(September 2016)

SECTION I–PROPERTY

B. EXCLUSIONS

1. Primary Exclusions

The doctrine of concurrent causation holds that a coverage form or policy must pay if a loss to insured property can be attributed to two causes, one excluded and the other covered. By applying this concept, coverage has been found for earth movement, flood, and other events that are specifically excluded. To eliminate this problem, this paragraph makes three very specific statements:

This language applies to these nine exclusions.

a. Ordinance or Law (07 13 change)

Enforcing or complying with any ordinance or law that regulates construction, use, or repair of any property, or that requires tearing down any property is excluded. This exclusion also applies to the cost to remove its debris regardless of whether or not the property has been damaged.

Note: BP 04 46–Ordinance or Law Coverage can be written to cover the claim described above.

Related Article: CP 04 05–Ordinance or Law Coverage

b. Earth Movement (07 13 changes)

Five separate categories of earth movement events are excluded.

(1) Earthquake and any sinking, rising, or shifting of the earth that occurs with the earthquake. The 07 13 edition adds tremors and aftershocks to this list.

(2) Landslide and any sinking, rising, or shifting of the earth that occurs with the landslide

(3) Mine subsidence of man-made mines, whether the mine is operating or not

Note: This is a common problem in some mid-western states. Separate mine subsidence coverage is available in some states and must be offered in certain counties. Legislation enacted in those states details the coverage that must be offered, the price that may be charged, and the way coverage is written. The state laws with respect to mine subsidence coverage on property in Illinois, Indiana, Kentucky, Pennsylvania or West Virginia should be reviewed carefully.

(4) Sinking of the earth and any rising, shifting, erosion, contraction, or expansion of the ground as well as water below the surface of the ground and poor soil conditions. Sinkhole collapse is an exception to this exclusion.

Note: An important exception to the exclusions described above is that coverage applies if fire or explosion occurs due to any of them but for only the loss or damage the fire or explosion causes.

(5) Volcanic eruption, unless it results in fire, breakage of building glass, or volcanic action. Volcanic action is defined as follows:

(a) Airborne volcanic blast or airborne shock waves

(b) Various types of dust, ash, and particulate material emitted

(c) Lava flow

All volcanic activity in (a), (b), and (c) above that takes place within any 168-hour period is considered a single occurrence. (07 13 change)

The costs to remove ash, dust, or particulate matter is excluded unless covered property sustains direct physical loss or damage.

Note: Volcanoes are unpredictable and the damage they cause varies considerably from one to another. Eruptions usually occur over a number of days. All activity within 168 consecutive hours is treated as one occurrence. This is very important to the insured with respect to the deductible. Instead of multiple deductibles due to multiple events, only one deductible applies for any 168-hour period. Volcanic eruption can be covered using BP 10 03–Earthquake.

Related Article: ISO Businessowners Program Available Endorsements and Their Uses

All aspects of this exclusion apply regardless of whether nature or any other force causes the event. (07 13 addition)

c. Governmental Action

Coverage does not apply to property a government authority seizes or destroys. Customs seizures, zero tolerance Drug Enforcement Agency (DEA) drug confiscation, or property seized as evidence in a trial that loses value because of the amount of time it is confiscated are examples of this exclusion. However, property the governmental authority damages at the time of a hostile fire to prevent it from spreading is covered.

d. Nuclear Hazard

All nuclear hazards are excluded. This includes nuclear reaction, radiation, or radioactive contamination. However, the damage to covered property that a fire that results from a nuclear hazard is covered.

e. Utility Services

There is no coverage for loss or damage caused by or that results from failure of power, communication, water, or other utility service to the described premises if the failure originates away from such premises. There is also no coverage if the loss or damage is due to failure of equipment the off premises utility service owns that is on the described premises. Utility service failure includes reduction in supply and insufficient capacity.

Any loss or damage caused by a power surge that would not have occurred except for an event that causes power failure is excluded.

There is a very broad exception to this exclusion. A covered cause of loss may result from power surge or power failure or the failure of any of these utility services may result in a covered cause of loss that causes loss of damage. In that case, coverage applies for only the loss or damage that results. Another exception states that this exclusion does not apply to loss or damage to computers or electronic data.

Communication services also include Internet access service or access to any electronic, cellular, or satellite network. However, it is not limited to just these.

Note: Off-premises power failure coverage can be added using BP 04 56–Utility Services–Direct Damage and 
BP 04 57–Utility Services–Time Element. Spoilage coverage can be added using BP 04 15–Spoilage Coverage.

Related Article: ISO Businessowners Program Available Endorsements and Their Uses

f. War and Military Action

This exclusion lists three specific warlike activities.

·         War. This can be a declared, an undeclared, or a civil war.

·         Military force of a warlike nature. These activities must utilize military personnel or agents of a government or other type of authority. The actions taken to prevent any of these activities are also considered war.

·         Insurrection, rebellion, revolution, and attempts to usurp power. Any government action taken to respond to such actions is also considered war.

Note: This exclusion does not apply to acts of terrorism. Separate terrorism endorsements must be added to exclude such actions.

g. Water

(1) Flood is excluded. Flood is surface water, tides, tidal water, and waves. Waves include tidal waves and tsunami. Overflow of any body of water is also excluded. A body of water is a natural or man-made river, creek, ocean, or lake. Spray from any of the above, wind-driven water, and storm surge are also excluded.

(2) Mudslide and mudflow occurs when a sudden large volume of water mixes with unstable soil conditions and is excluded.

(3) Coverage does not apply to loss or damage from water that backs up, flows from, or is otherwise discharged from sewers, drains, sumps, or equipment such as sump pumps.

(4) Water saturated ground can create hydrostatic pressure against a building's surface or subsurface portions. Loss or damage caused by or that results from such water that enters through foundations, walls, floors, paved surfaces, basements, doors, windows, and other building openings is excluded.

(5) Loss or damage due to waterborne material carried by waters described in (1), (3), and (4) above is excluded. Such material moved or carried by mudslides or mudflow described in (2) above is also excluded.

ISO adds a paragraph that explains that this entire exclusion applies whether any of the events are caused by an act of nature or otherwise. In order to clarify the term "otherwise," ISO provides an example that uses the terms “dam,” “seawall," "levee," "boundary" or "containment system" and states that any of them failing to contain the water is an "otherwise" type situation. However, it is important to note that using this example format does not limit the exclusion to failure of only those specific items. The goal is to define the term "otherwise" as broadly as possible.

Much like other exclusions, if fire or explosion occurs because of any action of water, coverage applies to the loss or damage the fire or explosion causes. In addition, if a sprinkler leakage loss occurs due to these actions of water, coverage applies to the loss or damage the sprinkler leakage causes.

Note: There is no standard Businessowners Program endorsement that covers flood and related causes of loss. Some insurance company endorsements cover loss or damage caused by backup of sewers and drains and failure of sump pumps to operate correctly. The federally administered National Flood Insurance Program (NFIP) provides limited coverage for eligible property.

Related Articles:

National Flood Insurance Program Standard Policy Coverage Analysis

AAIS Difference in Conditions Form–Property Coverage Part

ISO Difference in Conditions Coverage Form

h. Certain Computer-Related Losses

The Year 2000 computer scare was followed by exclusions being introduced for similar software problems caused by difficulty with handling dates and time. Under this exclusion, there is no coverage for the failure, malfunction, or inadequacy of any computer, computer application, computer operation system, computer network, microprocessor, or any other computerized part or any other product that depends on computers when caused by an inability to process dates or time. Coverage also does not apply to anything any insured does to correct any of these problems. If a computer’s failure to accept time or date results in a loss due to a specified cause of loss, coverage is available for the resulting damage from that loss.

i. Fungi, Wet Rot, or Dry Rot

The presence, growth, spread, or any other activity of fungi, wet rot, or dry rot is excluded. However, if a specified cause of loss results from any such activity, the loss or damage the specified cause of loss causes is covered.

This exclusion does not apply when such activity results from either fire or lightning or to the extent that coverage applies under 5. Additional Coverage r. Limited Coverage for Fungi, Wet Rot, or Dry Rot.

j. Virus or Bacteria

Loss or damage from any type of microorganism that causes or is capable of causing physical illness, distress, or disease is excluded.

Examples of excluded microorganisms are virus or bacterium but they are only examples. This means that this is a far-reaching exclusion because microorganisms are everywhere.

This exclusion does not apply to any of the items described in exclusion i. Fungi, Wet Rot, or Dry Rot above. This is important because those items have some limited coverage under 5. Additional Coverages r. Limited Coverage for Fungi, Wet Rot, or Dry Rot while these microorganisms do not.

This exclusion takes precedence if a microorganism could be excluded under this exclusion or under the pollution exclusion. This means that 5. Additional Coverages h. Pollutant Clean-up and Removal does not apply to damage such an organism causes.