Furriers Customers Custody Policy

FURRIERS CUSTOMERS CUSTODY POLICY

(December 2016)

 

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INTRODUCTION

Furriers Customers Custody policies are independent non-filed forms. While Insurance Services Office (ISO) has developed a suggested form it is not considered an industry standard.

Related Article: ISO Furriers Customer Coverage Form

The Furriers Customers Custody Policy insures the property of customers in the care, custody, or control of a business that accept furs, fur garments, and garments trimmed with fur for storage, alteration, repair, remodeling, or cleaning. Examples of such businesses are furriers or fur dealers, department stores, fur or general warehouse operations, and cold storage operations.

Coverage applies only if the named insured issues a receipt for the property it receives. The receipt contains the agreement between the fur storage facility and the customer for each article the fur business accepts for storage or processing. It describes the article and states its value. This limits the named insured's liability for loss to any garment to the amount on the receipt. Coverage is similar to Bailees Customers and Warehouse Legal Liability coverage. It applies to cases where the bailment is for the mutual benefit of both the customer that owns the property and the bailee that stores or services the property.


Related Articles:

AAIS Bailee Customers Floater Coverage

ISO Bailees Customers Coverage Form

AAIS Warehouse Legal Liability Coverage Form

ISO Warehouse Operators Legal Liability Coverage Form

POLICY CONSTRUCTION

The Furriers Customers Custody Policy requires at least the following forms:

Note: There may or may not be a Furriers Customers Custody Policy Declarations because that information may be in the policy itself.

COMMON POLICY DECLARATIONS

A typical Common Policy Declarations includes the following information but is not necessarily limited to just it:

FURRIERS CUSTOMERS CUSTODY POLICY DECLARATIONS

The Furriers Customers Policy Declarations usually includes the following information but is not necessarily limited to it:

FURRIERS CUSTOMERS CUSTODY POLICY ANALYSIS

PROPERTY COVERED

This policy covers property that the named insured's customers and/or bailees own or have under a contract of sale and for which the named insured issues a storage receipt. The receipt must include an agreement that states that the named insured maintains insurance and is subject to the provisions in Conditions 1. Receipts.

Only the following property is covered:

Coverage on this property applies only when it is at locations in or in transit within and between states of the United States of America, the District of Columbia, Canada, and Puerto Rico.

The property must be located at either of the following:

Note: This policy does not have a “Property Excluded” section due to the detailed and limited type of property covered.

LIMITS OF LIABILITY

The insurance company does not pay more than the smallest of the following:

In addition, the insurance company does not pay more in any one casualty than the aggregate limit of liability entered in the space provided.

Note: These limits of liability apply even though the named insured is required to pay a premium based on the aggregate amount of values represented by all storage receipts. The aggregate values may exceed the limit.

LOCATIONS USED TO STORE CUSTOMER PROPERTY AND LIMITS OF LIABILITY

Limits of liability are entered for each of the following:

Note: More than one location may be insured. This information must be provided for each location. A separate endorsement is needed for each location.

LOCATIONS NOT USED TO STORE CUSTOMER PROPERTY AND LIMITS OF LIABILITY

Limits of liability are entered for each of the following:

Note: More than one location may be insured. This information must be provided for each location. A separate endorsement is needed for each location.


DEDUCTIBLE

Each claim for loss or damage is adjusted separately. The deductible amount entered in the space provided is deducted from the amount of each adjusted loss.

PERILS INSURED

This policy insures covered property against all risks of loss or damage except for any exclusions or limitations. This includes the named insured's legal liability for such covered property.

EXCLUSIONS

This policy does not insure loss or damage caused by, that results form, or that arises out of the following:

1. Owned Property

Property that belongs to the named insured, its subsidiaries, or its affiliates is excluded.

Note: This property can be covered using a Furriers Block Policy.

Related Article: Furriers Block Policy

2. Property in Transit

There is no coverage on property that is shipped to or from Alaska, Hawaii, or Puerto Rico, or via the Panama Canal.

3. Uncontrolled Conditions, Animals, and Processing Damage

Coverage does not apply when the loss or damage is the result of gradual deterioration, insects, vermin, or inherent vice. There is also no coverage when the loss or damage is caused by   processing or other work being done on the property unless fire or explosion is the cause of the loss.

 

Example: Precious Coats is primarily a high-end young people’s retail furrier but it also stores and provides certain services to its customers' furs. It was cleaning a very old, very fragile children’s fur that a customer wanted to store as she waits for grandchildren to arrive. Unfortunately, the coat fell apart when the cleaning process separated the fur itself from its supportive lining. As a result, it is now worthless. The loss of the fur's value is not covered because of this exclusion.

4. War, Nuclear Weapons, and Civil Unrest

a. Hostile or warlike acts during times of war or peacetime are excluded. This includes acts to hinder, combat, or defend against an expected, impending, or actual attack by:

b. Weapons of war that utilize nuclear fission or radioactive force during either time of war or peacetime are excluded.

c. Civil unrest is excluded. It includes:

Note: All of these exclusions apply to conditions the named insured simply cannot control.


5. Contractual Liability

There is no coverage for any express or implied liability the named insured assumes under a contract or agreement as follows:

 

Example: One of Precious Coats’ advertisements services states, "We guarantee your satisfaction with our work, or you get your money back." Oscar is very unhappy with the repair work provided by Precious Coats and demands his money back saying that the coat was damaged due to their horrible work. Precious submits a claim that is denied because of this and other exclusions.

6. Coverage Provided By Fidelity Bonds

Fidelity bonds provide coverage for employee theft and other types of crime coverages. When the insured has coverage under those bonds that would also be covered under this policy, the coverage under the bond applies and this coverage does not.

Related Article: Commercial Crime Coverage Analysis

Note: The exclusion does not state whether or not this policy would apply as excess over the bond coverage.

7. Nuclear

Coverage does not apply to direct or indirect, proximate, or remote loss or damage caused by, that results from, or that arises out of controlled or uncontrolled nuclear reaction, radiation, or radioactive contamination or caused by, contributed to, or aggravated by the perils this policy insures in whole or in part. However, coverage applies to direct loss by a fire that results from a nuclear reaction, radiation, or radioactive contamination.

8. Earthquake and Flood

There is no coverage for loss or damage that earthquake or flood causes.

Note: Because the term "earthquake" is used, other types of earth movement, such as mudslide and volcano, are covered. Flood is also not defined so water damage other than a defined flood would also be covered. However, there is no exception for in transit earthquake and flood loss.

CONDITIONS

The coverage provided is subject to the following conditions:

1. Receipts

Each customer receipt the named insured issues must address or provide for the following:

a. The customer agrees to accept the receipt as the named insured issues it unless the named insured receives a notification in writing that errors or irregularities exist in the receipt. This notification must be presented within ten days of the issue date.

b. The named insured must agree to arrange for fire and theft insurance on each article for the value stated on the receipt. The value stated is required to be the limit of the named insured's liability for loss or damage to that article.

c. The provisions in the receipt are the benefit of the insurance company and the named insured in the same manner.

d. The provisions in the receipt do not extend or change the policy's coverages and limits.

Note: This is very important. Item b. above states that the value on the receipt is the named insured’s liability for the item. This means that the policy must provide that limit on its schedule. Just because the receipt has that limit does not mean that automatically the policy provides that limit.  

e. The receipt supersedes temporary or interim receipts the named insured issues.

Note: This condition does not apply to temporary or interim receipts.

 

Example: Precious Coats accepted Frieda Friendly's full-length mink coat for a light cleaning before putting it into storage. Frieda thought it was worth about $7,500 and that was the amount Precious put on the customer's receipt. She told Precious Coats that she would let him know if the value was substantially different but he never heard from her. A fire loss three months later destroyed Frieda's fur coat, along with many others. When she was notified of the loss, Frieda realized that she forgot to tell Franklin that the value was more like $12,000. Precious Coats is liable for only the $7,500 value on the customer's receipt.

2. Protective Safeguards

The named insured is required to maintain all protective safeguards listed in the proposal during the policy period. The named insured must use due diligence in maintaining the system.

Note: This is very important because the lack of the protective safeguards can and will result in a voiding of coverage.  

Related Court Case: Failure to "Maintain" Protective Safeguards in "Complete Working Order" Precluded Coverage

3. Records of Receipts

The named insured is required to maintain accurate records of every receipt it issues. The recorded information must include the customer's name and address with the description of the article and its value as provided by the customer. The location of the article must also be provided. The records must be available for the insurance company to examine during the policy period and for up to one year afterward. The requests by the insurance company to review the records must be considered reasonable.

4. Reports

a. The named insured must maintain accurate records of the values contained in all outstanding receipts throughout the policy period. It must report them to the insurance company or its authorized agent within 15 days of the policy or the expiration or anniversary date. The report must be for the full amount of such values for the previous 12 months. If the reporting period is different from 12 months, the reports will be for the time period in that reporting period.

If a covered loss occurs, the insurance company does not pay more than the proportion of the last reported value bears to the actual full amount that, based on actual receipts for the time period, should have been reported.  

 

Example: Precious Coats is required to provide reports every 30 days. Its report for March is $130,000. A loss occurs on April 4 for $55,000. The carrier discovers that Precious should have reported $160,000 in March. The proportion is determined by dividing $130,000 by $160,000 = .8125. The loss paid is $55,000 X .8125 = $44,688.

 

The insurance company or its authorized agent has access to books and records at any reasonable time in order to determine the actual premium to charge or for any other reason that relates to this insurance.  

b. The deposit premium when the policy is issued is due and payable on its inception date and is based on the reporting rate indicated. Earned premium is calculated by applying the reporting rate to the total values reported. If the earned premium is more than the deposit premium, the insured pays the difference (or additional) premium to the insurance company as of the date of the report. If the earned premium is less than the deposit, the insurance company refunds the difference, subject to the minimum premium. A new deposit premium is charged for each subsequent policy period and is subject to adjustment as stated above.

c. The total annual earned premium is subject to a minimum premium. If the earned premium is less than this amount, an additional premium equal to the difference is due and payable on the policy expiration or anniversary date.

d. If the named insured uses two or more storage locations for covered property, the values must be separated by location.

5. Certifications, Certificates, or Policies of Insurance

The named insured is not in control of the policy. It has no permission to issue any certifications, certificates, or policies of insurance with respect to the covered property. The insurance company can respond to the Named Insured’s requests and endorse the policy to do any of the above.

6. Privilege to Adjust With Owner

The insurance company has the option to adjust covered loss or damage to covered property of others with the owner and to pay the owner directly.  Doing so is treated as fully satisfying any claim against the named insured.

If anyone initiates legal action against the insured to enforce a claim, the insurance company may defend the insured. The defense costs are paid by the insurance company but the payment of those costs is part of the limits of insurance, not in addition to them. This means that defense costs could actually exhaust the amount of insurance available to pay any settlement.

 

Example: Frieda Friendly did not want anything to do with Precious Coats following her loss, even though the inadequate value on her fur was her own fault. Because of the animosity between the two parties, the insurance company settled directly with Frieda and received her release from any further obligations.

GENERAL CONDITIONS

These conditions apply to the coverages this policy provides.

1. No Benefit to Bailee

This insurance does not directly or indirectly benefit or work to the advantage of any carrier or bailee.

2. Other Insurance

This insurance is excess over any other insurance that would apply to a loss if this insurance was not in effect. This condition applies only to insurance available to the insured and not to insurance available to the customer or to the family member of the customers for the covered property. The customer’s insurance is not expected to contribute to a loss covered by this insurance nor can that insurance be used to defend against paying such a loss under this policy.

 

Example: Ashley places her son’s fur bunting in Precious Coat’s storage with the anticipation of using it with her next child. Two years later she is very disappointed when she receives a call telling her that the bunting was stolen from the facility. The receipt value of the bunting is $1,500. Her Jewelry and Furs Form covers this bunting along with many other fur and jewelry items. The bunting is valued at $3,000 on that form. Ashley will collect the $1,500 from Precious Coat’s insurance and then will settle separately with her Jewelry and Furs carrier.

 

Related Article: ISO PM 00 11–Jewelry and Furs Form

3. What Must Be Done In Case of Loss

Every loss, damage, or occurrence that might lead to a claim must be reported in writing to the insurance company or its agent. The initial report must be made as soon as practicable. A second report is due within 90 days of when the insured first discovered the situation initially reported. The second report must be a detailed sworn proof of loss.

Note:  It is important to note that the 90 days starts on the day the named insured becomes aware of the loss, damage, or occurrence. It does not start on the day the initial report is made. If the discovery is made on May 1 but the initial report is not made until May 10, the second report is required no later than July 30.

4. Exhibit Damaged Property/Examination under Oath

The remains of any damaged covered property must be made available to the insurance company or its authorized representative to examine. This condition also applies to writings, books of account, bills, invoices, and other vouchers. Extracting items and copying them must be permitted. If originals are not available, certified copies of the originals are acceptable.

Any requests by the insurance company or its representatives must be considered reasonable.

The insurance company may also require examination under oath of any person that may know anything about a loss. Such examinations under oath, examinations of property and/or records, and any other acts of the company, its employees, or representatives in conjunction with investigating a claim or loss is not considered a waiver of any defense the company may otherwise have with respect to such loss or claim. The examinations and the actions of the company do not prejudice its liability.

Note: An insurance company may spend time investigating a claim and then decide to deny it. An insured may make a full assumption that the investigation will lead to a payment and this condition is meant to explain that such presumption is incorrect.

5. Loss Payment

The insurance company pays adjusted claims within 30 days after it receives a properly prepared proof of interest and loss. If the insured (not the customer) is paid for the claim by another party, this insurance will not pay.

6. Suit

The insurance company cannot be sued by anyone for recovery of a claim unless the legal action begins within 12 months following the date of the loss. A state law may invalidate this condition. In that case, any suit brought must comply with the law’s provisions and begin within the shortest period of time allowed.

Note: It is not unusual to have mandatory state endorsements to modify a policy.

CANCELLATION

The named insured may cancel this policy by returning it to the insurance company or its agent or by mailing it to the insurance company and stating the future date of that cancellation. Delivering the written notice is the same as mailing it.

The insurance company can cancel by mailing notice to the named insured’s mailing address stating the date that cancellation is to take effect. The cancellation date must be no less than 15 days after the notice is received. Mailing the notice is sufficient proof of notice. Delivering written notice is the same as mailing it.

 

While the cancellation applies to all receipt-holders and to any other person who claims any benefits under this policy, the insurance company is not required to notify any of them.

Following the cancellation, the named insured is required to provide the insurance company with an accurate report of values of all covered property placed in storage starting with the policy effective date through the cancellation date or starting with the end of the latest submitted report and through the cancellation date. This report of values is used to determine the earned premium and to adjust the deposit premium.

If the named insured cancels the policy (or if it becomes void or ceases) and the minimum annual and deposit premium has been paid, the insurance company returns the balance of the unearned minimum annual and deposit premium subject to a penalty provided in the policy. If the insurance company cancels and the minimum annual and deposit premium was paid, it returns the unearned balance of the minimum annual and deposit premium subject to a formula provided in the policy.

The premium may be adjusted when cancellation takes place or as soon as practicable after the cancellation date.

PROPOSAL FOR FURRIERS CUSTOMERS CUSTODY POLICY

This is the application for Furriers Customers Custody coverage. Every part of each section of the proposal must be completed and signed by the named insured. A separate proposal is required for each covered location.

The proposal is extremely detailed because it addresses nearly every physical aspect of the business.

UNDERWRITING CONSIDERATIONS

Underwriting a Furrier’s Customer’s Policy is about underwriting trust. A customer gives a valuable item to the named insured and expects to receive that item back in the same or better condition than when it was entrusted to the named insured.

Ownership and management issues are vital because it is their reputation that is encouraging individuals to trust them. Its financial condition is particularly important because of the need to maintain excellent protective safeguards and to hire very trustworthy employees. The named insured's experience in the business and hiring practices are other important elements to consider and evaluate. Developing and implementing plans, procedures, protocols, and actions to take in an emergency before a loss occurs are other critical factors. Procedures should be established for hiring, bonding, emergencies, opening and closing the premises, locking and unlocking storage enclosures, testing alarms, and handling customer property.

Underwriting Furriers Customers coverage involves evaluating a number of physical factors because most furriers are at fixed locations and are subject to common fixed location causes of loss. Large losses may occur because the furrier can be held liable for the full value of the garment in certain cases, even if the customer receipt reflects a lower value. As a result, the primary underwriting considerations for this class of business are management, location, transit, protective devices, and services.

Location factors to consider include the exposure to fire losses. This involves evaluating the building construction, occupancy, exposing occupancies, and public and private fire protection. Central station fire alarms are desirable.

Related Article: ISO Commercial Property Program Underwriting Considerations

Furs not being processed should be kept in vaults to reduce the chance of smoke damage and to reduce the spread of fire. Exposures are an issue, especially in shopping centers and malls. If the risk is equipped with automatic sprinklers, storage and display arrangements should be evaluated and stock especially susceptible to water damage should be located away from sprinklers and protected in some other way. Damage from water can be reduced or eliminated by storing the furs on shelves in some cases instead of simply on hangers in the open. Risks should be at or above grade level and appropriate measures used to reduce water damage, such as floor drains and liquid-tight doorsills. Employees should be trained to remove garments if there is a fire. The proper number of fire extinguishers should be available and properly placed throughout the premises. Earthquake issues may be present in certain geographical areas and building design and construction must be considered if earthquake coverage is added.

Burglary is an important issue. The premises should be protected by a good quality alarm system that covers all exterior openings and is connected to a certified central station alarm facility. Theft and mysterious disappearance are common issues for this class of business. The premises should be equipped with video surveillance and recording equipment, indoor and outdoor security lighting, motion detectors, and steel bars on all windows. Hold-up alarms and watchperson service should be considered. Access to storage rooms should be limited and they should be locked when not being used. Arrangements should be made and procedures established that address storage and various processing issues. The same procedures should apply to property at other locations. Background checks should be done on all persons before hiring them.

Related Article: Commercial Crime Coverages Underwriting Considerations

Transit exposures should be addressed by using many different modes of transportation, varying the pattern and frequency of trips, and keeping values shipped as low as possible. Owned vehicles used to transport covered property should be equipped with alarms. Strict accounting and sign-off procedures should be incorporated and carriers for hire evaluated to be certain they are experienced, qualified, and up to the task.

The types of services provided to customers’ furs must be evaluated. The first step is to identify all available services, not just the advertised ones. The next is to determine if any of the services are provided by non-employees and if any services are conducted off premises. If non-employees are involved, the contracts with those other parties are important to review because of the extra exposure and also to evaluate the contractual relationships.