AAIS Miscellaneous Bailee-Processor Floater

AAIS MISCELLANEOUS BAILEE–PROCESSOR FLOATER COVERAGE ANALYSIS

(February 2018)

 

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INTRODUCTION

The American Association of Insurance Services (AAIS) Miscellaneous Bailee–Processor Floater covers direct physical loss to property of others in the named insured's care, custody, and control. The property must be at the location(s) on the schedule of coverages for processing. Finishing, repairing, restoring, and adjusting are some examples of processes. Coverage applies to direct damage to covered property that a covered peril causes. Coverage extends to property in transit and property stored after processing work on it is completed. Only property for which the named insured issued a storage receipt is covered.

This analysis is of the 04 04 edition.

ELIGIBILITY

Any commercial enterprise that accepts property of others for a broad range of processing work for a charge, other than commercial dry cleaners and laundries, is eligible. Each insurance company that writes this coverage establishes its own eligibility criteria.

Related Article: AAIS Bailee Customers Floater Coverage–Dry Cleaners and Laundry Coverage Form

POLICY CONSTRUCTION

AAIS Miscellaneous Bailee–Processor Floater coverage requires at least these four forms:

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

SCHEDULE OF COVERAGES (01 12 changes)

IM 7507–Schedule of Coverages–Miscellaneous Bailee–Processor Floater contains the following information:

Policy Number (01 12 addition)

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

Covered Premises and Limits

All covered premises must be listed, described, and a limit entered in the spaces provided. Coverage does not apply to any premises not listed. The 01 12 edition placed quotation marks around “Limits” because it is a defined word.

Covered Property

A general description of covered property must be entered in the space provided.

Coverage Extensions

The only coverage extension provided is Additional Debris Removal Expenses. The limit is $5,000 unless a different limit is entered. The 01 12 edition added “Limits” above the Limits column for both Coverage Extensions and Supplemental Coverages.

Supplemental Coverages

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

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 $5,000 unless a different limit is entered.

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

Deductible

One deductible is entered that applies to all covered premises.

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-7501–MISCELLANEOUS BAILEE–PROCESSOR FLOATER COVERAGE FORM ANALYSIS

Agreement

This section states that the insurance company provides the coverage described in the coverage form and in the schedule of coverages in return for the named insured's premium payment. This is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Definitions

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. The definitions can increase or decrease coverage so should be carefully reviewed. Eleven terms are defined:

 

1. You and your

This is the named insured person or organization on the declarations.

2. We, us and our

This is the insurance company that provides the coverage.

3. Earth movement

Any movement or vibration of the earth is considered earth movement. Examples include earthquake, landslide, mudflow, mudslide, mine subsidence, sinking, rising, or shifting of the earth but these examples are not meant to limit the definition. Sinkhole collapse is not earth movement.

4. Flood

Flood is flood. In addition, surface water, waves, tidal water, or overflow of bodies of water are also flood. Spray that results from any of these, whether driven by wind or not is also flood.

5. Limit

This is the amount of coverage that applies to the insured property.

6. Pollutant

This is a broad and expansive term. It includes 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.

7. Schedule of coverages

Any page that is labeled as such and contains coverage information, including declarations or supplemental declarations.

8. Sinkhole collapse

 A sinkhole is created when an underground opening is created by water acting on limestone or some other rock formation. The earth’s surface suddenly settling or collapsing into that sinkhole is sinkhole collapse. Sinkhole collapse does not include either the land’s value or the cost to fill sinkholes.

9. 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, the weight of sleet, snow or ice and windstorm. Two terms need further explanation.

Falling objects does not include loss to personal property stored in the open. It also does not include damage to the interior of buildings or personal property stored in buildings unless a falling object first breaches the building's exterior.

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

10. Terms

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

11. Volcanic action

An airborne volcanic blast or shock wave. It is also ash, dust, and particulate matter along with any lava flow. The term does not include the cost of removing dust, ash, or particulate matter from the covered property unless there is direct physical damage to the property. 

Property Covered

The only property covered is the property of others that is in the named insured's custody for processing. This property is covered for direct physical loss or damage that a covered peril causes. It is important to continue reading because there are a number of exclusions and limitations on the types of property that are covered.

1. Coverage

Coverage applies to direct physical loss or damage that a covered peril causes to the property of others that is in the named insured's care, custody, and control for processing. Finishing, repairing, restoring, adjusting, and similar or related work on the property are examples of processing.

2. Coverage Limitation

Coverage is limited to the type of property described on the schedule of coverages while at premises that are listed on the schedule of coverages.

Property Not Covered

Eight types of property are specifically excluded:

1. Aircraft or Watercraft

This property is more correctly insured under aircraft and watercraft coverage forms and policies.

2. 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.

3. Furs

It is important to note that this applies to not only fur garments but also those garments that are trimmed with fur. When fur is part of a garment, the entire garment is excluded.

This property is more correctly insured under Furriers Customers Coverage Forms.

Related Article: ISO Furriers Customers Coverage Form

4. Jewelry, Stones, and Metals

Jewelry of every type and description, precious and semi-precious stones, gold, silver, platinum, and other precious metals, and alloys is not covered.

This property is more correctly insured under Jewelers Block Coverage Forms.

Related Articles:

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

ISO Jewelers Block Coverage Form

5. Money and Securities

A number of types of property are not covered under this item. Accounts, bills, currency, food stamps, evidence of debt, and lottery tickets not held for sale, in addition to money, notes, or securities are all not covered.

Note: This property should be insured under Commercial Crime Coverage Forms.

Related Article: Commercial Crime Coverage Analysis

6. No Charge for Service

Coverage does not apply to any property of others that is accepted for processing or storage but for no charge is not made.

Note: This excludes coverage for gratuitous work or service.

7. Vehicles

Any type of self-propelled vehicle that is intended for use on public highways (including automobiles). This property is more correctly insured under automobile Garagekeepers Coverage.

Related Article: CA 99 37–Garagekeepers Coverage

8. Waterborne Property

Property that is waterborne in transit while in the custody of carriers for hire is covered but all else is not.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There is one coverage extension. Its limit is either the limit on the schedule of coverages or the default limit in the coverage form. This limit is part of the applicable limit for covered property and not in addition to it unless otherwise indicated. It is not added to or combined with limits for any other coverage extension or supplemental coverage and is not subject to any coinsurance provisions that apply elsewhere in the coverage form.

Debris Removal

a. The insurance company pays costs incurred to remove debris that is created because a covered peril to covered property occurs.

b. Debris removal does not include any costs for removing, restoring, replacing polluted land, or water or to extract pollutants.

c. 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. 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.

d. An additional $5,000 (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.

e. The named insured must report debris removal expenses to the insurance company within 180 days of the loss date in order for this coverage extension to apply.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are four supplemental coverages. The limit for each is the limit for the supplemental coverage unless there is a limit for that coverage on the schedule of coverages. Limits for any supplemental coverage are separate from and not part of the applicable limit for the covered property.

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 the covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Off-Site Property

Coverage applies to direct physical loss caused by or that results from a covered peril to covered property while that property is temporarily at an unscheduled offsite location. The most paid in any one occurrence is $5,000, unless there is a different limit on the schedule of coverages.

 

Example: Maverick Motors repairs and restores electric motors. Maverick sends its finished motors to Perfection Painting to apply the final coat of paint that completes the repair or restoration project. This supplemental coverage insures the motors for up to $5,000 while they are at Perfection Plating.

 

2. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if a covered peril that occurred during the policy period caused the pollutants to be released or discharged.

b. This is immediate coverage so any expenses to extract pollutants are paid only when reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are excluded except for those costs that are part of the extraction process.

d. The most paid at any one location is $10,000 for all such expenses that a covered peril that occurs at that location during each separate 12-month policy period causes. This limit can be increased.

3. Property in Storage

a. Coverage applies to direct physical loss or damage that a covered peril causes to covered property of others that the insured stores after the processing operation has been completed.

b. Storage coverage applies only if the named insured first processes the property at a premises on the schedule of coverages before storing it. The named insured must issue a storage receipt.

c. The most paid in any one occurrence is $5,000, unless there is a different limit on the schedule of coverages.

 

Example: Morton’s Marina repairs watercraft, prepares watercraft for the opening of the boating season in the spring, and stores smaller watercraft during the winter. Morton increases the $5,000 limit of insurance to reflect the higher values stored.

 

4. Transit

Coverage applies to direct physical loss by a covered peril to covered property while in transit. The most paid in any one occurrence is $5,000, unless there is a different limit on the schedule of coverages.

Perils Covered

Coverage applies to risks of direct physical loss. This broad peril is subject to the limitations and exclusions described in this policy.

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.

Related Article: Concurrent Causation and Anti-Concurrent Causation Clauses–A Discussion

a. Civil Authority

There is no coverage for a loss that results from an order that 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 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

Earth movement and volcanic eruption caused loss are not covered. There are three exceptions:

c. Flood

The insurance company does not pay for loss due to flood. There are two exceptions:

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

Loss that is due to water backing up through a sewer or drain is not covered. Loss that occurs because water below the ground’s surface exerts pressure on covered buildings or structures is also not covered. There are two exceptions:

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 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. Contamination or Deterioration

Loss or damage that is caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

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 commits alone or in collusion with another:

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

Coverage continues to apply if employees destroy property. However, it does not apply if employees steal.

Note: Crime coverages should be used to cover this type of loss. However, because the property being covered is the property of others, the CR 04 01–Client’s Property will need to be attached in order for employee dishonesty coverage to apply.

Related Article: CR 04 01–Clients’ Property

c. Electrical Currents

Loss caused by electrical currents or arcing is not covered unless the source of the electricity is lightning. The exception is that loss is covered when caused by a specific peril resulting from the electrical current or arcing.  

d. Loss of Use

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

 

Example: Jason was chroming 25 fenders for Kevin. The fenders were to be used during an upcoming auto show. A fire destroyed Jason’s shop and all of Kevin’s fenders were destroyed. The damage to the fenders is covered but Kevin’s loss of future income due to the fenders not being at the auto show is not covered.

 

e. Mechanical Breakdown

The insurance company does not pay for loss or damage caused by any mechanical, structural, or electrical breakdown or malfunction. This includes breakdowns and malfunctions that result from a structural, mechanical, or reconditioning process. However, if any such breakdown or malfunction results in a specified peril occurring, coverage applies to the loss or damage that specified peril causes.

 

Example: Interstate Painting is doing electrostatic painting on bicycle tubing when a significant electrical surge causes the chemistry to change dramatically. This results in the metal tubing being weakened. The tubing’s diminished value due to the power surge and subsequent chemical change is excluded.

 

f. Missing Property

The unexplained or mysterious disappearance of the covered property is excluded when there is no physical evidence to suggest what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. The one exception is that this does not apply to covered property in the custody of carriers for hire.

g. Pollutants

There is no coverage for loss caused by or that results from any release, discharge, seepage, migration, dispersal, or escape of pollutants, unless a specified peril causes the event and except for the coverage that Supplemental Coverages 2. Pollutant Cleanup and Removal provides. Coverage applies to the resulting loss to covered property that a specified peril causes.

h. Processing Work

The insurance company does not pay for loss to covered property of others caused by processing or other work performed on it. The one exception is that coverage does apply when a loss occurs because of specific peril that resulted from the processing work.

 

Example: Henrietta's Hammer Mill makes precision indentations on metal dies used in a variety of applications. One of the indentations made on a die is too shallow. While testing the die at Henrietta’s premises, the unintended surface-to-surface contact causes a spark that ignites combustibles and causes a fire. The initial loss in value of the die by the processing is excluded. However, the loss to the die by fire is covered.

 

i. Temperature/Humidity

Loss to covered property that dryness, dampness, humidity, changes in or extremes of temperature causes is excluded. However, if any of these results in a specified peril occurring, the loss or damage that specified peril causes is covered.

j. Theft from an Unattended Vehicle

Coverage does not apply to theft of covered property from an unattended vehicle unless the vehicle was locked, its windows securely closed, and there was visible evidence of forced entry into the vehicle. The exception is that covered property in the custody of carriers for hire is covered.

k. Voluntary Parting

Loss to covered property voluntarily given to others is excluded. There is no coverage even if the surrender was due to a fraudulent scheme, trick, or false pretense.

l. Wear and Tear

Loss that wear, tear, marring, or scratching causes is excluded.

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 describe 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 maintain and produce any records related to the loss. The insurance company must be permitted 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. Actual Cash Value

The value of covered property is its actual cash value at the time of loss. Actual cash is replacement cost new minus depreciation.

2. Pair or Set

The value of a loss that involves damage or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

3. Loss to Parts

The value of a lost or damaged part of 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: A question that may arise is what the named insured’s insurable interest is in property of others. This limitation could be a problem because a customer may expect a settlement based on the limit of insurance purchased.

2. Deductible

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

3. Loss Settlement Terms

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

4. 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.

5. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance for all insurance that covers on the same basis.

 

b. Excess Amount

There may be other coverage that pays for the loss. In that case, this coverage form pays on an excess basis. This means that only the amount of covered loss that exceeds the amount due from the other coverage (whether collectible or not) is paid. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company makes the decision on how a loss will be paid – not the named insured or the third party. It may:

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

The insurance company must notify the named insured of its intent to rebuild, repair, or replace within 30 days after it receives a properly completed proof of loss.

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.

Note: There is no mention as to who makes the decision on whether the named insured handles the adjustment or the insurance company handles directly.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. Either the amount of loss is determined by a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company can adjust and pay losses that involve property of others to either the named insured acting on the property owner’s behalf or directly to the property owner, at its discretion.

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

The insurance company is not obligated to pay the named insured if it pays the property’s owner. 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.

Note: This does not appear to apply because the named insured’s property is not covered.

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 dies, the person who has custody of the named insured's property is an insured until a qualified legal representative is appointed. The named insured’s legal representative becomes an insured once appointed. Both are insureds but only with respect to the property insured under this coverage form.

b. Policy Period Is Not Extended

This coverage does not extend past 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.

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

Paying a claim does not reduce the limit available for future claims.

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.

ENDORSEMENTS AND SCHEDULES

AAIS has developed two specific endorsements that can be used with this and other Miscellaneous Floaters.

IM 75 12-Named Perils Endorsement

This endorsement changes the perils from the very broad risks of direct physical loss to instead provide coverage for only the named perils listed on the endorsement. The endorsement also modifies the definition of specified perils to match the listed named perils.

IM 76 16–Coverage Restricted to Described Premises

This endorsement should not be needed because the floater itself is already restricted to only described premises.

UNDERWRITING CONSIDERATIONS

Bailment is the delivery of property by one party to another for some specific purpose. The parties to the bailment are the property owner (the bailor) and the party that receives the property in order to perform a service (the bailee).

Of the three kinds of bailment, two do not involve exchanging money and are considered gratuitous or reciprocal similar to the way that neighbors share property. The third involves some service or work done in exchange for money and is the only one covered by bailees’ coverage.

 

Examples:

  • George and Paul have stores next to each other. Paul is called home for an emergency and George agrees to watch over his store until he can return. George is the bailee and Paul is the bailor. In this situation, even though George has care, custody, and control of Paul's store, there is no business relationship involved because only Paul benefits.
  • George borrows a ladder from Paul. In this situation, George is the bailee and Paul is the bailor. George receives the benefit from the transaction. There is no business relationship or exchange of money.
  • George takes his collection of electric train engines to Paul’s store for cleaning, refurbishing, and insurance valuation. He leaves everything there, expecting all work to be done and the collection available for him to pick up exactly 30 days after the date he dropped them off, the date on his copy of the receipt. The receipt also states that he must pay appropriate cleaning, refurbishing, and appraisal fees as determined when he picks up the collection. This is an insurable bailment. In exchange for Paul’s promise to pay the appropriate fees, George accepts his collection and promises to clean and refurbish it and provide insurance valuations by the date on the receipt. This is a business transaction because of the relationship of the parties and the exchange of money for services.

 

Bailees are legally liable for only loss to customers' goods that the bailee’s negligence causes. However, customers expect to be reimbursed for loss regardless of negligence and it is customary for the bailee to accept responsibility for any covered loss or damage to customer's property even though it may not be legally liable.

The coverage provided by this Bailee Customers floater does not require negligence on the part of the named insured before the customer can collect for a loss. It is important when comparing bailee customer policies to determine if strictly legal liability coverage is being provided or if coverage without negligence (often called goodwill coverage) is being provided. The difference in pricing can be significant. If a client changes from the goodwill non-negligence type to the legal liability type a coverage gap is created that should be noted in writing.

The desire of a client to purchase the goodwill coverage reflects a concern on the named insured's part for the goodwill of its customers.

Underwriting focuses on the bailee's business experience in the specific line of business as well as its overall loss experience. Basic property underwriting at the scheduled locations is the starting point because the property is usually on a premises. Location exposures of concern that must be addressed involve fire, theft, water damage, and pollution. Then off premises exposures including transit must be evaluated.

Related Article ISO Commercial Property Program Underwriting Considerations

Establishing valuation is a very important part of underwriting because property that is undervalued is not adequately priced. The underwriter should request a list of property on hand with valuation in order to evaluate the exposure. Prior years’ information may be very helpful if there is fluctuation. Some insureds may have contracts with each client that establishes valuation while others may have receipts with estimated valuation. The valuation methodology varies by type of processor.

This type of bailee coverage may be difficult and/or expensive to obtain because it is difficult to evaluate and price such risks. The business personal property values will probably vary significantly from one risk to another and the property’s condition when the bailor receives it may be extremely poor. Documentation of condition and valuation are just two hurdles claims adjustors must deal with in case of a loss.

Risks that have consistent and steady customers and that deal with specific types of personal property are more desirable than risks that deal with many one-time customers and many types of business personal property.