MARKET SEGMENTS DIVISION—HARDWARE AND HOME IMPROVEMENT STORES

(February 2023)

Collapsible Index

Eligibility

MS HI DS–Hardware and Home Improvement Stores Supplemental Schedule

MS HI 01–Hardware and Home Improvement Stores Analysis

I. Modifications To CP 00 10–Building And Personal Property Coverage Form

II. Modifications To CP 10 30–Causes Of Loss–Special Form

III. Changes To The Commercial General Liability Coverage Part

IV. Definitions

Endorsements

Underwriting Considerations

Rating Considerations

The Hardware and Home Improvement Stores Program is an enhancement of the Commercial Package Policy. Any package written under the market segment division must be assembled according to the rules for all Market Segment policies.

Related Article: ISO Market Segment Overview

This article will discuss items specific to the Hardware and Home Improvement Stores Program, including the eligibility, supplemental schedule, MS HI 01– Hardware and Home Improvement Stores, and the special endorsements developed just for this program. In addition, there is a section on Underwriting and Rating.

This article is based on the 07 13 edition of this program. Changes from the prior edition are in bold print.

ELIGIBILITY

Only two classifications qualify for coverage under this Market Segment: Hardware Stores – 13716 and Home Improvement Stores— 14279. If there are other general liability classifications applicable to a particular named insured, the risk remains eligible. There is no requirement that either of these classifications be the primary classification on a policy.

MS HI DS–HARDWARE AND HOME IMPROVEMENT STORES SUPPLEMENTAL SCHEDULE

What follows is a discussion of the specific information that needs to be shown on a Supplemental Schedule for the Hardware and Home Improvement Stores Program.

Changes in Limits

This section's only purpose is to increase insurance limits. If no limit is entered, the limits shown in the MS HI 01 apply. Any limit changes are effective on a per location basis. This allows protection for one or two locations to be increased without affecting the remaining locations.

A list of specific coverages appears in this section. However, space is available for entering a coverage and limit of insurance. The coverages are:

Money and Securities
Money Orders and Counterfeit Paper Currency
Forgery or Alteration
Outdoor Signs
Employee Dishonesty
Personal Effects and Property of Others
Valuable Papers & Records
Accounts Receivable
Other (Specify)

Note: According to the coverage form, whatever limit is entered is a replacement (not an additional) limit. If an insured wants $5,000 in coverage and the existing limit is $2,500, a limit of $5,000 must simply be entered on the schedule to get the desired level of coverage.

Hired and Non-Owned Auto Liability Insurance

If coverage is desired, endorsement MS HI 03–Hardware and Home Improvement Stores-Hired Auto and Non-owned Auto Liability Insurance must be attached. The limits can be entered on this Schedule or on the schedule on the MS HI 03. Limits are separate for Hired Auto Liability and for Non-owned Auto Liability.

Loss or Damage to Customers’ Autos Section

Coverage is provided at any premises where limits are shown provided endorsement MS HI 04–Hardware and Home Improvements Stores-Loss or Damage to Customers’ Auto (Direct Primary Coverage) is attached to explain the coverage being provided.

Limits are entered by premises. The required entries are:

The per event limit of liability
The per tenant’s auto deductible for loss by theft, vandalism or mischief
The maximum deductible for a single occurrence of loss by theft, vandalism or mischief to tenants’ autos
The per customer auto deductible for loss by collision

Note: There appears to be an error on the suggested supplemental because a statement within this coverage requires the entry of a check in a box if coverage is for direct primary coverage. However, there is no option on the required MS HI 04–Hardware and Home Improvements Stores-Loss or Damage to Customers’ Auto (Direct Primary Coverage) for other than direct damage. This statement should be removed to eliminate confusion.

Extortion

Extortion coverage is provided only if the box is selected and MS HI 05–Hardware and Home Improvement Stores-Extortion Coverage is attached to the policy.

Forms Applicable

The final section of the Supplemental Schedule allows for the listing of specific endorsements by premises.

MS HI 01–HARDWARE AND HOME IMPROVEMENT STORES ANALYSIS

The coverage forms modified by this market segment are:

CP 00 10–Building and Personal Property Coverage Form
CP 10 30–Causes of Loss-Special Form
CG 00 01 or CG 00 02–Commercial General Liability Coverage Parts

The Hardware and Home Improvement Stores endorsement is not a complete coverage part. It must be attached to a package containing all three of the above named forms. If all three forms are not a part of the policy, the Hardware and Home Improvement Stores Program endorsement does not apply.

Example: If a CPP is issued with commercial property coverage, commercial crime, commercial inland marine, and equipment breakdown coverage but without a CGL, the Hardware and Home Improvement Stores endorsement cannot be added.

When the Hardware and Home Improvement Stores endorsement is attached, all of the underlying terms, conditions, and provisions of the above three forms apply, with the exception of the items that are modified by the Hardware and Home Improvement Stores endorsement.

I. Modifications to CP 00 10– Building and Personal Property Coverage Form

Note: Item B. Additional Coverages Change – Debris Removal in the prior edition has been removed because the higher limits it provided are now standard in the CP 00 10. (07 13 change)

A. Personal Property of Others Change

The description of Personal Property of Others in the CP 00 10 is expanded to include property sold to a customer on the condition that the property is installed and accepted by that customer. The named insured’s interest is protected until the installation is complete and the purchaser accepts the property.

Note: This is not an expansion of Your Business Personal Property; it is an expansion of Personal Property of Others. This means that in order for the coverage described in this change to apply, a limit of insurance must be shown on the Commercial Property Declarations for Personal Property of Others.

B. Additional Coverages Change–Fire Department Service Charge

The Limit for Fire Department Service Charge is increased to $5,000.

C. Additional Coverages Additions

1. Money and Securities

Coverage is added for direct loss by theft, disappearance, or destruction of money and securities. This additional protection is effective if a loss occurs at a covered premises, a bank or savings institution, living quarters of the named insured, partner or employee and while the property is in transit between any of these locations. Coverage at employee living quarters applies only if that employee was given the covered property to use or hold on behalf of the named insured.

Example: Pam was taking the daily receipts from Harvey’s Hardware to the bank when carjackers stole her vehicle and the daily receipts. Up to $5,000 of the receipts are covered. The next week she was late taking receipts to the bank, but it was closed. She took the receipts home that night to deposit them in the morning. Her house was robbed, and the receipts were stolen. Up to $5,000 of the receipts are covered. The following week, Pam finally made it to the bank with the receipts, but the bank was robbed, and her receipts were once again stolen. Up to $10,000 of the receipts are covered.

The automatic amount of $10,000 applies when the covered property is either in the described premises or at a bank while the $5,000 applies when the covered property is anywhere else. Either or both limits can be increased by an entry on the Supplemental Schedule.

The following three types of loss are excluded:

· Losses that result from errors or omissions in accounting or arithmetic.

· Losses that occur because the property was voluntarily given out in an exchange or purchase

· Any loss of covered property that is contained within any money-operated device (such as a vending machine). This exclusion does not apply if there is a continuous reading instrument that records all amounts that are deposited or stored in that device.

Example: Franklin’s Home Improvement owns a soft drink vending machine that’s located by the front entrance. It was vandalized and robbed one evening. Franklin’s turned in a claim in the amount of the cost of the estimated missing cigarettes and cash. There was no coverage because it was an older model machine that did not have a continuous reading instrument that documented the actual amount of money in the machine from sales at the time of loss.

This coverage requires the insured to keep records of all money and securities so that the insurer can verify the amount of a loss.

The definition of occurrence under this additional coverage is any loss, whether it is caused by one or more persons or that involves a single act or a series of related acts.

Example: Three individuals robbed Harry's Hardware, and each criminal got away with nearly $5,000 worth of merchandise. This is one occurrence even though more than one person was involved, so coverage is limited to only $10,000.

2. Fire Extinguisher Systems Expense (07 13 change)

Up to $5,000 is available for any one occurrence to pay the cost of recharging or replacing fire extinguishing equipment and systems. Coverage applies only if the discharge is within 100 feet of a described building or within 100 feet of the premises. The greater of the two distances is used to determine if coverage applies. In addition, if the covered property is damaged due to an accidental discharge, it is covered but subject to the same $5,000 limit. There is no coverage if the system is discharged during testing or installation.

Note: No deductible applies to this coverage.

3. Reward Payment

Reward payments are available to assist in solving crimes that result in covered losses. The coverage consists of two categories of rewards. In the first category, up to $5,000 is available for information that leads to the arrest and conviction of any party that commits a crime resulting in a covered property loss. However, the reward payment will be for no more than the least of the actual cash value of the damaged property at the time of the loss, the amount it takes to repair or replace the property, or the settlement value developed based on the policy’s conditions. In other words, the policy would not pay $4,000 for information related to a crime that caused a $1,500 loss. The second category of reward payment applies to the return of stolen property and is also for a maximum of $5,000.

Who is eligible to collect the award? Only one person can receive the reward. The first person, as determined by law enforcement, who voluntarily provides information that leads to a conviction or leads to the stolen property will receive the reward. However, that person cannot be any of the following:

The named insured

Family members of the named insured
Employees
Family members of employees
Employees of law enforcement agencies
Employees of a business engaged in property protection
Any person having custody of the covered property at the time the theft was committed
Any person involved in the crime

The reward is not paid until there is a conviction or the property is returned.

4. Money Orders and Counterfeit Paper Currency

If the named insured, in good faith, provides services or hands over money or merchandise to another party who pays with unrecoverable money orders or counterfeit currency, coverage is provided for the loss to the named insured. The maximum payout is $1,500, but it can be increased on the Supplemental Schedule. There is a limitation that money orders are covered only if they were issued by a post office, express company, or bank. Counterfeit paper currency is also restricted to only money accepted during the course of business.

Note: The term paper currency has been replaced with paper money in most crime forms.

5. Forgery or Alteration

Loss that occurs because of the forgery or alteration of checks, drafts, promissory notes, bills of exchange or any similar instruments is covered. Such instruments must be issued by the named insured, the named insured’s agent, or someone impersonating either of these parties. There is no coverage if the loss is for such instruments that are received by the named insured from other sources.

If the named insured realizes that an instrument has been forged or altered and refuses to honor it, this coverage also pays related and reasonable legal expenses that may ensue. The named insured is given written permission to go ahead with their own defense, and the named insured will be reimbursed for those expenses.

The $5,000 limit is the most that will be paid under this coverage for a single loss. The amount may be exhausted by the loss itself, the defense of a suit or a combination. The limit can be increased on the Supplemental Schedule.

6. Outdoor Signs

Direct damage to outdoor signs owned or under the control of the named insured is covered. This coverage supersedes any other coverage provided for signs elsewhere in the policy.

The any one-occurrence limit is $5,000. This limit can be increased in the declarations.

The causes of loss are very broad. All direct damage is covered except for the following:

Wear and tear
Hidden or latent defect
Corrosion
Rust
Mechanical breakdown

Note: Later in this form, this list of excluded causes of loss is increased to also exclude governmental action, nuclear hazard, and war. This could be considered an ambiguity to the insured’s advantage.

7. Employee Dishonesty

Coverage is provided for employee dishonesty that results in the loss of money, securities, or business personal property. The employee may be working alone in committing the dishonest act(s), or the employee may collude with other persons. However, if any of those other persons include the named insured or a partner, member or manager of the named insured, there is no coverage.

An inventory computation and/or profit and loss statement cannot be the sole proof that a loss has occurred or be the sole method of establishing the value of the loss. In other words, there must be tangible evidence that a dishonest act occurred, and there must be a way to calculate the amount of that loss accurately.

A special exclusion applies to certain employees. If the named insured, or any partner, officer or director of the named insured discovers that an employee was previously involved in a dishonest act, there is no coverage for any acts of that employee. It doesn’t matter whether the incident occurred before or after the insured hired the employee—coverage ceases. The termination takes effect the moment the party's prior act is discovered. There are no exceptions to this exclusion unless the insurer is willing to write a manuscript endorsement to document an exception.

The $25,000 limit in the form may be increased on the Supplemental Schedule. This limit is the total amount available to respond to a single occurrence. The limit of insurance is not cumulative from year to year, so the limit shown is the maximum that will be paid for any one occurrence of a dishonest act or event, regardless of how many years the policy has been in force or how much premium has been paid.

The dishonest act or event must happen during the policy period to be covered.

The act that causes a loss must have not only occurred during the policy period but must also be discovered no later than one year from the end of the policy period. There is an important exception. If the insured suffers a loss that would have been eligible under a previous policy but it was not discovered until after the one-year limitation expired, there may be coverage under this current policy. The old loss would have to meet two criteria. First, this current policy must be the replacement for the one in force when the loss actually occurred. Second, the loss would have to involve a loss that is eligible under this current policy’s provisions. In addition, any payment made is subject to the lesser of either the current policy term’s limit or the prior term's limit.

The limit of insurance is not cumulative from year to year, so the limit shown is the maximum that will be paid for any occurrence single of a dishonest act or event, regardless of how many years the policy has been in force or how much premium has been paid.

Possible Exclusion Ambiguity

There is an exclusion that may be confusing. It states that loss or damage due to a dishonest act performed by the named insured and any partner, member, officer, manager, director, or trustee is ineligible for coverage. Up to this point, the exclusion is very similar to exclusions in the Commercial Crime Form. However, the exclusion also bars loss for dishonest or criminal acts by authorized representatives and by anyone to whom the named insured has entrusted property. This part of the exclusion may be problematic. Doesn’t the named insured entrust items to employees as part of their duties? Aren’t employees authorized representatives? This wording is NOT used in the Commercial Crime policy and could cause confusion following a loss.

For an example of how this issue was treated under another line of coverage:

8. Brands and Labels

Branding a product line is sometimes a very important issue for a customer. This coverage establishes how the insurance company will work with the customer after a loss to preserve brand value.

If the insurance carrier decides to take all or any part of the damaged property after a settlement value has been established, it agrees that the labels and identifiable markings of the salvageable property can be removed or that the property can be marked as salvage. The only condition is that such removal or marking cannot damage the property. The insurance company will absorb the loss of salvage value that results from this action.

The insurance company will also pay the reasonable costs the named insured incurs to have the labels removed, or the salvage markings added.

The maximum payment for the sum of the loss of salvage value and the relabeling or marking expenses is $25,000 per occurrence.

Example: Cravens Cabinets is a highly sought brand sold by Friendly Fred’s. A fire breaks out, and heavy smoke damages most of Fred’s stock. Some of the Cravens Cabinets are salvageable, but due to a contractual agreement between Friendly and Cravens, labels must be removed prior to any salvage sale. The value of the salvage before the remarking is $60,000, but after the label removal, the value is $43,000. The cost to remove the labeling is $5,000. This additional coverage covers the salvage difference of the $17,000 plus the $5,000 removal cost for a total cost to the carrier of $22,000.

9. Lock Replacement

If keys for the locks on the premises are stolen or lost, the insurance company will pay up to $5,000 to replace or repair the locks, subject to $100 per occurrence deductible.

The keys can be to any locks that are on the described premises with the exception of locks and keys that are being held for sale by the named insured. The keys are not required to be on premises when stolen.

10. Artificially Generated Electrical Current

This coverage is applicable only to computers. When artificially generated electrical current causes loss or damage to the computers, the company will pay, but only if one of the following applies:

An occurrence that causes the loss or damage takes place within 1000 feet of a described premises
Power surge, interruption of power, blackout, or brownout is due to an occurrence that took place within 1000 feet of the premises

This coverage is subject to the deductibles in the policy and the limit on the Declarations that would apply to this equipment.

E. Coverage Extensions Changes and Additions

1. Newly Acquired or Constructed Property

The only change is for computers. Coverage at newly acquired or constructed property in the CP 00 01 ends at the earliest of when the policy expires, thirty days after the property is acquired or when the values are reported to the insurance company.

This coverage extension adds one additional time of coverage ending but it applies only to computers. When ‘specific insurance’ is purchased at the newly acquired premises, coverage ends. The other times also continue to apply to computers.

Note: This extra item is confusing because it doesn’t say that coverage specific to computers is purchased but instead says only ‘specific insurance.’ This confusion could be an ambiguity to the benefit of the insured.

2. Personal Effects and Property of Others

The limit is increased from $2,500 to $5,000 and can be further increased on the Supplemental Schedule.

3. Valuable Papers and Records (Other than Electronic Data)

The valuable papers and records coverage extension is increased from $2,500 to $25,000 for on-premises loss or damage. It also adds coverage when the valuable papers and records are off premises but only for $10,000. These limits can be increased for an additional premium.

Coverage is expanded to include not only the cost to replace or restore the lost information but also any physical loss or damage to the valuable papers and records owned by or in the named insured’s care, custody or control. The coverage extends to the cost of blank material and the labor necessary to transcribe any available records.

The covered cause of loss is more restricted and must be due to a specified cause of loss as defined in the CP 10 30–Causes of Loss - Special Form or due to collapse. Property that is held as samples or that has been sold and is waiting to be delivered is not covered. Any property that is being stored off premises is also not covered.

Note: If higher limits are needed, consider using one of the following forms because of causes of loss and coverage designed just for this exposure.

AAIS Valuable Papers and Records Coverage Form

ISO Valuable Papers and Records Coverage Form 3

4. Property Off Premises

The Hardware and Home Improvement Stores Program enhances the property off-premises extension by adding protection for computers while in transit. There is no coverage under this Extension for property that is insured under the Installation Coverage Extension described later in this form. This avoids duplicate coverage.

5. Outdoor Property (07 13 change)

The Hardware and Home Improvement Stores Program provides coverage for outdoor property (other than outdoor property that is for sale) for the following causes of loss:

Fire
Lightning
Explosion
Riot or civil commotion
Aircraft

The limits are applied based on the type of outdoor property.

Fences and retaining walls are covered for up to $10,000 in a single occurrence, provided they are not part of the building.
Outdoor radio and television, satellite or other antennas are covered up to $3,000 in a single occurrence. The coverage extends to masts, towers and lead-in and support wiring that are part of the covered items.
Trees, shrubs, and plants are covered for up to $2,500 for any one occurrence, but there is a maximum of $500 for any one tree, shrub, or plant. Trees, shrubs, and plants that are considered stock or that are part of a vegetated roof are not part of this extension because they are covered as personal property. The $2,500 limit must also cover any debris removal associated with the loss.

The expense to remove property of others consisting of trees, shrubs, and plants debris is covered under this item. The property of others cannot belong to the owner of the building when the named insured is a tenant.

Note: No particular limit is mentioned with the expense to remove property of others item although there is a reference to the terms and conditions of the rest of extension. There could be an ambiguity as to what limit, if any, applies.

6. Installation Coverage

This coverage is normally provided under a Commercial Inland Marine Installation Floater. The coverage provided with this Extension is much more limited than the Inland Marine floater but may be sufficient for the needs of a particular client. A comparison should be made between the two coverage forms if a client is contemplating replacing separate installation floater coverage. There is a significant potential for coverage gaps simply because of the differences between an Inland Marine coverage approach and a Commercial Property coverage approach.

Related Article: AAIS Installation Floater Coverage Form

The named insured can choose to extend coverage that is provided in the Building and Personal Property Coverage Form to include:

Materials, supplies, and fixtures that are meant to be installed by the named insured or at his or her direction and are either owned by the named insured or are in the named insured‘s care, custody, and control
Temporary structures that the named insured must build on the building site to assist in the installation

The above-described property is covered at any non-owned or controlled job site while awaiting installation. It is also covered while in transit, being temporarily stored, being installed or waiting for acceptance by the customer.

The limit is $10,000 per occurrence and is not increased by the number of job sites or storage locations.

Coverage ends at the earliest of:

Policy expiration/cancellation
When the installed property is accepted by the customer
The named insured no longer having an interest in the property that is installed or is being installed
The project being abandoned
Ninety days after the project is complete. The 90 days can be increased but only in writing by the insurance company.

There is no coverage for the following property items:

Existing building or structure
Property that is being stored in a permanent warehouse
Property that is being stored in an owned storage yard
Specifications, plans, blueprints or designs
Machinery, tools, and other items that are not destined to become a permanent part of the installation

The following causes of loss are excluded from coverage under this particular extension:

Cost to replace bad materials or workmanship
Testing losses unless a fire or explosion occurs, and then only the damage caused by the fire and explosion is covered.
Any type of defect or fault of the plans, specifications or designs
Whenever a loss is due to a particular type of equipment exceeding its weight capacity.

Example: Harvey’s Home Improvement is hired to redesign a bathroom. All the materials are ordered and delivered directly to the customer. The subcontractor, hired by Harvey’s, begins to install the items. A windstorm comes through and damages the customer’s home and the material being installed. Because the material is being installed, its loss is covered by this additional coverage.

7. Accounts Receivable

The limit of insurance for business personal property may be extended to include direct loss or damage to accounts receivable from a covered cause of loss. Coverage applies to:

The amounts the named insured is owed from customers but unable to collect
Interest charges on loans the named insured obtains to offset collections while the insurer is handling the loss settlement
Any additional collection expenses that were created by the loss or damage
Other reasonable expenses incurred to re-establish accounts receivable records

The amount available is $10,000 for on-premises loss or damage and up to $1,500 for off-premises loss. The limit can be increased for an additional premium, and the higher limit will be shown in the declarations.

The reference to accounts receivables in the Property Not Covered section is deleted in regard to this supplemental coverage.

Note: If higher limits are needed, consider using one of the following forms because the coverage is designed just for this exposure.

AAIS Accounts Receivable Coverage

Accounts Receivable Coverage

II. Modification to CP 10 30–Causes of Loss-Special Form

Several of the exclusions and limitations found in the CP 10 30–Causes of Loss-Special Form are modified for some of the additional coverages and coverage extensions. The modifications are as follows:

A. Mechanical Breakdown

Mechanical breakdown references in the Exclusions section do not apply to computers.

B. Dampness, Dryness, Changes in Temperature, Marring or Scratching

The only change in the dampness, dryness, changes in temperature, marring or scratching exclusion subparts is the dampness or dryness of the atmosphere portion.

An exception is added so that when an air conditioning system that is used with the computer is damaged by a covered cause of loss, the resulting damage to a computer because of any dampness or dryness is covered.

C. Additional Exclusions for Computer Coverage Only

1. The following exclusions apply to computer coverage. Loss or damage due to any of the following is excluded regardless of other concurrently or sequentially occurring causes of loss.

Note: The reason these extra exclusions are needed is because MS HI 01 includes coverage for mechanical breakdown of computers that is not provided by the CP 10 30.

a. Errors or Omission

There is no coverage for damage or loss due to human errors or omissions in processing, recording, or storing information on computers. Resulting fire or explosion is covered if caused by a covered peril.

Example: Miriam, who works for Harvey’s Home Improvement, enters the wrong codes on a program, causing the system to crash and wipes out Harvey’s accounting records. There is no coverage.

b. Electrical Disturbance

There is no coverage for damage due to electronic or magnetic injury, disturbance, or erasure of electronic recordings unless it is a result of a direct lightning loss or damage.

Example: Miriam, still working for Harvey, did not realize that magnetized metals placed close to computers could erase data and media. On lunch hour she bought her sons some electronic magnets and demonstrated how well they worked. Unfortunately, they were too close to the computer and ended up erasing all personnel records on it. There is no coverage.

c. Computer-related Losses

There is no coverage for any loss or damage that is caused by or results from the failure, malfunction, or inadequacy of any of the following (regardless of who owns the property) because they cannot correctly recognize, process, distinguish, interpret, or accept dates or times:

Micro-processors and any other computer hardware
Software
Operating system software
Networks used by computers
Equipment that is computer related or electronic and associated components
Any other products that depend on the items listed immediately above in any manner.

d. Computer Advice or Consultation

Any of the following provided by the named insured or for the named insured is not covered when used to determine, test, or rectify potential or actual problems described in exclusion c. above.

Advice
Consultation
Design
Evaluation
Inspection
Maintenance
Repair
Replacement
Supervision

Example: Miriam was moved to online service where Harvey thought she might be less prone to cause computer problems. A customer called and wanted to know how to fix a computer glitch. Miriam had encountered a similar problem on her computer and provided some advice. Unfortunately, the advice was wrong, and the customer ended up losing valuable data. There is no coverage.

2. When Electrical Disturbance, Computer-related Losses, and Computer Advice or Consultation excluded above result in a specified cause of loss or elevator collision, that resultant loss is covered. However, there is no payment to repair, replace, or modify any item listed in exclusion c. above. The damage from an elevator collision must involve the elevator experiencing a mechanical breakdown.

D. Employee Dishonesty

The only exclusions in the Cause of Loss–Special Form that apply to the Employee Dishonesty Coverage are Governmental Action, Nuclear Hazard, and War and Military Action. All other exclusions are in the Employee Dishonesty Additional Coverage.

E. Outdoor Signs

None of the Exclusions or the Limitations found in Cause of Loss–Special Form applies to Outdoor Signs via Hardware and Home Improvement Stores endorsement except for:

Governmental action
Nuclear hazard
War and military action
Wear and tear
Rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself
Mechanical breakdown, including rupture or bursting caused by centrifugal force, except for damage caused by elevator collision

Note: This is a much larger list of exclusions than the one provided in the outdoor sign coverage described earlier. The confusion will result in an ambiguous situation to the named insured’s advantage.

F. Valuable Papers and Records and Accounts Receivable

The only exclusions that apply to Valuable Papers and Records and Accounts Receivable are:

Governmental action
Nuclear hazard
War and military action
Computer-related losses
Computer advice or consultation
Continuous or repeated seepage or leakage of water—14 days or more
Water, other liquids, powder or molten material that leak or flow from plumbing, heating, air conditioning or other equipment caused by or resulting from freezing
The anti-concurrent causation exclusions

Note: This item is very ambiguous because of the difference between the two coverages. Valuable Papers and Records coverage applies only for specified causes of loss and collapses, while accounts receivable coverage is subject to the CP 10 30 causes of loss. Remember that under the Valuable Papers Coverage Extension only specified causes of loss and collapse are considered covered causes of loss. By combining the two coverages under this same modification would suggest that the two are covered for the same causes of loss when they are not.

G. Accounts Receivable

The following exclusions apply in addition to the exclusions described in F. above:

1. Loss involving alteration, falsification, concealment, or destruction of accounts receivable records if these actions were meant to conceal another action such as giving, taking, or withholding money, securities or other property.

2. Loss due to errors or omissions in a covered operation's bookkeeping, accounting or billing functions.

3. Loss that is only found due to an audit or inventory. There must be some other outside evidence.

III. Changes to the Commercial General Liability Coverage Part

A. Three Coverages Added For Hardware And Home Improvement Stores:

Home Improvement Design Errors and Omissions Coverage

This is a separate Coverage Part with its own Insuring Agreement, Exclusions, and Supplementary Payments.

1. Insuring Agreement

This coverage responds to damages that result from a home improvement error or omission if the insured has a legal responsibility for the harm to persons or property. As with other liability insuring agreements, the insurance company has the right and duty to defend, unless the occurrence isn't eligible for coverage. All duty to defend ends when the limit is exhausted by payments.

Example: A customer asks Harvey to redo all of his windows. He requests that the replacements be at or above the government energy efficiency requirements for the maximum tax credit. Harvey ordered and installed windows he believed qualified for the credit. When the customer’s taxes are audited the IRS determined that the windows Harvey used did not qualify for the credit. Harvey is sued for all expenses surrounding the lost tax credit.

A limit of $10,000 annual per premises is applicable.

There is a $250 per occurrence deductible applicable before the insurance company begins to pay anything.

Any error or omission must happen in the coverage territory during the policy period.

2. Exclusions

There are nine exclusions under this coverage part:

Intentional actions
Dishonest actions by the named insured or at the named insured’s directions
Fines and similar damages that ANY insured must pay
Clients refusal to pay
Cost to replace bad workmanship
Warranties or guarantees that are expressed
Professional service but only if the named insured is covered under a professional policy.
Bodily injury, property damage, or personal and advertising injury
Contractually assumed liability unless the liability would have existed even without the contract

3. Supplementary Payments

The Supplementary payments section that is applicable to bodily injury, property damage and personal and advertising injury also applies to this coverage.

Delivery Errors and Omissions Coverage

This separate Coverage Part has its own Insuring Agreement, Exclusions, and Supplementary Payments.

1. Insuring Agreements

This coverage is for loss related to a failure to deliver items the named insured holds for sale. The failure can be by the named insured, employees of the named insured or by a concessionaire operating on behalf of the named insured. The coverage responds to claims for which the named insured is held legally obligated to pay because of damages that arise from failed deliveries. The incidents must occur during the policy period and within the coverage territory. As with other liability insuring agreements, the insurance company has the right and duty to defend and investigate but is under no obligation if the damage or claim is ineligible for coverage. Any duty to defend ends when the limit is exhausted by payments.

Example: A customer orders all new kitchen appliances and requests that they are to be delivered by a certain date. Harvey commits but forgets to make the delivery. The customer calls, and the delivery is finally made, but it is one day late. The customer’s installer charges the customer for the wasted day, and the customer files a claim against Harvey for that expense.

A limit of $10,000 per year per premises limit and a $250 per occurrence deductible apply.

2. Exclusions

There are only three exclusions under this coverage part:

Any delivery problem or error that is intentional
Bodily injury, property damage, personal or advertising injury
Any type of a long list of discriminatory actions, ranging from race-based to redlining activities.

3. Duties in the Event of a Home Improvement Design or Delivery Error or Omission

This condition replaces the Duties in the Event of Occurrence, Offense, Claim, or Suit condition. Under this condition, the named insured must notify the insurance company as soon as practicable that a potential claim has occurred and provide the details to identify it, such as name and address, how, when and where the situation occurred.

If a claim or suit is actually presented, the named insured must record all of the information and notify the insurance company (in writing) as soon as practicable. The named insured and other insureds who may be involved must send the insurance company all legal papers, authorize the insurance company to obtain information, cooperate with the insurance company, and assist in enforcing rights.

No one, including the named insured, can agree to make any payment unless they make it voluntarily. They cannot act on behalf of the insurance company.

Merchandise Withdrawal Expenses Coverage

This is a separate Coverage Part with its own Insuring Agreement, Exclusions, and Supplementary Payments. This is similar to Product Recall coverage for a manufacturer. It provides some protection against a storeowner’s expenses when products must be withdrawn.

1. Insuring Agreement

The named insured will be reimbursed up to $25,000 per occurrence for the expense incurred because of a merchandise withdrawal. The withdrawal must happen in the coverage territory and during the policy period. It must happen either because the named insured decides it must withdraw the merchandise or because another party has requested the action.

The starting date of the withdrawal is at the earliest of:

The named insured first announces to employees, the public or vendors that a withdrawal is going to occur
The named insured receives the governmental notice requesting or ordering the withdrawal
The named insured either communicates with a third party who has initiated the withdrawal that they will participate or makes an announcement to the public, employees or vendors that they will participate in the third party’s withdrawal.

All expense associated with withdrawing merchandise with the same defect is considered the same occurrence.

Each time a new defect is found, it is treated as a new occurrence.

There is a $250 per occurrence deductible applicable before the insurance company begins to pay anything.

2. Exclusions

There are five exclusions applicable to this coverage part:

The withdrawal was because of any of the following:

o The product failed to perform

o There was an infringement on any type of intellectual property

o Spoilage, decomposition, deterioration of product unless due to an error before it came, the named insured or was tampered with

o The date of use expires.

Knowledge of the defect was known by the named insured prior to the start of the policy period
The particular product is excluded for bodily injury or property damage under the CGL coverage part.
Banned items
Any defense costs

3. Supplementary Payments

The supplementary payments section that is applicable to bodily injury, property damage and personal advertising injury does not apply to this coverage part.

4. Duties in the Event of a Defect of Merchandise Withdrawal

This condition replaces the Duties in the Event of Occurrence, Offense, Claim, or Suit condition. Under this condition:

The named insured must notify the insurance company as soon as practicable that, because of defects in its products, a withdrawal may occur. The notice should include the details to identify it, such as how, when and where the defect was discovered, names and addresses of witnesses and injured parties, and details about any injury.
Once the withdrawal is started, the named insured must record all relevant information (i.e., product involved, area affected, units recalled, dates, lot numbers, etc.) and provide written notification to the insurance company as soon practicable.
The named insured and other insureds who may be involved must send the insurance company all legal papers and authorize the insurance company to obtain other information that is pertinent. The named insured and any other involved insured must cooperate with the insurance company as it investigates.

Note: There is no requirement that the insurance company must cooperate with the named insured, though.

B. Who is An Insured

Amid the section on new coverages is a provision that changes the Who is An Insured Section of the CGL. This section is NOT just for the new coverages – it applies to the entire policy, and it adds three additional insureds:

A person or organization that exercises financial control over the named insured. One person may look like the owner and act as the owner of an enterprise, but a silent partner (or maybe not so silent) may be in the background. When a claim is brought against that behind the scenes person or organization, there is coverage but only for liability arising from the relationship.

When the named insured is a tenant, the person or organization that owns, maintains, or controls the premises is an insured but only for the liability that comes from that premises and only for as long as the named insured leases or occupies the premises.

Any other person who is a manager or lessor of a premises that is leased to the named insured and described in the Declarations. They are only an insured for liability connected to their ownership, maintenance or use of the described part of the premises leased to the named insured. They are not insureds once the named insured is no longer a tenant.

In addition, none of the above additional insureds are covered for alterations, new construction, or demolition operations handled by them or on their behalf.

Example: Worker's Hardware Mart is sued by a celebrity customer who was severely injured as he tripped while entering the store. The customer's lawsuit names the owner of Worker's Mart as well as "Workspaces," a partnership that owns the building that houses Worker's Mart under a long-term lease. "Workspaces" would be protected under the policy for this suit.

· Any person or organization who is a concessionaire that uses the named insured’s name provided they have permission to do so. Liability is limited to only that incurred because of operating under the named insured’s name.

C. Limits of Insurance

The most payable in a single policy year for Home Improvement Design Errors and Omissions coverage is $10,000 per premises. The maximum annual payment for Delivery Errors and Omissions is $10,000 per premises. The per occurrence maximum payment for Merchandise Withdrawal Expense is $25,000, and there is no annual aggregate.

IV. Definitions

Twelve definitions are added:

Computer refers to programmable electronic devices used to work with data. While the definition does apply to peripheral equipment and to related air conditioning and fire suppression systems, it doesn’t apply to data or media.

Counterfeit is a copy of an original that is meant to deceive.

Defect is used in the Merchandise Withdrawal coverage and includes not only defects but deficiencies, inadequacy, and dangerous conditions

(07 13 change) Employee is expanded beyond the full-time employee of a business. There are seven different categories that qualify as employees:

a. An actual person (not a corporation) who is paid by the named insured and is under the control of the named insured with respect to performing his or her duties. The person remains an employee for 30 days after termination, but only if termination is not related to dishonest actions.

b. A person who is a substitute for an employee or is hired for short temporary work is considered an employee while under the control of the named insured except when caring for property off-premises.

c. A person leased to the named insured that is not a person described in a. or b. above. There must be a contract and a labor-leasing firm involved.

d. A consultant for the named insured but only if that consultant was formerly an employee, director, partner, member, trustee, or manager.

e. A guest student or intern but only while acting as a student or providing services for the named insured. There is no coverage for loss of property off-premises.

f. Any employee of an entity that merged with the named insured or was acquired by it prior to the policy effective date.

g. Managers, directors or trustees when acting as employees or while on a task-oriented board.

An employee does not include independent contractors or similar type individuals unless specifically described in the list above.

Forgery refers to one party signing another party's name with the intent to deceive. It does not include an unauthorized signing by a person of his or her own name.

Manager is any director in a limited liability company.

Member is one of the owners of a limited liability company. (07 13 addition)

Merchandise Withdrawal includes the withdrawal, and the recall of any item that the named insured sells because there is a known defect in the product. The recall must be due to suspected tampering or due to an expectation of bodily injury or property damage. The recall may go beyond the items being held for sale by the named insured.

Merchandise Withdrawal Expense is the costs: to notify customers of a recall; stationary to produce the notice; overtime and transportation costs of employees; computer time; hiring of independent contractors and temporary help; transportation, packing, and shipping; proper disposal of withdrawn items. However, it does not include any costs to replace the items or regain goodwill, market share, or profit.

Money is all currency, coins and bank notes with a face value and in current circulation, plus money orders, travelers’ checks and similar items held for sale to the public.

Securities are evidence of debt such as stock certificates, bonds, contracts, tokens, stamps, credit card evidence that can be used to collect from the credit card company and other items that represent money but are not money.

Temporary Storage Location is a location where property that is meant to be installed is stored. This applies only if the job site where the property is to be installed is not owned or controlled by the named insured and where work will begin within 30 days or is already in progress.

ENDORSEMENTS

The forms and endorsements developed for the Market Segments series of programs carry the designation “MS.”

There are several specific endorsements available to modify the Hardware program. Further, remember that all the endorsements available under the Property and General Liability Coverage Parts are available under this division.

Commercial Property Program Available Endorsements and Their Uses

Commercial General Liability Available Endorsements and Their Uses

MS HI 03– Hardware and Home Improvement Stores-Hired Auto and Non-Owned Auto Liability Insurance

This endorsement amends the General Liability Coverage Part to provide coverage on a basis similar to commercial auto coverage. Hired auto coverage applies to bodily injury and property damage that arises from the maintenance or use of a hired auto by the named insured or any employee of the named insured. Non-Owned Auto Liability applies to bodily injury or property damage that arises from any person using a non-owned auto in the course of the named insured’s business.

Note: Non-owned coverage is designed to protect the named insured, not the owner or driver of the vehicle.

MS HI 04–Hardware and Home Improvement Stores-Loss or Damage to Customers' Autos (Direct Primary Coverage)

This endorsement provides primary coverage for damage to customers' autos under the Building and Personal Property Coverage. The coverage is granted without regard to fault or the availability of the customer's own auto insurance to pay for a loss.

The coverage is for damage or loss to customers’ autos and auto equipment while on the covered premises. All causes of loss are covered except:

· Loss or damage from theft or conversion caused by the named insured, partners, executive officers or employees

· Loss or damage that is paid under the Personal Property of Others in the Building and Personal Property Coverage Form

The limit and deductibles are shown on the Supplemental Schedule.

Auto is defined as a land motor vehicle, trailer, or semitrailer.

MS HI 05–Hardware and Home Improvement Stores-Extortion Coverage

This endorsement provides coverage up to $25,000 per policy for loss related to a named insured's property or premises being threatened with damage. A limit of $50,000 applies if there is a threat to harm the named insured, directors, officers, trustees, partners, employees, or invitees of the named insured who are being held captive within the coverage territory.

The insurance provides coverage for the surrender of money, securities, or other property outside of the premises but within the coverage territory. It is a condition that the person who agrees to make the surrender must have made a reasonable effort to report the extortion demand to someone in the company or law enforcement officials.

The endorsement is subject to the terms of the Building and Personal Property Coverage Form but not the Special Cause of Loss Form.

There is no method of increasing the coverage limits. If more extensive coverage is needed, consider crime coverage.

CR 04 03–Extortion-Commercial Entities

CR 00 40 and CR 00 41–Kidnap/Ransom and Extortion Form and Policy

UNDERWRITING CONSIDERATIONS

Any program offered by an individual insurer will have its own set of eligibility guidelines. If the program is a generic or standard program, like ISO’s Market Segments Program, it normally has a set of qualifying criteria. Because there may be differences between the two sources of eligibility criteria, it is important for the insurance professional to be thoroughly familiar with the applicable new business and renewal qualifications. The following review of the underlying and eligibly requirements for the Hardware and Home Improvements Program is for the ISO generic program.

Specific Hardware and Home Improvement Store Operations

Only two classifications qualify for coverage under this Market Segment:

· Hardware Stores – 13716

· Home Improvement Stores - 14279

Hardware Stores and Home Improvement Stores are retail operations that deal with experienced contractors and inexperienced homeowners. Because of this wide range of customers, the stores attempt to hire knowledgeable employees who can give advice on a vast array of repairs and alterations.

The stores stock dangerous and bulky items that may injure their customers, such as sharpened tools or high stacks of building materials. Therefore, aisles must be wide, and objects securely stored. The more dangerous tools should be stored high enough to discourage younger hands from easily reaching them. Chemicals should be stored securely and away from flammable items kept in the store.

Lumber operations should be carefully reviewed, especially any sawing or finishing. If there is regular sawing, the machinery should be equipped with dust collecting systems, and the area should be kept clear of sawdust.

Some hardware stores, particularly in more rural areas, are also gun shops. It is important to be aware of gun-related activities, particularly black powder storage or customized ammunition packing. If guns are sold, security must be very tight.

Because exposures can vary, it is important that a survey is conducted to determine the extent of the insured's operations, the injuries that could occur because of those operations, and the measures the named insured has taken to mitigate problems.

COVERAGE ISSUES

Commercial Property Coverages

Many of the issues related to the underwriting of commercial property insurance, such as construction, occupancy, physical characteristics, types of rates and so forth, are discussed in detail under the commercial property section.

Commercial General Liability Coverages

Many of the issues related to the underwriting of commercial general liability insurance, such as claims-made versus occurrence coverage, limits, deductibles, endorsements, and so forth, are discussed in detail under the commercial general liability section.

Property Enhancements

The property enhancements with the most significant underwriting concerns are as follows:

Accounts receivables are covered, up to $10,000 (more if changed in the Supplemental Schedule). The insured should have adequate back-up records stored off-premises in a safe location. The same is true of valuable papers and records, which are covered for $25,000 for on-premises and $10,000 for off-premises losses.
Brands and Labels coverage of up to $25,000 can reduce the salvage potential of any loss and therefore drive up the cost of a loss. It is important to be aware of any contractual agreements regarding branding and labeling.
Lock Replacement coverage should not be used to encourage poor key handling. There are often many locked parts of hardware and home improvements stores just because of the volume of items on premises and multiple buildings or department. It is important that keys be managed not only for this coverage but also to protect secured business personal property from “disappearing.”
Installation Floater coverage is provided up to $10,000. This provides coverage at several locations that are out of the direct control of the insured. There should be controls in effect that keep track of where all property is and the status of the job installation since coverage can continue up to 90 days after a job is complete.

Crime and Dishonesty Enhancements

The Hardware and Home Improvement Stores Program endorsements add coverage for money and securities, money orders and counterfeit money, forgery and alteration and employee dishonesty. The limits of $10,000 for the money and securities and $25,000 for Employee Dishonesty may, as an option, be increased.

The insured should be evaluated for crime protection devices, including the types of devices and their maintenance. The evaluation should include alarms, locks, lighting, fencing, guards, or other security measures.

Procedures for the handling of money by delivery drivers should be carefully reviewed. Carrying excessive cash by drivers can lead to employee injury in addition to thefts. A procedure for advance payment or payment by account should be considered for regular customers.

Sound hiring procedures, background checks, and internal controls are necessary to minimize employee dishonesty losses.

Procedures should be implemented and regularly monitored to guard against crime and dishonesty losses.

Liability Enhancements

Three enhancements are added.

Home Improvement Design Errors and Omissions provides a limited amount of coverage for mistakes that are made in the design department of a home improvement store. It is important to be aware of the training provided to employees who advise customers about cabinets, countertops, kitchen redesigns, and similar high-cost home improvements.
Delivery Errors or Omissions Coverage is provided because misdelivery can result in downtime problems for a customer and potential loss of revenue due to delays. It is important that a regular procedure is established to carefully match up client orders, being particularly careful about meeting deadlines.
Merchandise Withdrawal Expense Coverage encourages named insureds to take quick action when a problem has been identified. The faster a product is removed from the sales floor and affected customers are notified, the fewer claims will occur. An underwriter should be aware of the types of product the named insured carries and whether there have been product withdrawals required in the past.

RATING CONSIDERATIONS

The rating for this product is the same as any other package product. All coverages must be rated in accordance with the Commercial Lines Manual for the specific coverage part.

The basic MS HI 01 is rated based on the number of employees and whether Flood and/or Earthquake is provided in the underlying policies. In addition, there are charges made for any increases in limits plus a charge for the addition of the Hardware and Home Improvement Stores – Equipment Breakdown Protection Coverage.