ISO Furriers Customers Coverage Form

ISO FURRIERS CUSTOMERS COVERAGE FORM ANALYSIS

(April 2018)

 

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INTRODUCTION

The Insurance Services Office (ISO) Furriers Customers Coverage Form insures the property of customers while they are in the care, custody, or control of a named insured that accepts furs, fur garments, and fur-trimmed garments for storage, alteration, repair, remodeling, or cleaning. Operations that might purchase this coverage 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 that contains the agreement between it and the customer for any article placed in its control. The receipt must describe the article and provide a value that establishes the named insured's maximum liability for loss to the garment. The form can also be used to cover property of customers of other bailees, property away from the named insured's premises, and property during pick-up and delivery. Coverage is similar to Bailees Customers coverage in that it applies only 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.

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ISO Bailees Customers Coverage Form

POLICY CONSTRUCTION

Furriers Customers Coverage requires at least the following six forms:

Related Article: IL 00 17–Common Policy Conditions Analysis

Related Article: CM 00 01–Commercial Inland Marine Conditions

IH DS 63–FURRIERS CUSTOMERS DECLARATIONS

The advisory Furriers Block Declarations does not have spaces for the named insured, its mailing address, and other named insured information, the policy period, or the description of the insured business. That information is on the Common Policy Declarations. IH DS 64 contains the following information:

Insurance Company and Producer Name

The name of the insurance company that provides the coverage and the name of the agent or broker that produces the business are entered in the spaces provided.

Limits of Insurance

This section has spaces to enter the following:

Note: These locations may be owned or nonowned locations

Note: If a limit is entered IH 63 02–Excess Legal Liability Coverage endorsement must be attached.

Note: If a limit is entered IH 63 02–Excess Legal Liability Coverage endorsement must be attached.

Note: If a limit is entered IH 6303–Accrued Storage and Service Charges endorsement must be attached.

Note: This is a catastrophic limit that applies over all of the coverages described above. If any of the above limits are changed, this limit should be evaluated for potential change.

Deductible

This section has a space to enter the amount of deductible that applies.

Rates and Premiums

The following is entered when coverage is written on a non-reporting basis:

The following is entered when coverage is written on a reporting basis:

Special Provisions

Any special provisions are entered in the space provided.

IH 00 63–FURRIERS CUSTOMERS COVERAGE FORM ANALYSIS

This analysis is of the 12 13 edition. Changes from the previous edition are in bold print.

Introduction

This section encourages the careful reading of the entire coverage form to determine what is covered, what is not covered, rights, and duties. It defines we, us, and our as the insurance company that provides this insurance coverage. It also defines you and your as the named insured on the declarations. The reader is also pointed to the Definitions section because certain words or terms used in the form have a more broadened or restricted meaning.

 A. Coverage

The insurance company pays for direct physical loss or damage to covered property but only when that loss is from a covered cause of loss.

1. Covered Property

a. The personal property of the named insured's customers for which a receipt has been issued by the named insured is covered. This covered personal property is limited to furs, fur garments, and fur-trimmed garments that have been accepted by the named insured for storage, alteration, repair, cleaning, or remodeling and other garments and similar items that the named insured has accepted for storage.

b. This property must be either in the named insured’s care, custody, or control or in storage at a location that is listed on the declarations.

Note: It is important to understand that the items at the storage location are not required to be in the named insured’s care, custody, or control. This means that the storage facility can be a non-owned facility operated by a third party.  

2. Property Not Covered

The following property is not covered:

a. Property that the named insured, its officers, directors, employees, agents, or messengers, members or managers of limited liability companies own. Property of family members, relatives, or friends of any of these is also not covered.

Note: The use of the term friend makes this very difficult to interpret. Friendship is a very subjective term that does not belong in an insurance contract. Similarly, the term relative is difficult because it is not limited. Therefore, if a claims adjuster determined that the fur being stored was owned by a seventh cousin of an employee could coverage be denied? Would the named insured need to specify on the receipt that it is not responsible for damage to the goods of any such relative?

 

Example: Jacklyn entrusts her full-length fur with Andrew’s Fur Specialists for repair and storage. Jacklyn is the aunt of Peggy, an admin assistant to Andrew. When Jacklyn’s fur is damaged, her claim is denied because Peggy is her niece.

 

b. Property that bailees do not customarily accept for storage is not covered. Examples of such bailees are furriers, cleaners, laundries, department stores and warehouse.

Note: This is a very ambiguous property not covered item that would very difficult to defend.

c. Contraband. Any property that is illegal for the named insured to own or that is in illegal trade or transportation is not covered.

3. Covered Causes of Loss

Covered causes of loss are direct physical loss or damage to covered property with the exception of causes of loss that are listed in the exclusions section.

4. Additional Coverages

Some of the following additional coverages are in addition to the limits of insurance.

a. Misidentification of Property

The insurance company pays when a covered cause of loss results in covered property being misidentified and this misidentification results in customers’ property sustaining loss or damage.

This additional coverage does not increase the limit of insurance.

 

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Example: A fire at Frank’s Furs main location destroys all the storage receipts. The furs are stored at another location and were unharmed. Amanda brings a receipt and demands her coat, but Frank cannot verify its accuracy. He takes her to the storage facility and allows her to select her coat. Later, Penelope arrives with a receipt and is also given the opportunity to find her coat. She cannot find it. Penelope brings a picture of the coat to Frank and he realizes it is the coat that Amanda took. Frank cannot find a record of Amanda. There is coverage for the lost coat because the loss of the coat is due to misidentification that resulted from a covered cause of loss.

 

b. Debris Removal

A property damage loss usually creates debris that must be removed. The insurance company pays the cost of removing the debris of a covered loss. The expenses must be reported to the insurance company in writing within 180 days of the date of loss. The most paid is 25% of the sum of the following:

Payments under this Additional Coverage do not increase the limit of insurance that applies. However, the insurance company pays an additional $5,000 per occurrence when the direct physical loss or damage combined with the debris removal expense exceeds the limit of insurance or when the debris removal expense is more than the amount payable under the above described 25% limitation.

This coverage does not apply to costs to extract pollutants from land or water or to remove, restore, or replace polluted land or water.

c. Pollutant Clean Up and Removal

The insurance company pays to clean up pollutants caused by or that result from a covered cause of loss that occurs during the policy period. The most paid is $10,000 as an aggregate amount during each separate 12-month policy period. The expenses are paid only if they are reported to the insurance company in writing within 180 days of the date of loss.

This coverage does not apply to costs to evaluate the presence or effects of pollutants. However, it does pay for testing that is part of the extracting of pollutants process from either land or water.

This limit is an additional amount of insurance.

 d. Preservation of Property

Covered property may need to be moved to keep it from being damaged by a covered cause of loss. When the named insured takes such action, the insurance company pays for any direct loss or damage that such property sustains during the move. In addition, coverage applies at the location where the property is stored for up to 30 days after the date it was moved there.

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

This additional coverage does not increase the limit of insurance.

Notes: There are several important points to consider:

 e. Supplementary Payments

Note: These payments are common in liability coverage forms but not in property coverage forms. As with liability coverage forms, many costs are incurred in the handling, settlement, defense of and adjustment of claims. This Additional Coverage describes which costs are paid and any limits that are applied to them.

The insurance company pays the following charges only when they are a part of a claim investigation or settlement. It also pays the charges for any suit that it defends. All payments are in addition to the limits of insurance that apply and do not reduce the limit of insurance available to pay for the claim.

Note: This means that the insurance company must pay interest on its part of the judgment and all other parties’ part of the judgment before it pays the amount required. Once this insurance pays, any interest that accrues on the remainder of the judgment becomes the responsibility of those other parties.

B. Exclusions

1. Primary Exclusions

The first group of exclusions applies whether or not the loss event results in widespread damage or affects a significant geographical area and is essentially absolute. Subject to specific exceptions, 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. Earthquake

This exclusion does not exclude earth movement. It excludes ONLY earthquake. There is one exception. If the earthquake starts a fire, the loss or damage caused by the fire is covered. Coverage applies only if this insurance covers that fire.

b. Governmental Action

This exclusion applies to the legal and authorized seizure or destruction of property by a government entity’s order. There is one exception. Loss or damage that is caused when the governmental entity orders property to be destroyed is covered if used as a method to prevent a fire from spreading is covered. However, this exception applies only if the fire being contained would have been a covered fire under this coverage form.

c. Nuclear Hazard

Nuclear reaction, radiation, or radioactive contamination is not covered. There is an exception. If a fire results from the nuclear reaction, radiation, or radioactive contamination there is coverage for the direct loss or damage caused by that fire.

d. War and Military Action

This exclusion lists three specific warlike activities.

e. Water

Water is flood, surface water, waves, tidal water, tidal waves, tsunami, overflow of any body of water, or their spray, all whether wind driven or not. It also includes storm surge. Loss or damage from waterborne material that any of this water described in the first sentence moves or carries is also excluded.

This exclusion applies even if an act of nature or another event causes any of the above.

There is an exception. If any activity of water described above results in fire, explosion, or theft, coverage applies for the loss or damage that fire, explosion, or theft causes. This applies only if the coverage form otherwise covers the fire, explosion, or theft.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that result 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 result from any of these events.

a. Theft from an unattended vehicle

This is loss due to theft from an unattended vehicle. There are two exceptions.

b. Delay, loss of use, and loss of market

These are consequential or indirect losses that develop as a result of a direct loss or damage.

c. Unexplained disappearance

When covered property is gone and there is no obvious cause or explanation of what happened to it.

d. Shortage found upon taking inventory

Any loss that is discovered as a result of an inventory shortage and there is no explanation as to what happened to the property, similar to unexplained disappearance. This is sometimes referred to as "inventory shrinkage."

e. Dishonest or criminal acts (12 13 changes)

These are any dishonest or criminal acts that the named insured, its partners, employees, temporary employees, leased workers, officers, directors, trustees, authorized representatives, or members and managers of a limited liability company commit. This also includes theft.

Such acts committed by anyone with an interest in the property, their employees, temporary employees, leased workers, or authorized representatives who act alone or who act in collusion with other parties or with each other are also excluded. This exclusion also applies whether or not the acts take place during regular working hours.

This exclusion does not apply to acts of destruction by the named insured’s employees, temporary employees, leased workers, or authorized representatives. However, there is no coverage for theft by the named insured’s employees, temporary employees, leased workers, or authorized representatives.

The 12 13 edition removed the part of the exclusion in the previous edition that applied to dishonest or criminal acts committed by anyone entrusted with the property for any reason.

f. Pollution

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

Note: Section F. Definitions 2. Specified Causes of Loss lists the covered causes of loss that apply to the exception for this exclusion.

g. Processing or work upon the property

Loss or damage that is caused when covered property is being processed or worked upon is not covered. This applies regardless of who is doing the processing. There is one exception. If a fire or explosion results from such work or processing of covered property any damage to covered property caused by that fire and explosion, is covered but only if the fire or explosion is otherwise covered under this form.

h. Liability assumed under any agreement

Liability that the named insured assumes under any agreement that does either of the following is excluded:

 

Example: An agent specializing in personal inland marine coverage approached Andrews to help him provide fur coverage for Andrews’s customers under a master policy. Andrews agreed and eventually all the customers had transferred their fur coverage to this master policy. Any claims or suits that arise because of Andrews’s involvement with this insurance arrangement are excluded.

 

i. Voluntary parting

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

j. Unauthorized instructions

When covered property is transferred to another person or place because unauthorized instructions were received to do so.

k. Neglect

Neglect on an insured’s part to do take reasonable measures to preserve and protect covered property from subsequent damage during and after the time of loss.

l. Cost to research

All costs to research, replace, or restore converted data, programs, or instructions used in any data processing operations. The cost of the materials on which the data is recorded is also excluded.

Note: This appears to be out of place for this particular coverage.

m. Theft (12 13 addition)

Theft by any person the named insured entrusts covered property to for any reason, whether they act alone or act in collusion with any other party. This exclusion applies 24 hours a day/7 days a week. There is one exception. Covered property that is in a carrier for hire’s care, custody, or control is not subject to this exclusion.

3. Other Exclusions

This group of exclusions applies to loss or damage caused by or that result from any of the following loss events. In every case, if loss or damage by a covered cause of loss occurs as a result of one of these excluded events, coverage applies to the loss or damage the resulting covered cause of loss causes. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Weather conditions

This is loss or damage to covered property that weather conditions cause. This exclusion applies only if the weather conditions contribute in any way with a cause or event that involves the following 1. Primary Exclusions to produce the loss or damage:

·         a. Earthquake

·         b. Governmental Action

·         c. Nuclear Hazard

·         d. War and Military Action

·         e. Water

b. Acts or decisions

Acts or decisions any person, group, organization, or government entity makes that result in loss or damage. Failing to act or to make decisions is also excluded.

c. Wear and tear

This is loss or damage due to wear and tear.

Note: Wear and tear is damage that occurs naturally as a result of aging or normal wear.

d. Any quality in the property

These are any qualities in the property that cause it to destroy or damage itself.

Note: An example is a loss or damage caused by hidden or latent defects in the property.

e. Mechanical breakdown

This is loss or damage caused by or that results from machines, tools, or mechanisms failing to operate or function properly.

f. Insects, vermin, or rodents

This is loss or damage to covered property caused by or that results from insects, vermin, or rodents.

Note: Some examples are damage from mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

C. Limits of Insurance

The most the insurance company pays for each item of covered property is the amount on the customer receipt for it. The most paid for loss or damage in a single occurrence is the limit of insurance on the declarations for the applicable coverage.

D. Deductible

The insurance company does not pay for loss or damage until the amount of the adjusted loss or damage (before capping with the limit of insurance that applies) exceeds the deductible on the declarations. It then pays the amount of the adjusted loss or damage that exceeds the deductible up to the applicable limit of insurance.

E. Additional Conditions

1. Valuation

This condition replaces the Valuation General Condition in the Commercial Inland Marine Conditions.

The value of lost or damaged property is its value when the loss or damage occurs. Whatever determination is made to the valuation below, the value of the named insured's labor, material, or services furnished or arranged prior to the loss is added to it.

The value of each damaged article is the least of the following:

2. Other Conditions

These conditions apply in addition to the Commercial Inland Marine Conditions and the Common Policy Conditions.

a. Receipts

The insurance company does not establish the receipt that must be used by the named insured however it does require that the customer receipt states that the customer accepts the receipt as correct unless notification is made to the named insured within ten days of the date it was issued. Each receipt is required to state the value of the covered property to which it applies. That value on the receipt becomes that article’s limit of insurance.

Except for temporary or interim receipts, these receipts do the following:

·         Are for the benefit of the insurance and the named insured on an equal legal basis.

·         Are not permitted to extend this policy’s limits of insurance or its provisions

·         When a temporary or interim receipt had been issued, the permanent one supersedes that other receipt in its entirety.

b. Coverage Territory

The coverage territory is the United States of America, its territories and possessions, Puerto Rico, and Canada. This includes property that is shipped by air within and between these points.

c. Protective Safeguards

If the named insured states in the application that a protective safeguard is in place at a premises, that protective safeguard must be maintained and operational whenever the premises is not open for business.

If that safeguard is not operational when the premises is closed, all coverage at the premises is suspended until it becomes operational again.

Note: This is a very important warranty that removes all coverage, regardless of the cause of loss, when the protective safeguard goes down. There are no exceptions.

 

Example: The lines for the burglar alarm system to the central station at Andrews Furs are nibbled through, triggering the central station alarm. When the problem is diagnosed Andrews is not sure he wants to stay with the same system. He hires a security company to keep the facility under surveillance as he researches other installations. The next day a vehicle plows through Andrews’s building, damaging several furs that were out of the storage vault waiting to be worked on. Andrews is quite surprised to discover that the vehicle damage loss is not covered because all coverage was suspended as soon as he was aware that the alarm was not operational.

 

d. Records and Inventory

The named insured must accurately maintain records of all receipts that it issues and to keep them for at least three years after the policy expires. The record for each receipt issued must include the following:

e. Changes to Premises

Coverage does not apply to property where the risk of loss or damage materially increases by changes at the location or to property that is situated in expansions of the location listed on the declarations unless the insurance company has provided written permission.

 F. Definitions

There are four definitions.

1. Pollutants

These are any solid, liquid, gaseous, or thermal irritants or contaminants. Pollutants also include smoke, vapor, soot, fumes, acids, alkalis, chemicals, or waste. Waste is any material intended to be recycled, reconditioned, or reclaimed.

2. Specified causes of loss

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

3. Suit

A civil action or legal proceeding that alleges damages because of property damage to covered property. Arbitration proceedings claiming such damages and any other alternative dispute resolution proceedings are also considered suit but only if the named insured is required to submit to them or it receives permission from the insurance company to submit to them.

4. Water damage

Water damage occurs when part of a system of appliance holding water or steam cracks or breaks resulting in an accidental discharge or leakage of water or steam.

ENDORSEMENTS

ISO has developed one proposal form and two specific endorsements to use with the Furriers Customers Coverage Form.

IH 63 01–Proposal for Furriers Customers Coverage Form

This is the application for furriers customers coverage. Each part must be completed in full and be signed by the named insured. A separate proposal is required for each covered location.

IH 63 02–Excess Legal Liability Coverage

Excess legal liability coverage is provided for amounts that exceed the amounts stated in customer receipts. A per item limit and per occurrence limit must be entered on the declarations when this endorsement is attached.

IH 63 03–Accrued Storage and Service Charges

Accrued storage and service charges that are unpaid and uncollectible and prepaid charges that must be refunded to customers are covered when this endorsement is attached. A limit of insurance must be entered on the declarations for this coverage.

ISO has developed one other endorsement that can be used with this policy to respond to a specific situation.

IH 99 11–Gross Receipts Reporting Form

This endorsement can be used to convert the coverage to a daily, weekly, monthly, quarterly or policy year reporting form.

UNDERWRITING CONSIDERATIONS

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. They are difficult to underwrite because the covered property is susceptible to damage by fire, smoke, water, burglary, and theft. 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 reflected a lower value. As a result, the primary underwriting considerations are location and transit issues, protective devices and services, and management.

Location factors to consider include the exposure to losses by fire. This involves evaluating the building construction, the exact nature of the occupancy, exposing occupancies, and public and private fire protection. Central station fire alarms are desirable. Furs not being processed or worked on should be kept in vaults to reduce the chance of smoke damage and to reduce the spread of fire. Exposures may be 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 particularly susceptible to water damage should be located away from it and protected some other way. Water damage can be reduced or eliminated by having furs stored on shelves in some cases instead of simply on hangers in the open. Risks should be at or above grade level and appropriate measures, such as floor drains and liquid-tight doorsills, used to reduce water damage. Employees should be trained to remove garments in the event of a fire. A proper number of fire extinguishers should be available and properly placed throughout the premises. Earthquake issues may be present in certain geographical areas and the building design and construction must be considered.

Burglary is a critical issue. The premises should always be protected by an excellent quality alarm system that covers all exterior openings and connects 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 windows. Hold-up alarms and watchperson service should be considered. Access to storage rooms should be limited and they should be locked when not in use. Arrangements and procedures that address storage and various processing issues should be in place. The same procedures should apply to property at other locations, at exhibits, and at trade shows. Background checks should be done on all persons before they are hired.

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.

Ownership and management issues may be the most important of all. The named insured's financial condition dictates the degree of attention to protective devices and procedures incorporated into the business. Its experience in the business and hiring practices are other essential elements to consider and evaluate. Developing and implementing plans, procedures, protocols, and actions to take in an emergency before they are needed are other critical factors. There should be procedures for hiring, bonding, emergencies, opening and closing the premises, locking, and unlocking storage enclosures, testing alarms, and handling customer property. Maintenance and care of the premises and protective devices also affect the overall desirability and success of a business that handles customers’ furs.