ISO Valuable Papers And Records Coverage Form

ISO VALUABLE PAPERS AND RECORDS COVERAGE FORM ANALYSIS

(August 2018)

 

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INTRODUCTION

The Valuable Paper policy provides coverage for the papers of a business. These papers can include the deed for the property. It can include original copyright and/or patent rights. It can also include manuscripts, abstracts, books, deeds, drawings, films, maps, and mortgages.  Very few businesses can operate without acquiring quite a few valuable papers that, if lost, could severely impact the operation of the business.

 

This form has become less popular as the coverage has become a regular additional coverage or extension of coverage in BOP policies and the MOP, COP, and CAP policies as well as independent programs. Although the coverage and sublimits may appear to replace the need of the standalone coverage form, it is important to compare the available causes of losses. Because the CP 00 67 is an inland marine form it often provides broader coverage and more flexibility.

ELIGIBILITY

The only eligibility requirement is that the named insured must need to insure valuable papers or records.

POLICY CONSTRUCTION

ISO Valuable Papers and Records Coverage requires at least these five forms:

Related Article: IL 00 17–Common Policy Conditions

Related Article: CM 00 01–Commercial Inland Marine Conditions

Note: Valuable papers and records coverage may be issued as a stand-alone, monoline inland marine policy or as part of a commercial package policy.

CM DS 17–ADVISORY VALUABLE PAPERS AND RECORDS DECLARATIONS

CM DS 17–Advisory Valuable Papers and Records Declarations contains the following information:

Policy Number

The policy number is entered in the space provided.

Effective Date

The effective date of coverage is entered in the space provided.

Premium for This Coverage Form

The premium for Valuable Papers and Records Coverage is entered in the space provided.

Limits of Insurance

The following information must be provided:

Note: The valuation of specifically described property is on an agreed value basis.

Note: The valuation of valuable papers that are not specifically described is based on an actual cash value basis subject to the standard Inland Marine Valuation basis.

Only a limit of insurance is required for this item.

Deductible

The deductible is $500 unless a different amount is entered in the space provided.

Description of Receptacles

The address, receptacle manufacturer, class, label, and the label issuer's name must be entered in the spaces provided for every receptacle at each covered premises.

Note: There is a credit when a receptacle is declared and entered. However, that credit is accompanied by a warranty that states that valuable papers must be kept in the described receptacle when the business is closed and also when the records are not being used..

Special Provisions

Any special provisions are entered in the space provided.

A valuable paper that this coverage form can insure

CM 00 67–VALUABLE PAPERS AND RECORDS COVERAGE FORM ANALYSIS

Note: This analysis is of the 01 13 edition. Changes from the 03 10 edition are in bold print.

Introduction

CM 00 67 opens by stating that certain provisions restrict coverage and encourages the named insured to carefully read the policy to understand what is covered, what is not covered, and to determine its rights and duties. It highlights that the insurance company uses the terms you and your to refer to the named insured that is shown on the declarations and the terms we, us, and our to refer to the insurance company that provides coverage.

It also directs attention to Section F–Definitions because understanding the specific terms in the policy is critical to understanding the coverage and exclusions that apply.

 

A. Coverage

The insurance company pays for direct physical loss or damage to covered property from a covered cause of loss.

1. Covered Property

The only covered property under this coverage form is the named insured's valuable papers and records and similar property of others that is in the named insured’s care, custody, or control.

 

Note: This coverage form defines valuable papers and records as any inscribed, printed, or written documents, manuscripts, or records. Abstracts, deeds, drawings, films, maps, mortgages, and books are examples of valuable papers. Money and securities are not valuable papers. Electronic data processing operations, data, converted data, programs, and instructions, and any material used to store this data are also not valuable papers.

2. Property Not Covered

There is no coverage for the following property:

 

Example: Marion’s collection of books and manuscripts includes the manuscript of her famous father’s first novel. It is irreplaceable. She specifically described several manuscripts and books but forgot to include this one. When a loss occurs to it, she has no coverage because it was not listed.

Note: This could be confusing because the declarations provides a space to enter a limit for property away from the premises. It is important to note that Property Not Covered is excluding only property that is in storage and away from the premises. Therefore, property that is in transit or at a client’s for examination or for similar temporary off premises reasons is covered subject to the stated off premises limit.

Contraband. These are goods that are illegal to possess or that are legal but are in the course of illegal transportation.

3. Covered Causes of Loss

The covered causes of loss under this policy is direct physical loss or damage to the named insured's covered property. The only exceptions are those causes of loss that are listed and described in Section B. Exclusions.

 4. Additional Coverage–Collapse

Only abrupt collapse is covered under this coverage. What abrupt collapse is and is not is described below. 

a. 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.

b. Payment for such abrupt collapse as described in paragraph item a. is for only direct physical damage to the covered property that is inside the building. However, payment is made only if one or more of the following cause the collapse:

·         Hidden decay. This applies only if the insured was not aware of the hidden decay prior to the collapse.

·         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.

·         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:

o    Hidden decay or hidden insect or vermin damage as described above

o    One or more of any of the following listed causes of loss. However, loss by them applies only if they are insured against in this coverage form and only to the manner in which they are. Fire, lightning, windstorm, hail, explosion, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing devices, sinkhole collapse, volcanic action, breakage of building glass, falling objects, weight of ice, sleet, or snow, water damage, and earthquake are the causes of loss.

o    Weight of people or personal property

o    Weight of rain that accumulates on a roof

c. While this is additional coverage, it does not increase the coverage form's limits of insurance.

 5. Coverage Extensions

a. Removal

Valuable papers and records that are removed to a different location from the named insured's premises because there is imminent danger of loss or damage from a covered cause of loss is covered while being removed and while being held at the “safe” location. The named insured is required to tell the insurance company that the valuable papers were removed within ten days of the date they are removed. This is not additional insurance so is part of the limit of insurance on the declarations.

 

Example: Errol of Errol's Engineering and Architects has numerous wealthy commercial clients whose projects he has worked on over the years. As a result, he has many documents that qualify as valuable papers and records. Because his coastal Alabama office is about to be hammered by a Category Four hurricane, Errol packs up as many of his computers as he can, puts them and all his valuable papers and records into a box truck, and drives inland. On the way his vehicle gets stuck on a railroad crossing. Errol leaps from the truck just before the train hits it. All his valuable papers and records are covered based on the premises limit, not the limit for property away from the premises.

 

Note: There is no limitation as to how long the property can remain at the “safe location.” The only requirement is the insurance company is made aware within 10 days that the property has been moved. The policy is silent as to whether coverage ends at the safe location when the policy expires.

 

Example: Errol uses a different approach during the next hurricane. He divides up his valuable papers and takes them to three different safe locations. He removes them in advance of one hurricane but then hears of another being on the way so keeps the records at the “safe” location. He is really concerned when a third hurricane warning comes. The property is kept at the safe locations for 45 days. Because he notified the insurance company that the property had been moved two days after the removal, he had continual coverage at all three locations.

 

b. Away From Your Premises

The insurance company pays up to $5,000 for loss or damage to covered property that is away from the named insured's premises. This limit can be increased.

This coverage extension limit is an additional amount of insurance.

 

Example: Due to the nature of his business, Errol constantly takes engineering studies and architectural drawings and plans out of the office to his clients' offices and building sites. When he or one of his associates does so, this coverage extension applies, and those papers are covered when away from the designated premises.

B. Exclusions

1. Primary 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. Coverage form wording emphasizes that coverage for any loss event described in these exclusions does not apply even if the event is widespread.

a. Governmental Action

Coverage does not apply if the government seizes or destroys property. This exclusion has an exception. Coverage applies to loss or damage due to such ordered acts of destruction at the time of a fire to prevent the fire's spread. The exception applies only if the insurance provided by this coverage form covers the fire.

b. Nuclear Hazard

There is no coverage for loss or damage for anything related to nuclear hazards. Reactions, radiation, and contamination are not covered. This exclusion has an exception. There is coverage if the nuclear reaction, radiation, or radioactive contamination results in fire. The exception applies only if the insurance provided by this coverage form covers the fire.

c. War and Military Action

This exclusion lists three specific warlike activities that are excluded.

Any government action taken to respond to such actions is also considered war.

2. Secondary 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. Delay, Loss of Use, and Loss of Market

Coverage under this form is direct damage coverage. Therefore, delay, loss of use, loss of market, or any other consequential loss is not covered.

 

Example: A fire in Errol’s office results in a set of plans being destroyed. This results in the building of a structure being delayed by three months. Errol is fined by the project owner because of the delay. There is no coverage for that consequential loss.

b. Dishonest or Criminal Acts (01 13 changes)

There is no coverage for loss or damage that is due to dishonest or criminal acts (including theft) from any of the following:

(1) Acts that the named insured, its partners, employees, directors, trustees, authorized representatives or managers and members of a limited liability company commit. This also includes such acts that leased workers and temporary employees commit.

(2) Acts of managers or members of a limited liability company, if the named insured is a limited liability company

(3) Acts by anyone with an interest in the property, their employees, or their authorized representatives. This also includes such acts that their leased workers and temporary employees commit.

Note: This edition removes item (4) in the previous edition that addressed others entrusted with property for any reason. It is re-introduced in newly added exclusion h.

This exclusion applies whether the persons act alone or in collusion with others or if the acts occur during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, leased workers, or temporary workers. However, loss due to theft of covered property by employees, leased workers, or temporary workers is excluded.

c. Errors or Omissions in Processing or Copying

Loss or damage that is caused from errors or omission in processing or copying is excluded. The only exception is when the error or omissions result in a fire or explosion. Coverage will apply to the direct loss or damage from that fire or explosion but only this coverage form insures that fire or explosion.

 

Example: Errol decides to have some of his oldest architectural drawings bound to put in his library. The individual who does the binding makes several excluded errors that damage the drawings. However, the final error is when the individual applies a highly flammable glue and then lights a cigarette. The ensuing fire destroys the drawings. Payment is made for the drawings because of the fire exception.

 

d. Electrical or Magnetic Injury, Disturbance, or Erasure of Electronic Recordings

Direct loss or damage to electronic recordings due to electrical or magnetic injury, disturbance, or erasure is excluded. The only exception is that direct loss or damage caused by lightning is covered.

 

Example: Many of Errol's plans and drawings lend themselves to electronic technology, especially as it evolves and improves to the level of sophistication he needs for the work he does. While Errol always backs up these documents on other media, there are times when any given plan "in the works" might not be completely duplicated. This becomes more of a problem as his business grows, staff is added, and the number of projects "in the works" increases. This situation reaches a crisis point when a violent electrical storm accompanied by vivid displays of lightning makes multiple strikes on Errol's premises. The lightning “fries” several of his computers and ruins several projects in production that are not completely backed up or duplicated. The lightning exception to this exclusion covers the losses to the valuable papers.

 

e. 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.

 f. Unauthorized Instructions

Coverage does not apply if a loss occurs because the covered property was given to another person or sent to another place based solely on unauthorized instructions.

 g. Neglect

There is no coverage if an insured does not use reasonable measures to save and preserve the property from further damage during and after the time of loss.

h. Theft (01 13 addition)

There is also no coverage for theft committed by anyone else entrusted with property. This exclusion applies whether a person is acting alone or is in collusion with others who 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.

 This exclusion does not apply to covered property entrusted to carriers for hire.

Note: This exclusion was previously part of exclusion b. above. This change does not affect coverage. It makes the exclusion more visible.

3. Other 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, apart from these exclusions, it is still covered. On the other hand, if the loss would have been excluded anyway, it is still excluded.

 a. Weather Conditions

Coverage does not apply to loss or damage that weather conditions cause. This exclusion applies only if the weather condition contributes in any way with an excluded cause or event in 1. Primary Exclusions above that produces the loss or damage.

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.

 c. Faulty, Inadequate, or Defective Planning

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.

d. Collapse

Note: Collapse is initially totally excluded here but limited coverage is added back in Section 4. 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

There are two exceptions to this exclusion.

 e. Wear and Tear

Loss or damage caused by wear and tear is excluded. Damage caused by qualities in covered property that causes it to damage or destroy itself is excluded. Damage due to latent defect, gradual deterioration, depreciation, mechanical breakdown, insects, vermin, rodents, corrosion, rust, dampness, heat, or cold is also excluded.

C. Limits of Insurance

The limits on the declarations are the most paid for loss or damage in a single occurrence.

D. Deductible

The deductible on the declarations must be exceeded before the insurance company pays anything. Once the deductible is satisfied the insurance company will pay up to the limit of the insurance that applies. The deductible applies on a per occurrence basis.

E. Additional Conditions

1. Valuation–Specifically Declared Items

This valuation clause is added to General Condition F. Valuation in CM 00 01–Commercial Inland Marine Conditions.

Related Article: CM 00 01–Commercial Inland Marine Conditions

The value of specific property described on the declarations is its limit of insurance.

Note: This condition is extremely important. Many documents this coverage form insures are dynamic and their values are subject to change. Others are unique or "one of a kind" and cannot be valued by standard or conventional valuation methods and techniques. Any time the named insured has unique and unusual papers or records with high values or values that may change, they should be earmarked and specifically scheduled with their own values. They should not be combined with the values of other common documents because doing so may result in an inadequate overall value at the time of loss or damage.

Read the Declarations very carefully. The limit for the Specifically Described Property is listed under A. Property at Your Premises.  This could be interpreted to mean that this valuation applies only while the property is at that premises.

There is a separate limit that applies to B. Property that is Away from the Premises and there is no method to enter specifically described property limits. If the specifically described property will be taken away from the premises, it is important to attach an endorsement stating that the Specifically Described Property limit applies both on and away from premises to prevent confusion.

2. Recoveries

This condition is added to Loss Condition H. Recovered Property in CM 00 01–Commercial Inland Marine Conditions.

Related Article: CM 00 01–Commercial Inland Marine Conditions

If the insurance company or the insured recovers any of the lost property, the other party must be notified. The insured has the right to keep the property but only if any settlement that has been paid is returned. The insurance company is responsible pay for all recovery expenses but only up to the limit of insurance.

The insurance company and the named insured are required to notify each other if either recovers valuable papers or records after a loss settlement has been concluded. The named insured is given the option to keep the recovered property. If the named insured keeps the recovered property, the insurance company readjusts the loss settlement based on the amount the named insured received for the recovered property. The readjustment is subject to allowances for recovery expenses incurred.

Note: The Loss Condition H. Recovered Property in CM 00 01 specifically states that the insurance company is responsible for all recovery expenses. This version is not as clear and instead states that the loss settlement is being readjusted with allowance for incurred recovery expenses.

3. Additional Conditions

These conditions are in addition to those in IL 00 17–Common Policy Conditions and CM 00 01–Commercial Inland Marine Conditions.

Related Articles:

IL 00 17–Common Policy Conditions

CM 00 01–Commercial Inland Marine Conditions

a. Coverage Territory

The insurance company insures covered property at the following:

b. Protection of Records

The named insured must keep all covered property in the receptacles listed on the declarations at all times when the premises are closed for business. The papers also must be kept in the receptacles when the covered property is not being used.

Note: This is a warranty statement and can result in coverage denial if the covered property is not handled as stated.

 

Example: Errol listed two different receptacles on the declarations where the covered property is to be stored. He purchases a third receptacle but does not inform the insurance company.

Scenario 1: Errol has multiple contracts on his desk and on the desk of his secretary, but he is not working on any of them. He is planning on reviewing them soon. The sprinkler system activates during working hours. The loss of those contracts is not covered even though the loss happened during business hours.

Scenario 2: Errol learned his lesson, so he cleaned up all desks and moved all valuable papers and records into the three receptacles. A fire sweeps through the offices and damages records in all three receptacles. The records in the listed receptacles are covered but not the ones in the receptacle that had not been listed on the declarations.  

F. Definitions

There are four definitions.

1. Valuable Papers and Records

Inscribed, printed, or written documents, manuscripts, or records are valuable papers and records. Abstracts, deeds, drawings, films, maps, mortgages, and books are examples of valuable papers and records, but this term is not restricted to only these.

Money and securities are not part of this term. Data that has been converted for use in the electronic data processing operations, its programs or instructions is not part of this term. The material used to store this data is also not part of this term.

2. Premises

This is a limiting type definition because only the interior portion of the building that the named insured occupies at the address or location on the declarations is a premises.

3. Money

Travelers checks, register checks, and money orders held for sale to the public are considered money. Currency, coins, and bank notes, whether or not it is currently in circulation are also money.

4. Securities

Negotiable and nonnegotiable instruments and contracts that represent money or other property are securities. Tokens, tickets, and various stamps, whether or not they are currently in circulation, are also securities. Evidence of debt issued in connection with charge or credit cards that the named insured does not issue is also securities. This term does not include money.

ENDORSEMENTS

ISO has developed one endorsement to use with the Valuable Papers and Records Coverage Form.

CM 67 02–Libraries

This endorsement restricts coverage and is required when coverage is issued to a library. The most important restriction is that property that is off premises with a borrower or renter is considered Property Not Covered. These two exclusions further restrict coverage:

UNDERWRITING CONSIDERATIONS

Other than determining the location to be insured, the limits to be provided, and the types of storage containers used, the most critical issue in underwriting this coverage is in actually identifying them. The named insured must be made aware of the types of papers and records that can and should be covered. The only way full recovery can be made for a unique document or record is to list it and provide a value for it. If the papers or records can be duplicated, duplicates should be made and kept elsewhere.