CP 12 70–JOINT OR DISPUTED LOSS AGREEMENT: COORDINATING EQUIPMENT BREAKDOWN INSURANCE WITH COMMERCIAL PROPERTY INSURANCE

(June 2019)

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SITUATION

Peter’s boiler explodes. The resulting fire completely destroys his building and all his business personal property. Peter is completely covered because he has an equipment breakdown policy with Only Equipment, Inc. and a commercial property policy with Property Plus, Inc. Unfortunately, each carrier points out the parts of its policy that exclude coverage and suggests that the other policy provides the coverage. As a result, neither is willing to budge or give an inch. At the same time, Peter is unable to rebuild because the carriers cannot resolve the coverage issue, even though both agree that Peter has coverage under one or both policies.

SOLUTION

The Joint Loss Agreement was designed to guarantee payment to any insured caught in a situation like Peter’s where the insurance companies cannot agree on which policy provides what coverage, but when both agree that there is coverage. The purpose of this agreement is to get Peter "out of the middle.”

When one carrier writes a commercial property policy and another writes an equipment breakdown policy, the recommendation is that both policies include the appropriate joint loss agreement wording. This facilitates loss payment to the insured if the property policy and the equipment breakdown policy carriers cannot agree on which one covers a loss. This endorsement does not provide any coverage when both insurance companies deny coverage. It only applies if coverage applies under one or both policies and the carriers simply disagree about how each policy should respond and the amount each one should pay.

ISO changed its approach to this wording when Equipment Breakdown Coverage replaced the Boiler and Machinery Coverage Part. BM 99 43–Joint or Disputed Loss Agreement had to be attached to the Boiler and Machinery Coverage Part. However, Equipment Breakdown Coverage now includes this wording as a condition. This is definitely to the insured's advantage because there is the potential for such coverage disputes whenever Equipment Breakdown Coverage is written.

Although it might be preferable to automatically include this wording in commercial property coverage forms and policies, it is not; this means that CP 12 70–Joint or Disputed Loss Agreement must be attached whenever this potential conflict exists.

Some insurance companies have developed and use their own versions of these joint or disputed loss agreement endorsements which allow them to tailor the endorsement to fit any coverage arrangement, such as a Difference in Conditions (DIC) policy written in conjunction with a commercial property policy or an equipment breakdown policy.

CP 12 70–JOINT OR DISPUTED LOSS AGREEMENT ANALYSIS

A. This endorsement applies only if all of the following are met:

An equipment breakdown/boiler and machinery policy and this policy are in effect.
Property that both policies cover is damaged.
The insurance companies disagree as to the amount of coverage each should pay.

B. This endorsement does not apply if both carriers agree that there is no coverage, or no coverage disagreements exist.

C. The following conditions must be met in order for the terms of this provision to apply:

The equipment breakdown/boiler and machinery policy must have a Joint or Disputed Loss Agreement similar to the one in this endorsement.
The damage to covered property can be caused by a loss where both carriers admit to some liability for payment under their respective policies. It can also be caused by a loss where one carrier contends that the other carrier is totally responsible or both carriers decline coverage but contend that the other carrier's coverage applies to all or part of the loss.
The named insured and the insurance companies all agree as to the total amount of the loss.

D. If these requirements are met and the named insured requests payment under this endorsement, each company pays the insured its entire undisputed amount and half of the disputed amount.

Note: This condition does not modify or waive any rights that any carrier has against another carrier or any rights an insured holds against the carrier.

The disputed amount of loss the commercial property carrier pays is not more than the same loss agreement in the equipment breakdown/boiler and machinery policy or the amount it would have paid if such coverage was not in force at the time of the loss. In any event, the carrier's liability does not exceed the applicable limit of insurance on the declarations. Amounts paid that the named insured accepts do not alter, waive, or surrender any other rights it has against the insurance company.

E. Once the insured is paid, the insurance companies enter arbitration to resolve the differences. The insured may be required to assist in the arbitration.

F. The disputing insurance carriers must pay for the arbitrator's costs. The carrier responsible for paying the excess amount must pay interest. This interest cost encourages the parties to resolve their differences quickly.

RESOLUTION

We’ll revisit Peter’s problem discussed at the beginning of this article. This time he had CP 12 70 on Property Plus’s policy and Only Equipment’s policy incorporates the wording in its Conditions section. All parties agree that the amount of the loss is $350,000 and both insurance carriers believe coverage exists for the loss, but both are adamant that they owe nothing.

Property Plus and Only Equipment must each pay 50% of the agreed upon loss amount of $175,000. This means that Peter gets his $350,000 and can start getting back to business.

In the meantime, Property Plus and Only Equipment must enter into arbitration. Each company selects an arbitrator and then the two arbitrators select a third one. Within the required 90 days, the arbitrators determine that Property Plus is responsible for 75% of the loss and Only Equipment is responsible for only 25% of the loss. Property Plus must pay Only Equipment $87,500 PLUS interest based at 1.5 times the highest prime rate from the money rates column that was posted in the Wall Street Journal during the period of arbitration.

The good news for Peter is that he received his money before the arbitration.