixtures, improvements, and alterations that are part of the building/structure
Appliances for refrigeration, ventilating, cooking, dishwashing, laundering, security, or housekeeping.

Example: When the Good Neighbor Condominium project was built, an alarm system was installed in each unit. Because the systems were part of each unit, the condominium agreement added them as property the association insured. Cary had a fire in his unit and the association insurance paid for the damage to both the building and the alarm system. Cary’s insurance paid for damage to his owned property.

Personal property that is owned by an individual unit owner is not covered under this policy. This also applies to personal property that is not owned by the unit owner but is in his or her care, custody or control. The only exceptions are the items in the paragraph above that are described in the condominium bylaws or agreement as insured by the condominium association.

b. Your Business Personal Property (10 12 change)

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

The named insured must own the property.
The property must be located or situated at any of the following:

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

Note: A premises is not the same as a building. A premises is the land where 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. However, there is no coverage if it is parked down the street and over 100 feet away.

The property must be considered as personal property.

The following property is considered personal property in this coverage form. However, consult certain provisions in 2. Property Not Covered that limit this otherwise inclusive listing.

Personal property the condominium association owns or that all unit-owners own in concert
When the association works on personal property of others, the association’s interest in the labor, material, or other services for which it arranged for or that it actually provided
All leased personal property for which the association is contractually responsible. This does not apply when a limit is entered on the declarations for personal property of others.

Property that an individual unit-owner owns is never covered as your personal property.

c. Personal Property of Others (10 12 change)

Your Business Personal Property covers personal property of others that is in the named insured's care, custody, or control while located or situated at any of the following:

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

Any loss settlement is with the personal property's owner, not with the named insured. This coverage is not the same as Bailees Coverage.

4. Additional Coverages

a. Debris Removal (10 12 changes)

After a loss that involves physical loss or damage, debris must be removed. Coverage to pay for the removal costs is needed. Over the years, this relatively simple concept has become a hotly debated issue under commercial property coverage forms as insurance buyers search for alternate sources for pollution coverage. Debris removal coverage was never intended to be environmental clean-up coverage but in various court decisions prior policy language was found to cover such losses. Efforts to eliminate any misunderstanding have made this coverage much more complicated but the concept remains the same.

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 debris to be removed is not covered property but it meets all of the other criteria in this paragraph and also the criteria in paragraph (2) below. (10 12 addition)
The property becomes debris because of a covered cause of loss occurs
The loss occurs during the policy period
The expenses are reported within 180 days of the date of the direct physical loss

Example: The Canterbury Condominium is vandalized. The damage to the office and the pool building is significant and requires extensive debris removal before replacement property can be brought in. Canterbury pays the removal costs immediately and notifies Condos Dun Rite Insurance Company just as quickly. The debris removal expense is covered because it involved debris from property that the coverage form insured, the loss occurred during the policy period, and Canterbury incurred and reported the expense within 180 days of the date of loss.

(2) The 10 12 edition broadens this paragraph significantly. The 06 07 edition limited itself to only pollutant-related items. This paragraph is needed because paragraph (1) is broadened to include debris of certain types of property that is not considered covered property. This paragraph limits that broadening of debris coverage. Although these items appear to be limiting, they actually establish the boundaries for the broadened coverage in paragraph (1).

The costs to remove the following items are excluded:

Debris that belongs to the named insured that is either not insured or is of the type of property listed under 2. Property Not Covered
The debris of the landlord’s property when the named insured is a tenant. However, the costs are covered if both of the following apply:

o The named insured is contractually obligated to insure the landlord’s property.

o The landlord’s property is insured under this policy.

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

Note: This limitation does not mention debris of such property. It applies to the property itself.

Any property belonging to others that is not considered Covered Property under this coverage form.

Note: This limitation does not mention debris of such property. It applies to the property itself.

Mud or dirt that is deposited on the grounds of the premises

Any pollutants from land or water
Polluted land or waters. The cost to restore or replace the polluted land or waters is also excluded.

Example: The vandals at Canterbury took the pool chemicals and poured them into the pond on the premises. The local authorities determined that the pond must be tested, treated, and monitored. There is coverage for the lost chemicals. There is no coverage for damage to the pond or to remove the pollutants from the surrounding land.

(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 covered property that was damaged

(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

· If covered property does not sustain direct physical damage, the most paid to remove the debris of other property is $5,000 per location, subject to other items in this additional coverage.

Example: Lakeside Condominium has a small fire. The actual physical loss is $5,000. The limit of insurance is $50,000. The deductible is $500. The insurance company pays $4,500 ($5,000 loss - $500 deductible) for the physical loss. The maximum debris removal expense it pays is $1,250 ($4,500 + $500 X .25). Because the sum of $5,000 + $1,250 is less than the $50,000 limit, the sum ($6,250) is the maximum amount available to handle the direct loss and debris removal expense.

(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 $25,000, subject to the following:

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

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

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

Example: We’ll change the Lakeside example above to be a $47,000 loss where the company pays $46,500 after the deductible. The debris removal expense is $5,000. Using the formula in paragraph (3), this means that up to $11,750 is available for debris removal expense and this would cover the cost. However, because the limit of insurance is $50,000, the most available to pay for the debris removal expense is $3, 500 ($50,000 – $46,500). Lakeside faces an additional $1,500 expense. However, the $25,000 Additional Coverage is used providing Lakeside with full coverage.

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 $25,000. The formula is [(Paid loss amount + deductible amount) x .25] + $25,000 = Debris Removal Coverage Amount.

· The actual debris removal expense

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

Example: Perfect Home Condominiums has a commercial property limit of $4,000,000. A windstorm strikes and destroys the complex. The wind loss is $3,885,000 and the cost to remove the debris is $50,000. In this case, the association has the following out of pocket loss:

Direct Damage Paid Loss Amount	$3,985,000
Add Debris Removal Expense	+$50,000
Total Loss	$4,035,000
Limit Of Insurance	$4,000,000
Add Additional Debris Removal Amount	+$25,000
Available Limit of Insurance	$4025,000
Debris Removal Expense Not Covered	$10,000

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

Related Court Case: Debris Removal Obligation Was Paid

b. Preservation of Property

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 property sustains during the move. In addition, coverage applies at the location where the property is stored 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: The Waters Overlook Condominium Association’s office manager moves the business furniture from the office to protect it from rising floodwaters. Several items of furniture are dropped while they are loaded on a rented truck and sustain a total of $3,000 in damages. This damage is not covered because the cause of loss that threatened the property (flood) is not a covered cause of loss.

FloodWaters

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

Wildfire

Example: Redwoods Condominiums is located in a rural area adjacent to a national forest. Wild fires are in full force and winds are pushing the flames toward Redwoods. The Association members realize that their property is in the path of the fires and start moving property to a safe location on the other side of the river. A heavy rain begins before the fire reaches the condominium property. The rain douses the fires but brings a new problem. A flash flood flows over the river’s banks and destroys the property that was relocated. The Redwoods policy excludes flood but the property that was destroyed is covered because it was moved to protect it from the wild fires.

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 (10 12 change)

This additional coverage responds to situations where the named 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 named 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 per premises to apply to the service charge and is not subject to a deductible. Higher limits are available. The $1,000 is a premises limit that applies regardless of the number of departments that respond or the number of services provided. (10 12 change)

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

Example: Lakeside Leisure Condominiums is located in a rural area. Three different volunteer departments are within 50 miles of the community so Lakeside contracts with each to supply fire and EMT services. A fire call results in all three departments responding. All fight the fire. In addition, two provide EMT services. Only $1,000 is available to pay for all fire services rendered. There is no coverage for the EMT services provided.

d. Pollutant Clean Up and Removal

The second paragraph of 4. Additional Coverages a. Debris Removal specifically excludes expenses to extract pollutants from land or water. This additional coverage provides a limited amount of coverage for those expenses. Each of the following requirements must be met in order for coverage to apply:

The expenses must be the named 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.
The covered cause of loss must occur during the policy period.
All expenses must be incurred and 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 during the extraction process.

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 to a premises during a single annual coverage period. As a result, any and all losses that involve eligible expenses at the premises reduce the available $10,000 aggregate limit at that premises.

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

Related Court Case: Pollution Cleanup Coverage Inapplicable

e. Increased Cost of Construction (10 12 changes)

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 insure them.

Basic, Broad, and Special Causes Of Loss Forms Analysis

CP 04 05–Ordinance Or Law Coverage


Example: Foley Condominiums was converted from a hospital to condominiums 35 years ago. The masonry building is over 100 years old and has plaster walls. Some of the hallways are very narrow. A fire nearly destroys the community room. Permits are obtained for repairs and Foley is told that the hallways must be widened to meet ADA standards. Without this additional coverage, there is no coverage for any of the expense to move the walls that were not damaged.

This additional 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 G. Optional Coverages 3. Replacement Cost. 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 must be incurred to bring the building up to the existing minimum standards of the ordinances or codes. The coverage is subject to modifications in paragraphs e. (3) through (9). This coverage applies when all of the following events occur:

A covered cause of loss damages covered property.
The named insured incurs increased costs to repair, rebuild, or replace the damaged portions of covered property.
The increased costs are the result of compliance with an enforced ordinance or law.

Example: Besides covered property being damaged by fire (a covered cause of loss), Foley faces some additional costs it incurs while making repairs. They are directly due to it having to comply with town council ordinances. Because Foley’s coverage includes G. Optional Coverages 3. Replacement Cost. some of its additional costs may be covered.

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

It must regulate construction or repair of buildings or must establish a zoning or land use requirement at the described premises.
It must be in force at the time of loss.

SprinklerSystem

Example: Continuing the example above, the town council was considering an ordinance to require installing sprinkler systems in all habitational properties more than two stories high when Foley’s loss occurred. The council voted and passed the ordinance two weeks after the loss. The building inspector informed Foley of this change. Because the ordinance was not in force at the time of the loss, this additional coverage does not cover the costs to add the sprinkler system.

(4) This paragraph relieves the insurance company of any costs due to ordinances or laws the named insured should have complied with before the loss but did not.

Example: Foley’s Association Board and the town argued over the fire escape ordinance for years. Foley believed its evacuation procedure was more than adequate and that the town was being unfair. After the fire loss, the town required that Foley either comply with the ordinance or not reopen. Foley turns to this additional coverage, but the insurance company refuses to pay the additional cost because Foley ignored an existing ordinance.

(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 named 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 or complying with ordinances or laws that require the named 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 damaged building’s limit of insurance. If the damaged building is part of a blanket limit, the coverage is limited to the lesser of $10,000 or 5% of the damaged building’s value at the time of loss multiplied by the coinsurance percentage that applies.

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.

(7) This paragraph outlines the insured's options under this additional coverage after a loss.

The insured can decide to not build or repair. If this is selected, no amount will be paid from this Additional coverage.
The insured can repair the building or can rebuild at either the current location or at another location. Payment will be made under this Additional Coverage only if completed within two years of the loss. The time period can be extended by the insurance company. The most paid at a new location will be no more than what would be paid at the existing location.
When the ordinance or law requires rebuilding at a different location, payment is made only if completed within two years of the loss. The time period can be extended by the insurance company.

Example: Foley Condominium’s Board is unhappy with the loss settlement and the amount it must pay to repair the building and bring it up to code. After looking at all of the options, it determines that a new building will cost less than repairing the old one and it will enhance the condominium’s overall appearance. The good news is that the company still pays the $10,000 limit to meet the standards.

(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 Replacement Cost Optional Coverage exclude the increased costs of construction due to enforced ordinances or laws. Only this Additional Coverage provides such coverage. As an attempt to clarify issues, this paragraph states that those increased costs of construction limitations stated in the Valuation Condition and Replacement Cost Optional Coverage do 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.

Related Article: CP 04 05–Ordinance or Law Coverage

f. Electronic Data (10 12 changes)

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 but only on a very limited basis. This item does not apply to prepackaged stock or to electronic data that is an integral part of the building heating, ventilating, air conditioning, elevator, lighting or security systems because they are exceptions to the property not covered, electronic data item, and therefore are already covered under the coverage form.
(10 12 addition)

This additional coverage has two unusual features. The first is that the covered cause of loss that applies varies by the cause of loss form that applies to business personal property at the location where the loss occurs. If CP 10 30–

Causes of Loss–Special Form applies, the covered causes of loss for electronic data are only the specified causes of loss plus collapse. If CP 10 20–Causes of Loss–Broad Form applies, collapse and the other causes of loss that are part of the broad form apply.

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 problems related to manipulation of dates are excluded.

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. The limit can be increased but it remains an aggregate limit. (10 12 addition)

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

AAIS Electronic Data Processing Equipment and Business Computer Coverage Forms

ISO Computer Systems Coverage Form

5. Coverage Extensions

There are several coverage extensions that apply to covered property if 80% or higher coinsurance applies. They insure property located in or on buildings listed on the declarations. They also insure property in the open or in or on vehicles but only when the property is within 100 feet of the described premises. Any exceptions to the opening paragraph requirements are stated in the specific extension of coverage.

Note: The 10 12 edition changes to the building, business personal property and personal property of others were not added to this opening paragraph so the definition of property in the open or in a vehicle is slightly different.

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

a. Newly Acquired or Constructed Property

Contacting an insurance agent to report a new acquisition is not automatic behavior. For this reason, this extension gives the named insured 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 premises described on the declarations. Buildings the insured purchases at other premises are also covered but 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. 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.

RestaurantREV

Example: Century Condominium Association is landlocked. It wants to expand its community building to enhance the value of the individual units and jumps at the chance to purchase the restaurant next door when it is put up for sale. A fire occurs two days after it completes the acquisition. Century asks its insurance company for coverage and is denied because the occupancy at the time of the loss was not similar to other scheduled buildings.

Your Business Personal Property

If the named insured’s business personal property is covered, this extension applies to any and all the following:

Business personal property (newly acquired or existing) at newly acquired locations. Property at fairs, trade shows, or exhibitions is not covered.
Business personal property (newly acquired or existing) in newly constructed or acquired buildings at locations already listed on the declarations

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. Newly acquired business personal property coverage at described locations is no longer provided automatically. This should not be a significant change for condominium associations. (10 12 removal of coverage)

The maximum limit per building is $100,000.

This coverage extension does not apply to certain types of personal property of others that are in the named insured's custody on a temporary basis. If the reason the personal property is with the named insured is because the insured is installing or performing work on it, there is not coverage under this extension. In addition, if the personal property is part of the named insured’s wholesaling or manufacturing activities there is no coverage under this extension.

Period of Coverage

Coverage is provided on a very limited time frame. It ends on whichever of the following is earliest:

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 named insured acquires a building on 12/31/19 and the policy renews on 01/01/20, coverage no longer applies to the newly acquired building as of 01/01/17.

This is especially important for the named 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 named insured begins constructing a new building. Because covered property does not usually include foundations, 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 named 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 it does not include theft regardless of the cause of loss form attached. Coverage also extends to property of others in the named insured’s care, custody, or control. This part of the extension does not have a theft limitation which means that whatever cause of loss applies to the business personal property would also apply to this extension.

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

The covered cause of loss that applies varies by the specific cause of loss form that applies to business personal property at the location where the loss occurs. If CP 10 30–Causes of Loss–Special Form applies, the covered causes of loss are only the specified causes of loss plus collapse. If CP 10 20–Causes of Loss–Broad Form applies, collapse and the other causes of loss that are part of the broad 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 named 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 recommending one or the other.

ISO Valuable Papers and Records Coverage Form

AAIS Valuable Papers and Records Coverage

d. Property Off-Premises

Most business personal property tends to move around. This extension recognizes this fact and provides up to $10,000 when property is off premises. However, this coverage applies only to property usually situated at a described location and that is away from the premises for only 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 but only 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 when the policy expires.

This extension has two important limitations. It does not apply to property in or on a vehicle. It also does not apply to property with the named insured’s salespersons except when both the property and the salespersons are at a fair, trade show, or exhibition.

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

Related Article: Who Needs Inland Marine Coverage?

e. Outdoor Property (10 12 changes)

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

Fences
Radio and television antennas and including satellite dishes
Trees, shrubs, and plants. Stocks of trees, shrubs, or plants held for sale or that are part of a vegetated roof are not subject to this exclusion. (10 12 change)

This coverage extension insures this property, but only for loss or damage 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. The limit must cover not only the replacement or restoration of the damaged items but also their debris removal.

Note: The 10 12 edition debris removal revision specifically states that it does not apply to removing any item that this coverage extension insures.

The expense to remove the debris of any tree, shrub, or plant owned by others is also covered unless the named insured is a tenant and the landlord owns the tree, shrub, or plant and it is located on the premises the named insured occupies. (10 12 addition)

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

ISO Commercial Property Program Available Endorsements and Their Uses

Who Needs Inland Marine Coverage?

f. Non-owned Detached Trailers (10 12 change)

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 named insured’s business.
The trailer must be at a premises listed on the declarations and be in the named insured's care, custody, or control.
The named 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, because there is no such statement, the limit should be applied per occurrence. If the named insured uses a number of non-owned trailers, the limit should be increased to reflect those values.

g. Business Personal Property Temporarily in Portable Storage Units (10 12 addition)

Business personal property stored in a portable storage unit is covered subject to the following criteria:

The unit must be located either within 100 feet of the building or 100 feet of the premises, whichever distance is greater.
The storage unit must be portable. It may be a detached trailer.
The unit must not be used more than 90 days.
The coverage limitation within the causes of loss form with respect to sand, dust, sleet, snow, ice, or rain within a structure applies to any property within the storage unit.

Business personal property is covered for not more than 90 days once it is placed in the storage unit.

A $10,000 sub-limit is available for this Coverage Extension. It does not increase the amount of business personal property coverage. This sub-limit can be increased.

There is no coverage for the storage unit.

This is not duplicative or excess coverage so if a damaged item is covered elsewhere under this coverage form or by endorsement, there is no coverage under this extension for that item.

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 for up to $2,500 per sign in each occurrence.

The limits 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
Electronic Data

Payments made under 4. Additional Coverages b. Preservation of Property does not increase the limit of insurance that applies.

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: Mystic Visions Condominiums is insured for a $3,000,000 limit on Building and a $50,000 limit on Business Personal Property. It has a $1,000 deductible. The police interrupt an attempted break-in but not before the criminals damage the door and the safe, causing a total loss of $988. Mystic Visions pays for the repairs because the amount of damage 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: Continuing the example above, the criminals return two nights later and are much more successful. They succeed in stealing computers, sound equipment, furniture, and cash. They are concerned about getting caught and decide to set a fire to cover their crime. The loss totals $63,000. The amount of loss minus the deductible is $62,000 ($63,000 - $1,000) but the Business Personal Property Limit is $50,000. As a result, the total payment is $50,000.

If the occurrence that causes the loss involves two or more items of covered property and each has its own separate limit of insurance, the occurrence deductible is applied only once.

Example: The fire also damages the building. In addition to the main building, a garage behind the main building is insured for a $15,000 limit. The loss amount at the main building is $125,000 and at the garage it is $5,000.

The insurance company pays $125,000 for the main building and $5,000 for the garage because the deductible was already applied to the business personal property loss.

An optional deductible endorsement is available. CP 03 20–Multiple Deductible Form applies different deductibles to different coverages or types of property.

6. Unit-Owner’s Insurance

If any unit-owner has insurance that covers the same property as this coverage form, this coverage form is primary insurance. This item goes on to say that because it is primary it is not intended to contribute with any other insurance.

Example: The Valley View Condominium bylaws state that it must provide insurance coverage for all kitchen appliances. Mavis owns a condominium and has HO-6 coverage that provides full coverage for her kitchen appliances. There is a fire and the appliances are destroyed. This loss condition requires that Valley View’s coverage pay for the appliances – not Mavis’s HO-6.

7. 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. Because 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. The definition depends on whether the named 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 when the business personal property on premises is not sufficient for the tenant to conduct its customary operations.

If the named insured is the building owner or a general lessee, the entire building is considered in determining vacancy.

Note: Vacancy is determined building by building – not premises by premises.

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: Industrial Showplace is a commercial condominium. It is one building with multiple unit-owners all of whom are retailers. A loss occurs and the insurance company’s adjuster discovers that due to a sudden economic downturn, 90% of the building is being used for storage. The company denies the claim because the building is vacant according to the coverage form’s wording.

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 is moving slowly because the condominium association is not allocating funds for the renovation because the board is aware that no buyers are currently interested in purchasing the open units, how long will it be before that building is considered vacant?

Example: The Retail Condominium Community consists of four separate buildings. Building # 1 has three units and is fully occupied. Building # 2 also has three units but two are in foreclosure and vacant. The one remaining unit accounts for only 20% of the space. The two foreclosed units have been vacant for more than 6 months. Building #3 consists of five units. One that represents 15% of the building is currently vacant and for sale. Building #4 is a single unit that has just transferred ownership but is undergoing major renovation work before the new owner moves in.

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

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 following apply:

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 was not protected against freezing.
The insurance company reduces the amount of any loss it pays by 15% if the claim is from any covered cause of loss not listed above.

Example: Building #3 in the Retail example above is penalized only 15% because storm damage caused the loss, not one of the Causes of Loss above.

8. Valuation (10 12 change)

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. This coverage form does not define actual cash value, but court decisions refer to it as replacement cost new minus accumulated depreciation.

Note: G. Optional Coverage 3. Replacement Cost, described later in this analysis, replaces actual cash value valuation with replacement cost valuation.

b. The insurance company pays the building loss at full replacement cost value if the building limit of insurance meets the requirements of F. Additional Conditions 1. Coinsurance and the cost to repair or replace it is $2,500 or less. This is a bonus to the named insured for carrying a limit of insurance that satisfies the coinsurance requirement.

This cost does not include any increased costs due to any ordinance or law that affects construction or use being enforced or complied with.

This item has exceptions. The following property remains valued at its actual cash value, whether or not attached to the building.

Awnings
Floor coverings
Refrigerating, ventilating, cooking, dishwashing, or laundering appliances
Outdoor equipment
Outdoor furniture

c. Damaged glass that is required by law to be replaced with safety glass and is replaced with safety glass, even when the damaged glass was not safety glass.

9. Waiver of Rights of Recovery

This important loss condition waives rights of recovery against individual unit-owners. This is because the unit-owner is actually one of the condominium’s owners and subrogating against a unit-owner is like the named insured subrogating against itself. The insurance company voluntarily waives any right to recover payment from any unit-owner of the covered condominium described on the declarations.

Note: This provision does not prevent the insurance company from subrogating against tenants who rent a unit from a unit-owner and similar examples.

Example: Phil is careless. He leaves the stove’s burner on while he goes to the store and winds up burning down his condominium unit and three others. The Fairfax Condominium Association insurance company pays the building loss but does not subrogate against Phil due to the waiver of rights of recovery loss condition in the coverage form. However, the company could have subrogated against Phil if Fairfax wrote its coverage under CP 00 10–Building and Personal Property Coverage Form or if Phil had been a renter instead of an owner of the unit.

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 named insured maintains a limit of insurance equal to the selected 80%, 90%, or 100% of the value of the covered property. If a coinsurance percentage is agreed to and the insured does not meet its limit of insurance obligation, a coinsurance penalty is applied to any loss sustained.

Note: The named 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.

The coinsurance penalty is calculated as follows:

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: Skyview Condominiums’ policy covers its buildings. The total appraised value was $1,000,000 on the inception date. Skyview decides to use the 80% coinsurance and purchases an $800,000 limit. The Board does not change the limit for three years. A fire occurs during the third policy period and the building is appraised at $1,200,000. The value of the loss is $500,000. The appraised value used to determine the coinsurance penalty will be the $1,200,000 value at the time of loss, not the $1,000,000 value at policy inception.

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. 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 the maximum value expected during the policy period. If fluctuating values are expected, the named insured should consider writing coverage on a reporting form or using the peak season endorsement.

Value Reporting Form

Peak Season Coverage

In some cases, the named insured may decide 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.

Step 3. Divide the limit on the declarations by Step 2 to develop the coinsurance penalty factor.

Step 4. Multiply the loss amount by Step 3 before applying the deductible.

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: Skyview Condominiums’ limit is $800,000 with an 80% coinsurance clause and a $1,000 deductible. The loss amount is $500,000. The property’s value on the date of loss is $1,200,000. Skyview sustains a coinsurance penalty as follows:

Step 1. The value on the date of loss is $1,200,000.

Step 2. $1,200,000 X .8 = $960,000

Step 3. $800,000/$960,000 = .833

Step 4. $500,000 X .833 (penalty) = $416,500

Step 5. $416,500 - $1,000(deductible) = $415,500

The insurance company pays $415,500. Skyview is responsible for the remaining $84,500.

This coverage form includes three useful examples that explain how the coinsurance condition applies. The coinsurance condition may be suspended by selecting G. Optional Coverages 1. Agreed Value which is analyzed later in this article.

H. DEFINITIONS (10 12 change)

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: 4. Additional Coverages e. Increased Cost of Construction 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.

3. Stock (10 12 addition)

This is merchandise held for sale or in storage. Raw materials, goods in process, and finished goods are all considered stock. In addition, supplies that that will be used in the packing or shipping of stock is stock.

CP 00 18–CONDOMINIUM COMMERCIAL UNIT-OWNERS COVERAGE FORM

CP 00 18 is similar to CP 00 17 except for the following eight sections:

Covered Property–Building
Covered Property–Your Business Personal Property
Property Not Covered
Additional Coverages
Coverage Extensions
Loss Conditions
Additional Condition
Definitions

This analysis addresses only the differences between these two coverage forms.

Covered Property–Building

CP 00 18 does not cover buildings.

Covered Property–Your Business Personal Property (10 12 changes)

CP 00 18 considers business personal property to be:

· In or on the building listed on the declarations

· In or on a structure listed or described on the declarations

· In the open within either 100 feet of the building or 100 feet of the premises, whichever is greater

· In or on a vehicle within either 100 feet of building or 100 feet of the premises, whichever is greater

The following is considered Business Personal Property:

Furniture
Improvements and alterations that become part of the building but that the unit-owner still owns. This includes indoor or outdoor fixtures that the unit-owner owns.
Machinery and equipment permanently installed or not permanently installed
Stock
Other personal property not described elsewhere but that the named insured owns and uses in its business
Labor, materials, or services on property of others that the named insured arranges for or provides
Leased personal property that the named insured is contractually obligated to insure

Covered Property–Personal Property of Others (10 12 change)

Property in the open or in or on a vehicle is covered when it is within 100 feet of the building or structure or within 100 feet of the premises. The greater of the two distances determines coverage.

Property Not Covered (10 12 change)

The main difference in this section is that six types of property not covered in CP 00 17 are not specified in CP 00 18. This is because they all relate to building coverage that CP 00 18 does not provide. They are the following:

Bridges, roadways, walks, patios, or other paved surfaces
Costs of excavations, grading, filling, or backfilling
Foundations of all kinds
Bulkheads, pilings, piers, wharves, or docks
Retaining walls that are not parts of buildings
Underground pipes, drains, or flues

CP 00 17 and CP 00 18 differ only slightly on the following three items:

CP 00 17 excludes animals unless the named insured boards them. CP 00 18’s corresponding exclusion has the same wording but adds an additional exception for animals kept inside as stock.

CP 00 17 excludes land, water, growing crops, and lawns. CP 00 18’s corresponding exclusion does not exclude land. It also does not have the vegetative roofs exclusion because unit-owners do not own land and do not have vegetative roofs.
CP 00 17 excludes coverage for most electronic data but with an exception for data integrated into the various building systems. CP 00 18 is identical except that it also exempts prepackaged software considered stock.

CP 00 18 adds one item that applies only to unit-owners. It directly relates to item A. 1. a. (6) under Covered Property.

l. Fixtures, improvements, and alterations that are part of the building/structure and any appliances used for refrigerating, ventilating, cooking, dishwashing, laundering, security, or housekeeping are excluded ONLY if the condominium agreement or bylaws require that the association insure them. Ownership of this property does not have any bearing on whether the items are covered or not.

ADDITIONAL COVERAGES

CP 00 18 does not have Additional Coverage–Increased Cost of Construction because that coverage applies only to buildings.

COVERAGE EXTENSIONS

The Coverage Extensions are identical in both coverage forms. However, Newly Acquired Property in CP 00 18 does not refer to buildings because buildings are not covered property.

LOSS CONDITIONS

The loss conditions in CP 00 17 and CP 00 18 are identical except as follows:

The Condominium Association Insurance Loss Condition in CP 00 18 is not in CP 00 17.
The reference to insurance trustees in 4. Loss Payment g. in CP 00 17 is not in CP 00 18.
The reference to party walls in 4. Loss Payments h. in CP 00 17 is not in CP 00 18.
The reference to unit-owner’s insurance in 4. Loss Payments in CP 00 17 is not in CP 00 18.
8. Valuation in CP 00 17 addresses building and certain related property. CP 00 18 does not address this property.
8. Valuation in CP 00 18 addresses stock. CP 00 17 does not address this property.
CP 00 17 includes 9. Waiver of Rights of Recovery. CP 00 18 does not contain this loss condition.

ADDITIONAL CONDITIONS

The Mortgageholders Condition in CP 00 17 is not in CP 00 18.

Note: This could significantly affect unit-owners and should be pointed out. CP 12 18–Loss Payable Provisions should be attached to CP 00 18 if a mortgageholder must be named. The Lenders Loss Payable section in CP 12 18 is similar to the wording in the Mortgageholders Condition in CP 00 17 and includes the important notice of cancellation requirement.

DEFINITIONS

CP 00 17 has three definitions. CP 00 18 has two definitions. Both define pollutants and stock the same way.

CP 00 17 also defines fungus.