AAIS Electronic Data Processing Equipment And Business Computer Coverage Forms

AAIS ELECTRONIC DATA PROCESSING EQUIPMENT AND BUSINESS COMPUTER COVERAGE FORMS ANALYSIS

(February 2018)

 

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INTRODUCTION

Insurance coverage for electronic data processing (EDP) and business computer equipment and media is primarily in the realm of inland marine. EDP is a separately listed item under the Nationwide Inland Marine Definition that has been removed when some states have adopted the Definition. Arguments have been made that EDP could also be included with the Bridges, Tunnels and Other Instrumentalities of Transportation and Communication item because of how EDP is an instrumentality of communication. However, some states argue that the hardware is very much a location type exposure better covered by property insurance.

Coverage applies to hardware, broadly defined as a network of electronic machine components or microprocessors that accept instructions and information and process it according to instructions. Coverage also applies to software. Software is a broad definition extending to the media containing instructions, information, and data records. The software also is the programs and applications whether proprietary or off-the-shelf.

Coverage is available for damage caused by standard all risk type perils as well as hacking, computer viruses, websites, power shortages, outages, and overloads.

AAIS has developed four electronic data processing equipment and business computer coverage forms. Each has its own corresponding schedule of coverages. This analysis will first analyze the IM 7200–Electronic Data Processing Equipment Coverage Part–Scheduled Limits Coverage Form and its schedule IM 7205–Schedule Of Coverages–Electronic Data Processing–Scheduled Limits. The ways in which the other coverage forms differ from the IM 7200 will be discussed afterward.

ELIGIBILITY

Any business that owns and/or uses computers and other data processing equipment is eligible to purchase this coverage. Each coverage form has its own eligibility requirements.

POLICY CONSTRUCTION

AAIS Electronic Data Processing Equipment or Business Computer coverage requires at least these four forms:

Related Article: CL 0100–AAIS Commercial Lines Common Policy Conditions

SCHEDULES OF COVERAGES

IM 7205–SCHEDULE OF COVERAGES–ELECTRONIC DATA PROCESSING–SCHEDULED LIMITS (01 12 changes)

This Schedule of Coverages is used with IM 7200–Electronic Data Processing Equipment Coverage Form–Scheduled Limits. The 01 12 edition incorporated a number of editorial changes that do not affect coverage which this analysis does not address. IM 7205 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Described Premises

The location number and address of each covered location must be entered in the spaces provided. IM 7208–Electronic Data Processing–Additional Locations Schedule is used to schedule additional locations.

Location Limits (as applicable)

The following information must be entered for each covered location:

Website Server Limits (if applicable) (01 12 change)

There are three website server options. The selected option must be checked and other entries made as follows:

On-site Server

Limits are required because this coverage is separate from the other hardware and software coverage provided. Limits apply to all on-site servers damaged in a single occurrence.

A limit is required for the most paid for loss to on-site servers in a single occurrence.

A limit is required for the most paid for loss to website software in on-site servers in a single occurrence.

On-site Server Coverage under Hardware and Software

A limit is not required because the coverages for hardware and software are broadened to include the On-site server. It is important that the limits be sufficient to include the server values.

Off-site Server

A limit is required for the most paid for loss to off-site servers damaged in a single occurrence.

A limit is required for the most paid for loss to website software in off-site servers in any one occurrence.

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

Equipment Coverage Part

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

No entry is required.

The number of days is 365 unless a different number is entered.

The limit is $2,500 unless a different limit is entered.

The limit is $2,500 unless a different limit is entered.

No entry is required.

Note: Each of these extensions applies. When no entry is required, the full policy limit applies, subject to limitations in the coverage extension.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $500,000 unless a different limit is entered.

Check the appropriate box to indicate Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

Check the appropriate box to indicate Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $500,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $15,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $2,500 unless a different limit is entered.

Check the appropriate box to indicate Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $50,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limits are $25,000 limit in any single occurrence and a $75,000 limit for all covered losses during each separate 12-month period unless different limits are entered.

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

Deductible

A deductible amount must be entered for All Covered Perils.

A separate deductible can be entered for each of the following. When entered, the all coverage peril deductible is superseded but only for the listed peril:

Notes:

The deductible entered applies to all covered locations.

Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage boxes are checked, a deductible that applies specifically to that selected coverage must be entered. That deductible applies instead of the deductible that applies to all covered locations. This deductible is a flat deductible and not a percentage deductible.

Coinsurance

One of the following coinsurance options must be selected with respect to Hardware, Media, Programs and Applications, Data Records, and Proprietary Programs:

Income Coverage Part

Note: Entries in this section require that IM 7215–Electronic Data Processing Income Coverage Part be attached in order to provide the coverage.

Coverage Options

One of the following income coverage options must be entered:

Note: The Income Coverage Not Provided option not being selected could be viewed an ambiguous when the Extra Expense only is selected. The only two options available in the IM 7215 is Earning and Extra Expense or Extra Expense Only. This third item should be removed from the schedule.

 

Income Coverage Extensions

The number of days is 30 unless a different number is entered.

The number of days is 30 unless a different number is entered.

Supplemental Income Coverages

The limit is $50,000 unless a different limit is entered.

Check the appropriate box to indicate Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

Check the appropriate box to indicate Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $25,000 and the waiting period is 24 hours unless other values are entered.

These are covered unless marked as excluded.

The limit is $10,000 unless another limit is entered.

Check the appropriate box to indicate Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $25,000 per occurrence, subject to $75,000 in any one 12-month period, and the waiting period is 24 hours unless other values are entered.

Income Coverage Options

Income Coverage Waiting Period

One of the following must be selected:

The waiting period is 24-hours unless a different number of hours is entered.

Coinsurance

One of the following coinsurance options must be selected with respect to income coverage.

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7200–ELECTRONIC DATA PROCESSING EQUIPMENT COVERAGE PART–SCHEDULED LIMITS COVERAGE FORM ANALYSIS

This analysis is of the 10 02 edition.

Agreement

This section is an agreement between the named insured and the insurance company that the insurance company will provide the coverage described in the coverage form and in the schedule of coverages but only if the named insured pays the premium. The parties to this agreement are subject to all the coverage form’s terms, conditions, endorsements, and definitions.

Definitions

Defined terms are used throughout the coverage form. The definitions may restrict or broaden the common use of these words or phrases so must be carefully reviewed in order to understand what the term means within this coverage form. Twenty-eight terms are defined:

1. You and your

The parties named on the declarations as the insured.

2. We, us, and our

The insurance company that provides the coverage.

3. Computer hacking

The unauthorized intrusion by any party into hardware, software, website, or a computer network that results in numerous types and forms of listed damage. The listing provides only examples and not limitations.

4. Computer virus

Any type of malicious and self-replicating electronic data code that is introduced into computer equipment or software causing any of numerous types and forms of listed damage listed. The listing provides only examples and not limitations.  

5. Data records

Files, documents, and any information that is stored on media in an electronic format.

6. Electrical disturbance

Magnetic or electrical damage to electronic recordings. It is also any disturbance to or erasure of such recordings.

7. Flood

An unusual definition that begins with flood. Surface water, waves, tidal water, or overflow of bodies of water are also considered flood. Finally, spray that results from these is also considered flood, whether driven by wind or not.

8. Hardware

A network of electronic machine components (such as microprocessors) that perform a variety of computing functions. Some examples are computers, servers, personal computers, workstations, various portable computing devices, and peripheral data processing equipment. Software, telecommunications or reproduction equipment, protection and control systems, or servers, whether on-site or off-site are not considered hardware.

Note: Limited covered is provided for telecommunication equipment, reproduction equipment and protection and control systems under Supplemental Coverage.

9. Limit

The amount of available coverage.

10. Mechanical breakdown

A failure or improper functioning of moving or electronic parts or components along with faulty installation and blowout.

11. Media

Any object or device that is used with hardware to process, record, or store information. Some examples are films, tapes, cards, discs, drums, cartridges, and cells.

12. Off-site server

A server for the insured's website that is at a premises not listed on the schedule of coverages. It must be maintained or operated by others who act as the named insured's web host or other Internet service provider.

13. On-site server

A server that is for the named insured's website and is located on a premises the named insured occupies which is listed on the schedule of coverages. It must be maintained or operated by the named insured or by others that act as its Website consultant.

14. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants, and irritants. It includes, but is not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

15. Power supply disturbance

The only types of disturbances within this definition are power surge, blackout, and brownout and the more generic interruptions of power supply.

16. Programs and applications

The operating programs and applications that were either pre-installed in hardware or that the named insured purchases and stores on media.

17. Proprietary programs

Programs and applications that are developed by or specifically made for the named insured and stored on media or installed in hardware.

18. Protection and control systems

There are three types of systems that are part of this definition. The air conditioning system applies only if used strictly as part of the operation of the hardware. Fire protection equipment, both manual and automatic fire suppression equipment, and smoke and heat detectors used for the hardware protection but it is not required to be exclusive to the hardware. The third system is the power supply system that cannot be interrupted and its line conditioners, and voltage regulators.

19. Reproduction equipment

Any network of equipment and software that is designed to scan, copy, store, and retrieve paper documents.

20. Schedule of coverages

Any page labeled as such that contains coverage information. Declarations and supplemental declarations are included.

21. Sinkhole collapse

When the earth’s surface suddenly settles or collapses into an underground opening that is created by water acting upon limestone or some other rock formation. The land’s value or the cost to fill sinkholes are not part of this definition.

22. Software

Media, data records, programs, applications, and proprietary programs but only as defined elsewhere in this section.

23. Specified perils

The named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm. Two terms need further explanation.

Falling objects does not include loss to personal property that is stored in the open. In addition, damage to the interior of buildings or personal property stored in buildings is not considered falling object unless a falling object first breaches the building's exterior.

Water damage is the sudden or accidental discharge or leakage of water or steam. The water damage must be a direct result of a part of the system or appliance that holds the water or steam cracking or breaking.

24. Telecommunications equipment

The telephone components and equipment that are used to transmit or communicate. Examples provided are telephone switchgear, telephone operating programs and related software, facsimile transmission equipment, video conferencing equipment, and other related telephone hardware that could include computers dedicated to voice mail. However, this definition is not limited to just these.

25. Terms

All policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

26. Volcanic action

Airborne volcanic blast or shock waves, ash, dust, and particulate matter. Lava flow is also volcanic action. The cost to remove dust, ash, or particulate matter from undamaged covered property is not volcanic action.

27. Website server

Any on-site or off-site server.

28. Website software

Media, data records, purchased programs, and applications that are stored on media or inside a Website server. Proprietary applications and programs the named insured developed stored on media or in Website servers are also considered website software.

Property Covered

Three broad classes of property are covered. Coverage provided in this section may be limited or excluded elsewhere in the coverage form:

1. Hardware

The insurance company covers direct physical loss from a covered peril to the named insured's hardware. It also covers such damage to similar property of others in the named insured's care, custody, or control. This coverage only applies when there is a limit for hardware on the schedule of coverages and while the hardware is at the described location with that limit.

 

Example: Charlie's Champion Computers is insured for its building and business personal property, including its stock of computers and related products held for sale, under a Businessowners Policy. It insures the computers it uses to run its business under the AAIS Electronic Data Processing Equipment Coverage Part–Scheduled Limits Form. It also includes a variety of computer equipment that belongs to others being held for repairs. Over the weekend, a fire from a short circuit overwhelms the fire suppression system and destroys all personal property inside the building and also causes extensive damage to the building itself. The loss is adjusted satisfactorily because the Businessowners Policy covers the building and the merchandise held for sale. The AAIS Electronic Data Processing Equipment Coverage Part–Scheduled Limits Form covers Charlie's own computers and the computer property of others in for repairs.

 

2. Software

a. Media, Programs, and Applications

Media, programs, applications, and similar property of others are covered against direct physical loss from a covered peril. This coverage only applies when there is a limit for media, programs, and applications on the schedule of coverages at the specific location where the property is kept.

b. Data Records and Proprietary Programs

Research costs or other expenses that are required to reproduce, replace, or restore lost files or codes that were on lost or damaged data records are covered. This applies to proprietary programs and similar property of others. The loss must be from direct physical loss by a covered peril. Coverage applies only when there is a limit for data records and proprietary programs on the schedule of coverages for the specific location where the property is kept.

3. Website Server

a. On-site Server

Coverage applies to direct physical loss from a covered peril to an on-site server and the software housed within it. This coverage applies only when a limit for on-site server and Website software is entered on the schedule of coverages and then only the specific location for which the limit has been entered.

Note: The On-site Server is covered for no more than the entered limit.

b. On-site Server Coverage Under Hardware and Software

Coverage applies for an on-site server as part of the hardware and software coverage when an entry for it is made on the schedule of coverages. No limits are entered because any loss to the On-site Server hardware or software is covered as part of the hardware and software limits.

Note: When this is selected, it is very important to have the Hardware and Software limits at the locations with On-Site Servers be increased to include their values.

c. Off-site Server

The insurance company covers direct physical loss from a covered peril to an off-site server. The named insured must either own the server or lease it and be required to insure it. Coverage applies only if a limit for the off-site server is entered on the schedule of coverages and no more than that limit is paid in any one occurrence. Similarly, the software is covered but only if housed in an off-site server and a limit for coverage entered on the schedule of coverages and no more than that limit is paid in any one occurrence.  

d. Software Coverage Condition

Website software, whether at an on-site or off-site server is covered only where there is a duplicate or backup copy AND that copy is stored in a building at least 100 feet away from the premises that its server.

Property Not Covered

Seven specific types of property are excluded:

1. Accounts, Bills, or Documents

These items are excluded as well as evidence of debt, records, abstracts, deeds, manuscripts, program documentation, and other documents.

A very important exception is that all of these items are covered when stored in a software form but the exception is limited to only such items in that software form.

2. Checked Luggage

Portable computers that are in transit and are checked as luggage are not covered for the perils of theft and disappearance.

3. Contraband

Property that is illegal to possess is not covered. Property that is legal to possess but that is being used as part of an illegal trade or that is being transported illegally is also not covered.

4. Loaned, Leased, or Rented to Others

Property that the named insured leases, loans or rents to others is not covered.

5. Money and Securities

This means a number of different types of property. Currency, food stamps, and lottery tickets not held for sale in addition to money, notes, or securities are excluded.

Note: This property is more correctly insured under commercial crime coverage forms.

Related Article: Commercial Crime Coverage Analysis

6. Stock In Trade

This is not clearly defined and could be open to interpretation. Many might consider their computers their stock in trade because they depend on them for all transactions. If so, the reason they purchased this coverage might be voided. However, this could mean that only the hardware or software the named insured holds as stock in order to sell to others is not covered. This appears to be very ambiguous.

7. Loss of Internet Service Provider or Web Host

Any loss to the website server or software that occurs because of the bankruptcy, liquidation, or other stoppage of business activities by the named insured's Internet service provider or Web host is not covered.

 

Example: Charlie of Charlie's Champion Computers is not extremely computer savvy and uses Wally's Website Wonders as his Internet provider. Charlie comes to work on the Tuesday after a long holiday weekend, turns on his computer, and gets only a blank screen. After doing all the troubleshooting he can, he calls Wally but does not get an answer. Since Wally's location is only a few miles away, Charlie drives there and discovers that it is completely vacant, all equipment is removed, and Wally apparently was long gone. Charlie has to foot the bill to get a new Internet provider and re-establish service.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There are six coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit for the item included in the coverage form. These coverages are part of the applicable limit for covered property and not in addition to it unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension. Debris removal does not include any costs for removing, restoring, replacing polluted land or water or to extract pollutants.

There are two parts of the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss or damage.

The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid. An additional $10,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

Debris removal expenses must be reported to the insurance company within 180 days of the date of loss in order for this extension to apply.

2. Electrical and Power Supply Disturbance

Coverage applies to direct physical loss to covered property when caused by either electrical or power supply disturbance. These two terms are defined in the Definitions section.

3. Emergency Removal

This covers direct physical loss to covered property that was removed from the scheduled location in order to avoid loss or damage from an impending covered peril. The loss can occur while in transit between the scheduled location and the sanctuary location. This coverage is unique in that the property that is being moved is not subject to any exclusion while in transit or at a sanctuary location. However, the reason for moving the property must be due to a covered peril.

Coverage applies for up to 365 days after the property is first moved but does not extend past the policy’s expiration date.

Note: Coverage does not extend past the expiration date which means that if the insured has property at a sanctuary location when coverage renews, the sanctuary location must be listed as a premises or coverage no longer applies.

 

Example: Charlie of Charlie's Champion Computers fears that the approaching line of wildfires may damage or destroy his computer business. He is very concerned about his owned computer equipment and software so he packs it all up and drives it to a location out of the direct line of the fires. While there, a mudslide occurs and destroys the storage building and the computers. Even though the coverage form excludes mudslide, the equipment is covered because it was removed to protect it from the fire.

 

4. Emergency Removal Expenses

This coverage extension works with the Emergency Removal extension because it pays the expenses the named insured incurs to move covered property away from a covered location that is threatened by a covered peril. This extension also pays for the storage fees that are incurred in order to keep the property at the sanctuary location for up to 365 days after the property is first moved. The most paid for such expenses in any one occurrence is $2,500. This limit can be increased.

Coverage ends when the policy expires even if the items are still at the sanctuary location. This is additional coverage. As a result, all such expenses paid are in addition to the limit of insurance for this property.

5. Fraud and Deceit

When covered property is willingly given to another person, even by trick or device, coverage is excluded. This extension provides a limited amount of coverage for such a situation. When the named insured, its agents, consignees, or customers allow for covered property to be stolen in any of the following circumstances and it is stolen, a limited amount of coverage is provided:

The most paid in a single occurrence is $2,500 but the limit can be increased.

 

 

Example: Charlie orders new office computers to replace the ones destroyed in the mudslide. However, before he loads the software, he receives a phone call from his supplier informing him that the computers are faulty and that the supplier is sending a representative to pick up the computers. Charlie is thrilled with such service and gives the representative the computers and waits for the replacements to arrive. After a two-day wait, he contacts the supplier and discovers that it did not make the phone call. By then, the computers are long gone and Charlie sadly realizes that he has been swindled. This coverage provides funds to purchase replacements.

 

6. Mechanical Breakdown Coverage

Coverage applies to loss of covered property from mechanical breakdown as this coverage form defines.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are 15 supplemental coverages. Each has its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension. They also are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Acquired Locations

Coverage applies to direct physical loss from a covered peril to covered property at locations that are acquired during the policy period. Coverage ends 60 days after the location is acquired or when the location is reported to the insurance company, whichever occurs first. Coverage does not extend past the expiration date. The most paid in any one occurrence is the lesser of the appropriate valuation of the covered property or $500,000. This limit can be increased. This is not free coverage though because additional premium is due from the date the location is acquired.

2. Earthquake Coverage

The insurance company covers direct physical loss to covered property caused by earthquake and volcanic eruption but only if the box on the schedule of coverages is checked and a limit entered in the space provided.

Note: This coverage does not have a default limit. Coverage applies only if there is a limit on the schedule of coverages. Because this could be confusing, the coverage not provided box should be checked if earthquake coverage does not apply.

3. Flood Coverage

The insurance company covers direct physical loss to covered property caused by flood but only if the box on the schedule of coverages is checked and a limit entered into the space provided.

Note: This coverage does not have a default limit. Coverage applies only if there is a limit is on the schedule of coverages. Because this could be confusing, the coverage not provided box should be checked if flood coverage does not apply.

4. Newly Purchased or Leased Hardware

Coverage applies to direct physical loss from a covered peril to additional hardware, pre-installed programs, and applications that are purchased or leased during the policy period. The most paid in any one loss is the lesser of $500,000 or the covered property’s actual cash value. This limit can be increased. Coverage applies for no longer than 60 days following the date of purchase or lease, the policy expiration or the date the insurance company is notified, whichever comes first. This is not free coverage so additional premium is due starting with the acquisition date.

5. Off-site Computers

Computers that are covered property and in the custody of the named insured, its officers, partners, or employees are covered for direct physical loss from a covered peril. This coverage applies while the property is at any party’s residence, at other temporary locations and while in transit between scheduled locations and such locations described in this supplemental coverage. The limit is $5,000 in a single occurrence but the limit can be increased.

6. Pollutant Cleanup and Removal

When a covered peril that occurs during the policy period causes a pollutant release or discharge, coverage is provided for the expenses the named insured incurs to extract them from land or water but only those reported within 180 days of the date of loss.

This coverage does not include any costs that are incurred for pollutant testing, evaluating, observing, or recording except for testing that is a necessary part of the covered extraction process.

This coverage is for no more than a 12-month policy period aggregate of $10,000. This is a policy level aggregate.

7. Property in Transit

Direct physical loss due to a covered peril damaging covered property while in transit is covered for up to $10,000 per occurrence. This limit can be increased.

8. Protection and Control Systems

The insurance company is concerned with safety. Therefore, this supplemental coverage is provided that pays for direct physical loss to protection and control systems that are at locations on the schedule of coverages. The most paid is $10,000. This limit can be increased.

9. Recharge of Fire Extinguishing Equipment

Fire extinguishing equipment is the first line of defense from fire. Therefore, the insurance company wants to make sure it is in working order. If the hand-held unit or automatic fire extinguishing equipment discharges, coverage is provided to recharge them. The discharge could occur in a fire-fighting effort, as the result of a covered peril occurring, or may be due to an accidental discharge.

 

Example; Jake was so proud of his 3-year old daughter, Millie, that he brought her to Take Your Daughter to Work Day. The first 30 minutes was fun but Millie quickly became bored. Jake looked away for just a minute and somehow Millie got to the manual release for the computer’s automatic fire extinguishing equipment. Although Millie’s pulling the device was intentional, at three years old she was not responsible for such actions, and coverage was available to pay for the necessary recharging of the system.

 

There is no coverage if the discharge occurs during testing or installation because that should be the responsibility of whoever is testing and/or installing.

It is the insurance company’s decision as to whether to replace or recharge the system. The most paid is $15,000 but the limit can be increased.

10. Reproduction Equipment

Coverage applies to loss of equipment that is defined in this coverage form as reproduction equipment. The equipment’s purpose must be to scan, copy, and store or retrieve paper documentation. The software that operates the equipment is considered reproduction equipment. If a covered peril causes a loss to such covered property at a location that is listed on the schedule of coverages a single occurrence limit of $10,000 is available to pay for the loss. This limit can be increased.

11. Rewards

An occurrence limit of $2,500 is available to pay for a reward related to covered arson, theft, or vandalism loss. The reward is paid only for information that leads to the conviction of the party or parties who caused the loss. More than one person can receive the award but the total reward available for a single occurrence is $2,500. There are no limitations as to who can receive the reward or how it is determined who receives it. The limit can be increased. Computer hacking and computer virus are included as vandalism in this supplemental coverage.

12. Sewer Backup and Water Below the Surface

Damage that results in direct physical loss to covered property is covered when caused by water from a sewer or drain backing up. Such water damage is also covered when due to sub-surface water pressure on (or leaking through or into) a covered building or structure.

This supplemental coverage applies only when the box on the schedule of coverages for this coverage is checked and a limit entered in the space provided.

Note: This is an optional coverage so there is no default limit. For this reason, coverage applies only when the box is checked AND a limit is entered on the schedule of coverages. When this coverage is not being provided, the box for coverage not provided should be checked in order to prevent any confusion.

13. Software Storage

An important method of reducing the cost of a software loss is to keep duplicate and/or backup software off location. This supplemental coverage pays for damage to that off premises software when damaged by a covered peril. This coverage applies only when the building in which the software is stored is located at least 100 feet away from a described premises location on the schedule of coverages. The most paid in a single occurrence is $50,000. This limit can be increased.

 

Example: Playful Pets backs up all of its records to a facility located on the other side of town. That same facility keeps copies of all software used by Playful Pets. A tornado sweeps through town and destroys the storage facility but not Playful Pets. The cost to replicate all of the backup and the software is covered for up to $50,000. The good news is that all were replicated and in place when a fire occurred at Playful Pets and those documents could be replicated. 

 

14. Telecommunications Equipment

Telecommunication equipment that is damaged in a direct physical loss due to a covered peril is covered but only at a scheduled location. The limit is $10,000 per occurrence. This is not a per-location occurrence so if an occurrence impacts multiple locations, only $10,000 is available for all damaged telecommunications equipment. This limit can be increased.

15. Virus and Hacking Coverage

Hardware, software, and website servers and their software are covered when a computer virus or computer hacking causes direct physical loss to it. The limit is $25,000 in a single occurrence (not per location). This is then limited to no more than $75,000 aggregate for all covered losses during each separate 12-month policy period.

There are four coverage limitations or exclusions:

Perils Covered

Coverage applies to risks of direct physical loss. This broad statement is modified by explaining that the loss may be limited or not covered at all when caused by an excluded peril.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

a. Civil Authority

There is no coverage for loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property but this exclusion is not limited to only these. The only exception is when the loss or damage is caused by a civil authority destroying property as a means of controlling a fire. This exception applies only if the fire is the result of a covered peril.

b. Earth Movement or Volcanic Eruption

Coverage does not apply to loss caused by earth movement or eruption, explosion, or effusion of a volcano. Coverage does apply to direct loss or damage by fire, explosion, or volcanic action that results from any of these events. Coverage also applies for loss caused by sinkhole collapse.

Note: Earthquake (only one of many types of earth movement) coverage applies when a check is placed in the box for earthquake coverage and a limit is entered on the schedule of coverages for Supplemental Coverages–Earthquake Coverage.

c. Flood

There is no coverage for loss caused by flood. It does cover direct loss caused by fire, explosion, or sprinkler leakage that results from a flood occurrence.

Note: Flood coverage applies when a check is placed in the box for flood coverage and a limit is entered on the schedule of coverages for Supplemental Coverages–Flood Coverage.

d. Nuclear Hazard

The insurance company does not cover loss or damage caused by or that results from any nuclear reaction, radiation, or contamination. This is absolute and applies whether the nuclear incident was controlled or not, and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from the nuclear fire, direct loss or damage from that fire is covered but the damage from the nuclear hazard remains excluded.

e. Sewer Backup and Water below the Surface

Coverage does not apply to loss that is caused when water backs up from a sewer or drain. It also does not apply for damage that occurs when water below the surface of the ground exerts pressure on covered buildings or structures. However, fire, explosion, and theft losses that result from such backup or hydrostatic pressure are covered.

Note: Sewer backup coverage applies when a check is placed in the box for sewer backup coverage and a limit is entered on the schedule of coverages for Supplemental Coverages–Sewer Backup Coverage.

f. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike action by a military force are all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against any such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it is the result of war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that results from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Computer Virus or Computer Hacking

Supplemental Coverages 15. Virus and Hacking Coverage provides limit coverage. All other coverage for computer virus or computer hacking caused direct or indirect loss or loss of access, use, or functionality is excluded.  

b. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts that any of the following commit alone or in collusion with another:

Coverage applies if employees destroy property. It does not apply if employees steal.

This exclusion does not apply to covered property in the custody of carriers for hire.

Coverage for this exposure should be purchased using a commercial crime coverage form.

Related Article: ISO Commercial Crime Coverage Forms and Policies Analysis

c. Loss of Use

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

d. Pollutants

There is no coverage for loss caused by or that results from any release, discharge, seepage, migration, dispersal, or escape of pollutants. There are three exceptions:

e. Temperature/Humidity

Loss to covered property that is caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded.  A very important exception applies. If the air conditioning system that services the covered hardware is damaged by a covered peril and the loss of the air conditioning system causes a temperature/humidity loss to that hardware, any resulting damage to covered property (not just the hardware) is covered.

 

Example: Pet Labs, Inc. has a mainframe computer in a separate, temperature-controlled room with its own circuit breaker and air conditioning system. A disgruntled software engineer tampers with the air conditioning system so that it stops working. The computer overheats and a loss occurs. The loss is covered because a covered peril damaged the air conditioning system.

 

f. Voluntary Parting

There is no coverage for loss or damage to covered property when it is voluntarily given to others, even if the surrender was due to a fraudulent scheme, trick, or false pretense. The good news is that Coverage Extensions 5. Fraud or Deceit provides limited coverage.

3. Other Exclusions

There is no coverage for loss caused by or that results from one or more of the following exclusions. However, if loss by a covered peril results, the insurance company pays for the resulting loss from that covered peril.

a. Contamination or Deterioration

Loss that is caused by contamination or deterioration is excluded. Corrosion, decay, fungus, mildew, mold, rot, rust, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself are considered contamination or deterioration but the definition is not limited to just these. The one exception is that loss or damage from mechanical breakdown is not excluded.

b. Wear and Tear or Obsolescence

There is no coverage for loss that is caused by wear, tear, depreciation, or obsolescence of covered property.

Note: This is particularly important with electronic data processing equipment because of how quickly covered property becomes obsolete.

What Must Be Done In Case Of Loss

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice to it be in writing.

2. You Must Protect Property

During and after a loss, the named insured must take all reasonable steps to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs to do so if the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: It is important to realize that any such costs incurred will reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after the company requests it. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured’s interest and the interest of others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in the title to the property during the policy period must be disclosed in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must produce any records related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Records include tax returns and bank microfilms of all related cancelled checks but records are not limited to just these.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

The named insured may not voluntarily make payments, assume obligations, pay or offer rewards, or incur other expenses without the insurance company's express approval. If it does, it does so at its own expense. The only exceptions are those costs incurred to protect property as item 2. above describes.

8. Abandonment

The named insured may not abandon damaged property to the insurance company without its written consent.

9. Cooperation

The named insured must cooperate with the insurance company. Any actions required of the named insured within this policy must be performed.

Valuation

1. Hardware and Website Servers

a. The value of these items is based on the cost to replace them with new equipment that is functionally comparable to the equipment being replaced.

Note: This could mean going from “latest and greatest” technology purchased to being replaced with the lowest quality available four years later at the time of the loss. Functionally comparable is the important term.

Example: William paid $25,000 to purchase hardware in 2015. A loss destroys the equipment in 2018. William anticipates receiving $25,000 to purchase new equipment that has the latest upgrades. He is very disappointed when he is offered only $10,000 because that is how much equipment that is functionally equivalent to his equivalent will cost. William is very unhappy.

 

b. If not replaced, the value is the actual cash value on the date of loss.

Note: This means that replacement cost new as of the date of loss of equipment that is functionally comparable to the damaged equipment is depreciated to actual cash value.

 

Example: Williams decides to take the $10,000 and just walk away from his business William is even more disappointed when he is offered only $10,000 depreciated over three years use.

 

Note: Because of the rapidity of obsolescence in hardware, it is important that this section is carefully explained to a client. The good news is that an alternative valuation is available. The IM 7213-Upgrade Value Endorsement and IM 7214-Upgrade Value Schedule allows the named insured to schedule the current hardware and the hardware that would be purchased to it if a loss should occur. If this method is used, the schedule must be revisited at least annually in order to stay current.

 

Example: William used the IM 7213 and IM 7214 and scheduled the equipment that he had purchased alongside the equipment he would replace it with. When the loss occurred, William had a well thought-out plan of purchase and was provided the needed funds to upgrade. He was able to remain in business with the new equipment.

 

c. When a loss is only partial, the loss payment will not exceed the reasonable cost to restore the equipment to the condition that existed immediately before the loss or damage occurred.

2. Software

a. Programs and applications are valued at the cost to reinstall them from the licensed discs that were originally used to install them. When those discs are no longer available, the value is based on the cost to purchase the most current version of the programs or applications.

b. Proprietary programs are valued based on the cost to reproduce the programs from duplicate copies and includes the cost of labor to copy or transcribe from those duplicate copies. The cost goes up significantly when there are no duplicate copies. It is then the cost of research or other expenses necessary to reproduce, replace, or restore lost proprietary programs which can be extensive if the programs are old and the team that created them is no longer available. This is particularly important with merged companies and legacy systems.  

c. Data Records are valued at the cost to reproduce them from duplicate copies including, but not limited to, the cost of labor to copy or transcribe from duplicate copies. If there are no duplicate copies, the value is based on the cost of research or other expenses necessary to reproduce, replace, or restore lost files, documents, or records.

d. Media is valued at the cost to repair or replace it with material of the same kind and quality.

Note: It cannot be emphasized enough that software must be duplicated and those duplicates stored at a safe location away from the main locations. Recreating proprietary software and data records is very expensive and time consuming without those duplicates. 

3. Other Equipment

Telecommunication equipment, reproduction equipment, and protection and control systems are valued at their replacement cost. There is no deduction for depreciation.

This valuation is limited to the cost to repair or replace the items with similar materials on the same site and for approximately the same purpose. However, payment will not exceed the amount actually spent to replace the damaged or destroyed property.

Note: It is very important to realize that this equipment is also prone to obsolescence. Equipment is valued as of the date of loss and the date on which the equipment was purchased. This means that the payment can be significantly less than the limit just because the replacement of similar materials costs less than the equipment originally purchased.

c. The replacement cost valuation only if the damaged or destroyed property is actually repaired or replaced. An initial claim can be made for actual cash value. The named insured can then purchase equipment with its own money combined with the actual cash value settlement and then file for a full replacement cost settlement. If this is the plan, the named insured must tell the insurance company about it within 180 days of the loss.

4. Pair or Set

a. A loss of part of a pair or set is not considered a total loss. Instead, the loss is settled based on what is considered a reasonable proportion of that loss to the value of the entire pair or set. Of course, there could be a considerable discussion about what constitutes a reasonable proportion is.

b. This provision does not apply to software that comes in sets. When part of a software set is lost or damaged and that part cannot be replaced, the entire set is considered lost.

5. Loss to Parts

The value of a lost or damaged part of the property that consists of several parts is the cost to repair or replace only the lost or damaged part.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: This limitation is very important and applies only to the named insured’s property. However, it would seem to overlook the covered property of others. What insurable interest does the named insured have in that property?

2. Earthquake Period

Earthquakes or volcanic eruptions that occur within a 168-consecutive hour period are considered a single loss. This time period is not limited by the expiration date.

3. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages.

4. Loss Settlement Terms

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

5. Coinsurance

a. When coinsurance applies to a coverage that is provided in this policy, the insurance company pays only part of the loss if the limit is less than required when the percentage on the schedule of coverages is multiplied by the actual the value of the covered property.

b. The following are the three steps to determine the amount of the loss to be paid:

Step 1. Multiply the percentage on the schedule of coverages by the covered property’s value at the time of loss.

Step 2. Divide the covered property’s limit by the result determined in step 1.

Note: There is no coinsurance penalty if the result is 1.00 or higher.

Step 3. There is a coinsurance penalty when step 2. is less than 1.00. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in step 2.

The insurance company does not pay more than the amount determined in step 3. or the limit, whichever is less.

c. When multiple limits are subject to the coinsurance provision this procedure is applied separately to each limit.

d. When only one limit is on the schedule of coverages, this procedure is applied to the total of all covered property insured under that limit.

e. This coinsurance provision only applies when there is a coinsurance percentage entered on the schedule of coverages.

6. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

7. Insurance under More Than One Policy

a. Proportional Share

Payment is made on a proportional basis when the named insured has other coverage available that is subject to the same terms as this coverage form. This coverage form then pays only its share of the covered loss which is the proportion that its limit of insurance bears to the limits of insurance of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 7. a. above. In that case, this coverage form pays only as excess. This means that it pays only after the amount of covered loss from the other coverage, whether collectible or not is paid. Regardless of when it begins to pay, no payment is made in excess of the applicable limit of insurance.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has four loss payment options if a covered loss occurs.

b. Notice of Our Intent to Rebuild, Repair, or Replace

After the insurance company receives the properly completed proof of loss, it has 30 days in which to notify the named insured of its intent to rebuild, repair, or replace.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

After the insurance receives a properly prepared proof of loss and the amount of loss is established it has 30 days in which to pay the loss. The establishment of the amount can be through either a written agreement between the insurance company and the named insured or an appraisal award is filed with the insurance company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company has the option to adjust and pay losses that involve property of others either to the named insured acting on the property owner’s behalf or to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

When the insurance company pays the property owner, it is not obligated to pay the named insured. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.

Other Conditions

1. Appraisal

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

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

The appraisers then determine the claim’s value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

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

2. Benefit to Others

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

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

If the named insured is an individual who dies, the person who has custody of the named insured's property at the time of the death is an insured until a qualified legal representative is appointed. The named insured’s legal representative becomes an insured once he or she is appointed. Both are insureds but only with respect to the property this coverage form insures.

b. Policy Period is not Extended

This coverage is limited by the policy’s expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if it intentionally misrepresents or conceals a material fact or information. This means that the insurance is treated as simply having never existed versus denying a particular claim.

6. Policy Period

Only covered losses that occur during the policy period are paid.

Note: When an earthquake occurs at the end of the policy year and aftershocks continue into the next policy year, the policy in effect at the beginning of the earthquake for up to 168 hours.

7. Recoveries

Paying the loss does not end the obligations of the named insured and the insurance company toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims. The one exception is Supplemental Coverages 15. Virus and Hacking Coverage.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories, and possessions, Canada, or Puerto Rico in order for coverage to apply.

IM 7206–COMPUTER COVERAGE - SCHEDULE OF COVERAGES–

This Schedule of Coverages is used with IM 7201–Computer Coverage. The 01 12 edition incorporated a number of editorial changes that do not affect coverage that this analysis does not address. IM 7206 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Described Premises

The location number and address of each covered location must be indicated in the spaces provided. IM 720–Computer Coverage–Additional Locations Schedule is used to schedule additional locations.

Location Limits

The following information must be entered for each covered location:

Income Coverage Options

One of the following income coverage options must be selected:

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

The number of days is 365 unless a different number of days is entered.

The limit is $1,000 unless a different limit is entered.

This coverage extension does not require an entry. However, a selection must be made as to whether or not to waive the 500 foot limitation.

The limit is $1,000 unless a different limit is entered.

No entry is required.

Note: Each of these extensions applies. When an entry is not required, the full policy limit applies, subject to any limitations in the coverage extension.

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

 

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $250,000 unless a different limit is entered.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $250,000 unless a different limit is entered.

The limit is $2,500 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $1,000 unless a different limit is entered.

Check the appropriate box to indicate Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $25,000 unless a different limit is entered.

The limits are $5,000 in a single occurrence and $10,000 for all covered losses during each separate 12-month period unless different limits are entered.

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

Income Coverage Extensions

The number of days is 30 unless a different number of days is entered.

The number of days is 30 unless a different number of days is entered.

Supplemental Income Coverages

The limit is $25,000 unless a different number is entered.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $10,000 and the waiting period is 24 hours unless other values are entered. Overhead Transmission Lines are covered unless marked as excluded.

The limit is $5,000 unless a different limit is entered.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $5,000 per occurrence subject to $15,000 in any one 12-month period and the waiting period is 24 hours unless other values are entered.

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

Deductible

A deductible amount must be entered for All Covered Perils.

Other deductibles can be entered for the following and supersede the entry for all covered perils:

Notes:

The deductible entered applies to all covered locations.

Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage boxes are checked, a deductible that applies specifically to that selected coverage must be entered. That deductible applies instead of the deductible that applies to all covered locations.

Coinsurance

There are two coinsurance sections. One applies to Hardware, Media, Programs, and Applications. The other applies to Income Coverage. An entry of one of the following must be made for each section:

Coverage Option

One of two valuations must be selected:

Income Coverage Waiting Period

One of two waiting period options must be selected. If the waiting period is selected, the waiting period is 24 hours unless a different number of hours is entered:

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7201–COMPUTER COVERAGE FORM ANALYSIS

This analysis is of the 10 02 edition.

This coverage form is similar to IM 7200–Electronic Data Processing Equipment Coverage Part–Scheduled Limits analyzed above except for changes in fourteen sections. This analysis addresses only the differences in the fourteen sections.

Agreement

The term Computer Coverage in IM 7201 replaces the term Electronic Data Processing–Equipment Coverage Part in IM 7200.

Definitions

Two definitions are added, three are changed, and three are eliminated.

New definitions

The following are the new definitions:

Changed definitions

The following are the three definitions changed:

Eliminated definitions

The following definitions are eliminated because the terms are not used in this coverage form:

Note: These items are covered under this form as hardware. This means that coverage is actually broader than under the IM 7200 because coverage applies to these on the same basis as any other hardware.

Property Covered

One item is changed and one item is eliminated.

Changed property covered

Software Coverage does not list data records and proprietary programs as covered as in IM 7200. It then specifically states that there is no coverage for them except as provided in Supplementary Coverages.

Eliminated property covered

Item 3. Website Server coverage is totally removed.

Income Coverage

This coverage is part of IM 7201 while it must be endorsed to IM 7200. This coverage applies during the restoration period when the business is partially or completely interrupted because a covered peril that occurs involves covered property at locations on the schedule of coverages. A limit for the coverage must be entered for the location on the schedule of coverages. A box for only one of the following must be also checked:

Note: To avoid confusion, the word "none" should be entered in the income coverage limits space when the income coverage not provided box is checked.

Property Not Covered

The new item is not covered is Website Servers.

Instead of only the Loss of Internet Service Provider or Web Host being excluded, all coverage for Website Servers is excluded.

Coverage Extensions

There are four changes to coverage extensions.

Supplemental Coverages

One supplemental coverage is added, seven are changed, and four are eliminated.

Added Coverage

The coverage added is Proprietary Programs and Data Records. It covers the cost of research necessary to reproduce or restore lost files or codes on lost or damaged data records and proprietary programs of the named insured and of others in its care, custody, or control. Coverage applies only when a covered peril causes the loss and occurs at locations on the schedule of coverages. The limit is $5,000 in any one occurrence.

Note: IM 7200 does not provide this supplemental coverage because Software under Covered Property in that coverage form includes Data Records and Proprietary Programs.

Changed Coverages

The following are the coverages changed:

Eliminated Coverages

The following are the coverages eliminated:

Note: Remember that Protection and Control Systems, Reproduction Equipment, and Telecommunications Equipment are covered as Hardware and therefore no supplemental coverage is needed.

Income Coverage Extensions

The section is new because IM 7200 does not offer business income coverage. These coverage extensions apply only if limits are entered for the Income Option on the schedule of coverages. The following are the Coverage Extensions in this section:

Supplemental Income Coverages

The section is new because IM 7200 does not offer business income coverage. These supplemental coverages apply only if the Income Option is selected on the schedule of coverages. The following are the supplemental income coverages in this section:

The limit is $25,000.

The limit is $10,000.

The limit is $5,000.

The limit is $5,000, subject to a maximum of $15,000 during each 12-month policy period.

Perils Excluded

Six exclusions are added and two are changed.

Added exclusions

2. c. Electrical and Power Supply Disturbance eliminates coverage for any such disturbance that occurs more than 500 feet from the premises. This exclusion can be deleted by checking a box on the schedule of coverages.

Because Loss of Earnings to this coverage, the following exclusions that apply only to loss of earnings or extra expense are added.  

 

Changed exclusions

What Must Be Done In Case Of Loss

When Business Income coverage is provided, the new Intent to Continue Business–Income Coverage condition applies. It requires that the named insured resume as much of its operations as possible as soon as possible if it intends to continue in business.

Valuation

One item is replaced, two items are added, and one item is eliminated.

Added valuations:

 

Changed valuation:

Hardware and Website Servers is replaced with Hardware. It reflects a more traditional replacement cost valuation and does not mention website servers. Hardware must be repaired or replaced before payment is made and the replacement must be with similar material used for the same purpose. The named insured can request actual cash value initially and then request replacement cost valuation as long as it notifies the company of the change within 180 days of the date of loss. In addition, actual cash value applies if entered on the schedule of coverages.

 

Valuation eliminated:

Other Equipment valuation is eliminated.

How Much We Pay

One item is changed and three items are added.

Added how much we pay

The following three items added apply only if the Income Coverage Part option on the schedule of coverages is selected:

Changed how much we pay

The item changed is Coinsurance. It becomes Coinsurance, Hardware, and Software. The name is changed to distinguish it from Income Coinsurance. There is no change in the actual wording.

 

Other Conditions

The Income Coverage Appraisal condition is added. However, it applies only if Income Coverage is selected on the schedule of coverages.

IM 7207–SCHEDULE OF COVERAGES–ELECTRONIC DATA PROCESSING–BLANKET LIMITS

This Schedule of Coverages is used with IM 7202–Electronic Data Processing Equipment Coverage Part–Blanket Limits. The 01 12 edition incorporated a number of editorial changes that do not affect coverage that this analysis does not address. IM 7207 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Described Premises

The location number and address of each covered location must be entered in the spaces provided. IM 7208–Electronic Data Processing–Additional Locations Schedule is used to schedule additional locations.

Limits

In this schedule, there is no longer a limit that applies to individual premises. Instead, a maximum per location limit is provided. This means that if there are five locations with values ranging from $100,000 to $1,000,000, the $1,000,000 limit must be entered so that the highest exposure is covered.

A Catastrophe limit is added that caps the most that is paid in a single occurrence. This is NOT a location limit or a coverage limit. It is an all-encompassing policy level limit. No single occurrence will pay out more than this limit.

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

Catastrophe Limit: (The Most Paid for Any Combination of or Total Losses in Any One Occurrence)

Each of the following limits is the most paid for loss to that item at a single location:

Equipment Limits:

Software Limits:

Income Coverage Limit

Website Server Limits (if applicable)

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

There are three website server options. The selected option must be checked and other entries made as follows:

On-site Server

A limit is required for the most paid in a single occurrence for loss to on-site servers.

A limit is required for the most paid in a single occurrence for loss to website software in on-site servers.

On-site Server Coverage under Hardware and Software

A limit is not required because the coverages for hardware and software are broadened to include the On-site server. Those limits must be increased to include the server values.

Off-site Server

A limit is required for the most paid in a single occurrence for loss to off-site servers.

A limit is required for the most paid in a single occurrence for loss to website software in off-site servers.

Coverage Extensions

The 01 12 edition added the word Limit (“Limit”) because Limit is a defined word.

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $25,000 unless a different limit is entered.

No entry is required.

The number of days is 365 unless a different number of days is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

No entry is required.

Note: Each of these extensions applies. When an entry is not required, the full policy limit applies, subject to limitations in the coverage extension.

 

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $500,000 unless a different limit is entered.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $5,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $500,000 unless a different limit is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $15,000 unless a different limit is entered.

The limit is $15,000 unless a different limit is entered.

The limit is $15,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $50,000 unless a different limit is entered.

The limits are $50,000 limit in a single occurrence subject to $150,000 in any one 12-month period unless different limits are entered.

Deductible

Deductible amounts must be entered for All Covered Perils.

Other deductibles can be entered for the following and supersede the all covered perils entry:

Notes:

The deductible entered applies to all covered locations.

Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage boxes are checked, a deductible that applies specifically to that selected coverage must be entered. That deductible applies instead of the deductible that applies to all covered locations.

Coinsurance

There are two coinsurance sections. One applies to Hardware, Media, Programs, and Applications. The other applies to Data Records and Proprietary Programs. An entry of one of the following must be made for each of the sections:

Note: There are NO coinsurance provisions in IM 7202 so if coinsurance is desired IM 7231–Coinsurance Provisions must be added.

Income Coverage Part

Coverage Options

One of the following income coverage options must be selected:

Income Coverage Extensions

The number of days is 30 unless a different number of days is entered.

The number of days is 30 unless a different number of days is entered.

Supplemental Income Coverages

The limit is $25,000 unless a different limit is entered.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

The limit is $5,000 unless a different limit is entered.

Check the appropriate box for Coverage Provided, Coverage Not Provided, or Refer to Earthquake, Flood, and Sewer Backup Endorsement.

Enter the limit, the waiting period (hours), and whether Overhead Transmission Lines are excluded.

The limit is $5,000 per occurrence subject to $15,000 in any one 12-month period and the waiting period is 24 hours unless other values are entered.

Income Coverage Options

Income Coverage Waiting Period

One of the following must be selected:

The waiting period is 24 hours unless a different number of hours is entered.

Coinsurance

One of the following coinsurance options must be selected with respect to income coverage:

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7202–ELECTRONIC DATA PROCESSING EQUIPMENT COVERAGE PART–BLANKET LIMITS COVERAGE FORM ANALYSIS

This analysis is of the 10 02 edition.

This coverage form is identical to IM 7200–Electronic Data Processing Equipment Coverage Part–Scheduled Limits analyzed above except for six sections. This analysis addresses only the six sections that are different.

The most important difference in this coverage form is found on the schedule. There are no location specific limits. A limit is provided for the specific coverage along with a catastrophe limit that applies for a single occurrence. The coinsurance is also eliminated unless specific provisions are added. The premises still must be listed and coverages must have limits but under this coverage form, the location and the limit tied together.

Definitions

Item a. in the definition of Computer Hacking does not include intrusion into a website.

Property Covered

Item 1. is changed from Hardware to Equipment. In addition to hardware, it is broadened to include protection and control systems, telecommunications equipment, and reproduction equipment. Similar property of others in the named insured's care, custody, or control is also covered.

COVERAGE EXTENSIONS

The following three coverage extensions are changed.

The limit is increased to $25,000 from $10,000.

The limit is increased to $5,000 from $2,500.

The limit is increased to $5,000 from $2.500.

SUPPLEMENTAL COVERAGES

Two supplemental coverages are added and five are changed. Three are moved from Supplemental Coverages to Property Covered.

Coverages added

The following are the coverages added:

The limit is $5,000. This limit can be increased.

The limit is $10,000. This limit can be increased.

 

Example: Charlie has a personal computer with a Windows 95 operating system. All his hardware and programs work fine. His PC is damaged by a covered peril and it is replaced with a new PC with a Windows 8.1 operating system. Charlie attempts to work with all his peripherals and, while undamaged, they are not compatible with the new PC. As a result, Charlie purchases new equipment to work with the new PC since doing so is less expensive than attempting a conversion. This supplemental coverage pays for the new equipment needed to resolve this incompatibility problem.

 

Coverages changed

The following are the coverages limits changed:

The limit is increased to $10,000 from $5,000.

The limit is increased to $15,000 from $10,000.

The limit is increased to $5,000 from $2,500.

The limits are increased to $50,000/$150,000 from $25,000/$75,000.

The following coverages are moved from Supplemental to Property Covered:

 

How Much We Pay

The coinsurance condition is eliminated.

IM 7220–SCHEDULE OF COVERAGES–BUSINESS COMPUTER

This Schedule of Coverages is used with IM 7203–Business Computer Coverage. IM 7220 contains the following information:

Policy Number (01 12 addition)

The 01 12 edition added a space to enter the policy number.

Described Premises

The location number and address of each covered location must be entered in the spaces provided. IM 7208–Electronic Data Processing–Additional Locations Schedule is used to schedule additional locations.

Hardware and Software Limits

The 01 12 edition added the word Limit (“Limit”) in various places because Limit is a defined word.

The following information must be entered for each covered location:

Extra Expense Limits

Extra Expense Coverage or Extra Expense and Income Coverage are options.

If Extra Expense Coverage is selected, the following information must be entered for each covered location:

If Extra Expense and Income Coverage is selected, the limit for extra expense is included in the income coverage limit. That income limit is entered on either IM 7241–Business Computer–Income Coverage Schedule–Scheduled Location Coverage or IM 7242–Business Computer–Income Coverage Schedule–Blanket Coverage.

Catastrophe Limit

This limit applies to hardware, software, and extra expense. It also applies to income coverage (if purchased).

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

The limit is $5,000 unless a different limit is entered.

Coverage Provided. Check that the 500 Feet Limitation is either waived or not waived.

The number of days is 365 unless a different number of days is entered.

Coverage Provided

Note: Each of these extensions applies. If a limit is not entered, the full policy limit applies, subject to any limitations in the coverage extension.

Supplemental Coverages

Each of these coverages provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $50,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

Deductible

A flat deductible must be entered that applies to all perils and coverages. An entry can be made to list coverages or perils that have a different deductible.

Coinsurance

A selection must be made for each coverage. A percentage must be entered when Other is selected.

Hardware

Software

Hardware Valuation

A valuation must be selected. The options are:

Additional Information (01 12 change)

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

The previous edition referred to this section as Optional Coverages and Endorsements.

IM 7203–BUSINESS COMPUTER COVERAGE FORM ANALYSIS

This analysis is of the 10 04 edition.

This coverage form is identical to IM 7200–Electronic Data Processing Equipment Coverage Part–Scheduled Limits analyzed above except for eleven sections. This analysis addresses only the eleven sections that are different.

Agreement

The term Business Computer Coverage in IM 7203 replaces the term Electronic Data Processing–Equipment Coverage Part in IM 7200.

Definitions

Three definitions are added, six are changed, and three are eliminated.

Added definitions

The following are the three definitions added:

Changed definitions

The following six definitions are changed:

·         Computer hacking does not include website or website server.

·         Computer virus does not include website server.

·         Data records include such information stored in hardware.

·         Hardware as IM 7203 defines that it does not list telecommunication equipment, reproduction equipment, or protection and control systems as not covered as hardware as they are in IM 7200.  

·         Media includes flash drives.

·         Software does not refer to website software.

The following definitions are eliminated because the terms are not used in this coverage form:

Note: These items are covered under this form as hardware. This means that coverage is actually broader than under the IM 7200 because coverage applies to these on the same basis as any other hardware.

Property Covered

Data records and Proprietary programs no longer have separate limits. They are covered as part of the software limit.

Extra Expense Coverage

This is a new optional coverage and is effective only if selected on the schedule of coverage. It applies during the restoration period when the business is partially or completely interrupted because a covered peril occurred that affected covered property at a premises on the schedule of coverages.

Property Not Covered

One item is added and one is eliminated.

Coverage Extensions

Two items are changed and two are eliminated.

Changed Extensions

The following are changed:

Eliminated Extensions

The following are eliminated:

Supplemental Coverages

Three items are changed and 12 items are eliminated.

Changed supplemental coverages

The following are the three items changed:

The following coverages items are eliminated:

Perils Excluded

Five exclusions are added and six are changed.

The following exclusions are added:

The following are the exclusions are changed:

Valuation

There are two changes.

How Much We Pay

The following two items are eliminated:

Other Conditions

The reference to Virus and Hacking Coverage in restoration of limits is eliminated.

 

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedule forms for use with the various coverage forms:

IM 7204–Data Compromise Coverage (01 12 addition)

This is actually an electronic data processing coverage form. It reimburses expenses, such as for legal and forensic information technology reviews and notifying individuals affected, that the named insured incurs if personal identification information in its care, custody, or control is compromised. Coverage also applies to services provided to the individuals affected. Examples are restoring their identities, obtaining credit reports and monitoring them, and establishing information assistance lines. However, there is no coverage for financial losses that affected customers sustain.

IM 7208–Electronic Data Processing–Additional Locations Schedule (01 12 change)

(Use with IM 7200)

This schedule lists additional locations and the limits that apply. The 01 12 edition added a space to enter the policy number.

IM 7209–Computer Coverage–Additional Locations Schedule (01 12 change)

(Use with IM 7201)

This schedule lists additional locations and the limits that apply. The 01 12 edition added a space to enter the policy number.

IM 7210–Electronic Data Processing–Additional Premises Schedule (01 12 change)

(Use with IM 7202)

This schedule lists additional locations. This schedule does not have spaces for limits because IM 7207 includes the limits on a blanket basis. The 01 12 edition added a space to enter the policy number.

IM 7213–Upgrade Value Endorsement

This valuable endorsement allows the client to insure equipment based on what equipment will be purchased after a loss instead of basing it on the current value of existing equipment. The benefits to the client can be significant but a plan is needed and premium must be based on the new proposed equipment instead of the older equipment. The replacement hardware and the hardware being replaced must be described on IM 7214.

IM 7214–Upgrade Value Schedule (01 12 changes)

(Use with IM 7213)

This schedule provides a description and limit for current hardware and a description and limit for upgraded hardware. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7215–Electronic Data Processing–Income Coverage Part

(Use with IM 7200 and IM 7202)

This endorsement provides income coverage consisting of earnings and extra expense. Additional built-in coverages include a number of Income Coverage Extensions and Supplemental Income Coverages.

IM 7219–Hardware and Software Exclusion (01 12 changes)

This endorsement excludes coverage for hardware and software related to production equipment, medical equipment, or heating, ventilating, and/or air-conditioning equipment. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7222–Website Coverage–Extension Endorsement

(Use with IM 7201)

This endorsement extends Hardware and Software described under Covered Property to include an on-site server. It also adds income coverage to include loss of earnings because of an interruption of the named insured's website and Supplemental Coverage for Virus and Hacking to Computer Coverage and Income Coverage.

IM 7223–Electrical and Power Supply Disturbance Limitation

(Use with IM 7200 and IM 7202)

This restrictive endorsement adds a 500-foot limitation for electrical disturbance and power supply disturbance. It excludes losses caused by these disturbances that occur over 500 feet away from the premises where the loss occurred.

IM 7224–Incompatible Hardware and Media (01 12 changes)

This endorsement adds coverage for the cost to modify or replace undamaged hardware or media that is no longer compatible with hardware or software (such as programs, applications, and records) that a covered peril damaged or destroyed. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7226–Foreign Transit and Location Coverage (01 12 changes)

This endorsement extends coverage to include personal computing devices that the named insured or its employees take with them during business travel to foreign countries. Coverage applies in transit to and from the foreign country as well as for the period of time spent in the country. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7227–Reproduction Equipment (01 12 changes)

(Use with IM 7201)

This endorsement extends coverage to apply to reproduction equipment (such as scanners and photocopying machines) at scheduled locations. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7228–Telecommunications Equipment (01 12 changes)

(Use with IM 7201)

This endorsement extends coverage to include defined telephone equipment, such as switchgear, PBX systems, facsimile machines, and video conferencing equipment at scheduled locations. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7229–Interruption of Website–Income Coverage

(Use with IM 7200 and IM 7202)

This endorsement broadens coverage under IM 7215–Electronic Data Processing–Income Coverage Part to include loss of earnings that results from interruption of the named insured's website. The interruption must be due to direct physical loss or damage to the named insured's off-site server. This endorsement includes a 12-hour waiting period and coverage is limited to 14 days after the end of the waiting period unless endorsed to reflect different terms.

IM 7230–Functionally Comparable Hardware–Valuation

(Use with IM 7201)

This endorsement changes the valuation of hardware from replacement cost to new but functionally comparable equipment.

IM 7231–Coinsurance Provisions

(Use with IM 7202)

This endorsement restricts coverage. It adds coinsurance provisions to the coverage form.

IM 7232–Power Protection Equipment (01 12 changes)

(Use with IM 7201)

This endorsement adds supplemental coverage for power protection equipment, such as surge protectors, at scheduled locations. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7233–Production Equipment Exclusion

This endorsement restricts coverage. It excludes computerized production equipment used in manufacturing operations.

IM 7234–Calendar Date or Time Failure Exclusion

This endorsement restricts coverage. It excludes any loss that results from two-digit coding of four-digit calendar year dates. However, if loss or damage caused by or that results from a covered peril occurs, the resulting loss or damage is covered.

IM 7235–Website Server Coverage and Interruption of Website

(Use with IM 7201 and IM 7203)

This endorsement provides coverage for an on-site or off-site website server and for loss of earnings due to interruption of the named insured's web site.

IM 7236–Website Server Schedule (01 12 changes)

This schedule is used with IM 7235– Web Site Server Coverage and Interruption of Web Site to schedule coverage. The 01 12 edition added a space to enter the policy number. It also entered the word “Limits” in a number of places because Limit is a defined word.

IM 7237–Interruption of Website Schedule (01 12 changes)

This schedule is used with IM 7229–Interruption of Web Site–Income Coverage to schedule coverage. The 01 12 edition added a space to enter the policy number. It also entered the word “Limits” because Limit is a defined word.

IM 7238–Earthquake, Flood, and Sewer Backup Endorsement

(Use with all except IM 7203)

This endorsement provides coverage for earthquake, flood, and/or sewer backup on a sub-limits basis. It is used with IM 7239–Earthquake, Flood, and Sewer Backup Schedule.

IM 7239–Earthquake, Flood, and Sewer Backup Schedule (01 12 change)

This endorsement is used with IM 7238 to enter the coverages that apply, whether or not coverage applies to income coverage, the occurrence, catastrophe, and aggregate limits, and the locations covered. The 01 12 edition added a space to enter the policy number.

IM 7240–Business Computer–Income Coverage Part

(Use with IM 7203)

This coverage part provides income (earnings) coverage at designated locations on a scheduled or blanket basis. IM 7241 or IM 7242 must be attached to schedule the coverage.

IM 7241–Business Computer–Income Coverage Schedule–Scheduled Location Coverage (01 12 changes)

This schedule is used with IM 7240–Business Computer–Income Coverage Part to enter the locations where coverage applies and limits. It also includes the option to include extra expense. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage.

IM 7242–Business Computer–Income Coverage Schedule–Blanket Coverage (01 12 changes)

This schedule is used with IM 7240–Business Computer–Income Coverage Part to indicate the blanket coverage and single limit that applies to all locations. It also displays extensions, supplemental coverages, and options. The 01 12 edition added a space to enter the policy number and minor editorial changes that do not affect coverage. It also added quotation marks around the word Limit (“Limit”) because Limit is a defined word.

IM 7243–Additional Coverages Schedule (01 12 changes)

(Use with IM 7203)

This endorsement is used with IM 7244 to enter the additional coverages that apply and the corresponding limit for each. The 01 12 edition added a space to enter the policy number. It also added quotation marks around the word Limits (“Limits”) because Limit is a defined word.

IM 7244–Additional Coverages Endorsement

(Use with IM 7203)

This endorsement describes two coverage extensions, four supplemental coverages, and two supplemental income coverages that can be selected. An appropriate entry must be made on IM 7243–Additional Coverages Schedule for the specific coverage extension or supplemental coverage to trigger coverage.

IM 7245–Additional Property Schedule (01 12 changes)

(Use with IM 7201 and IM 7203)

This endorsement is used with IM 7246–Additional Property Endorsement to enter the additional coverages that apply and the corresponding limit for each. The 01 12 edition added a space to enter the policy number. It also added quotation marks around the word Limits (“Limits”) because Limit is a defined word.

IM 7246–Additional Property Endorsement

(Use with IM 7201 and IM 7203)

This endorsement extends coverage to include accounts receivable, power protection equipment, reproduction equipment, telecommunications equipment, and valuable papers. IM 7245–Additional Property Schedule is used to trigger coverage.

IM 7247–Additional Locations Schedule–Business Computer (01 12 changes)

(Use with IM 7203)

IM 7220–Schedule of Coverages–Business Computers has spaces for only four locations. When there are more, the additional location schedule must be checked and this schedule then added. It has spaces for up to three locations and their limits. The 01 12 edition added a space to enter the policy number. It also added quotation marks around the word Limits (“Limits”) because Limit is a defined word.

IM 7248–Earthquake, Flood, and Sewer Backup Endorsement–Business Computer

(Use with IM 7203)

This endorsement adds supplemental coverage for the perils of earthquake, flood, and/or sewer backup.

IM 7249–Earthquake, Flood, and Sewer Backup Schedule–Business Computer (01 12 change)

(Use with IM 7203)

This schedule is used with IM 7248 to select the supplemental coverage(s) that apply and any other necessary information. The 01 12 edition added a space to enter the policy number.

IM 7775–Schedule of Coverages–Data Compromise Coverage (05 12 addition)

This schedule of coverages is used with IM 7204–Data Compromise Coverage to enter the limits for the coverages that apply and the deductible that applies to a single data compromise.

UNDERWRITING CONSIDERATIONS

Most property that electronic data processing and computer coverage forms and policies cover is at fixed locations. For this reason, underwriting the coverages provided involves evaluating the nature of the physical characteristics at the risk location in addition to determining the extent of management involvement to properly maintain and protect the property. Reviewing commercial property underwriting may be helpful.

Related article: ISO Commercial Property Program Underwriting Considerations

Computer equipment is extremely sensitive and highly susceptible to loss or damage caused by fire, smoke, temperature change, and water. Because some computer property is mobile in nature, transit and unnamed locations exposures must also be considered. In addition to evaluating location and transit exposures, the protective devices and services used to protect computer systems from loss or damage must also be evaluated.

Underwriting the electronic data processing requirements of a given insured begins with obtaining a complete inventory of all equipment. This is more involved than merely checking out various office machinery and equipment since the property could be used in any or all of an insured's operations.

The limits selected to protect the equipment must be realistic and reflect current values. Equipment more than five years old may have little or no residual value. Damaged property is usually handled on a replacement cost basis with equipment of like kind and quality. A computer purchased for $10,000 may be available for $1,000 or less at the time of a loss five years later. Computer upgrade coverage is available that can permit an insured to buy coverage based on what would replace existing equipment as opposed to the value of current equipment. This could be very valuable for insureds but because of the potential moral/morale issue should be considered only with financially secure clients with an established plan of replacement.

Once the equipment inventory is complete, the insured must decide how to insure it. Options include doing so as business personal property under a standard property policy. It could also be covered as electronic data processing equipment or business computers under an inland marine coverage form. Both options cover hardware and equipment but an inland marine coverage form is usually broader as well as more expensive.

Arrangements that relate to covering software must be handled carefully. With older computer systems, it is more likely that the software has been customized and altered internally. The result is that the documentation to assist to reproduce it after a loss occurs may be inadequate. Backup copies of any altered or customized software should be made in addition to the original software. All software should be backed up and duplicated regularly. The duplicates must be stored at a different location so that both are not involved in the same loss.

Virus and hacking coverage requires protective measures such as firewalls and other security features so that neither of these activities interrupts the insured's operations. All equipment should have current virus protection software that is updated regularly or replaced as needed.

Surge protection and similar, related devices must be effective. It does no good to plug a grounded protective device into an unprotected outlet. Telephone equipment and connections also need similar surge protection to reduce or eliminate the chance of the modem being destroyed.

Business assets exposed at off-site locations and property in various forms of transportation between premises occurs frequently. Employees are often supplied with computers in order to work from home or during travel. The simple question of where the computers are located can lead in a number of different directions and present perplexing coverage dilemmas to resolve. However, this portion of an operation's exposures deserves as much care in underwriting as its fixed location considerations.