MARKET SEGMENTS DIVISION—SUPERMARKETS

(February 2023)

Collapsible Index

Eligibility

MS SM DS–Supermarkets Supplemental Schedule

MS SM 01–Supermarkets 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 Supermarkets 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.

This article will discuss items specific to the Supermarkets Program, including the eligibility, supplemental schedule, MS SM 01–Supermarkets, and the special endorsement developed just for this program. In addition, there are sections 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.

Related Article: ISO Market Segment Overview – see its discussion on policy construction.

ELIGIBILITY

The only eligible classification for this coverage is Supermarkets -18501 General Liability. The eligible class is not required to be the primary classification. If this class is used along with other classes, the operation remains eligible. There is no classification listed as ineligible. However, each company may establish its own criteria and may be more restrictive.

MS SM DS–SUPERMARKETS SUPPLEMENTAL SCHEDULE

What follows is a discussion of the specific information that needs to be shown on a Supplemental Schedule for the Supermarkets 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 SM 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. Space is also available for entering a coverage to be defined and a limit of insurance for it. The coverages are:

°          Extra Expenses

°          Business Income

°          Additional Advertising Expenses

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, the box must be checked and MS SM 03–Supermarkets-Hired Auto and Non-owned Auto Liability Insurance attached. The limits can be entered on this Supplemental Schedule or on the schedule that is included in the MS SM 03 form. Separate insurance limits apply for these two coverages.

Loss or Damage to Customers’ Autos Section

Coverage is provided at any premises where limits are shown, provided endorsement MS SM 04–Supermarkets-Loss of Damage to Customers’ Auto is attached to explain the coverage being provided. The limit and deductibles are entered by premises. The items that must be entered are:

Extortion

Extortion coverage is provided only if the box is selected and MS SM 05–Supermarkets-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 SM 01–SUPERMARKETS ANALYSIS

The opening paragraph of the Supermarkets endorsement clarifies which of the coverage forms and the property causes of loss forms are being modified by this endorsement. They are:

The Supermarkets 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 Supermarkets Program endorsement cannot apply.

This means that if a CPP is issued with commercial property coverage, commercial crime, commercial inland marine, and equipment breakdown coverage but no CGL, the Supermarkets endorsement cannot be added.

When the Supermarkets endorsement is attached, all of the underlying terms, conditions, and provisions of the above three forms apply, with the exception of those that are modified by the Supermarkets endorsement. Each of the modifications will be reviewed in the following analysis.

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

A. Additional Coverages Change – Fire Department Service Charge

The Limit for Fire Department Service Charge is increased to $5,000 and can be increased on the Supplemental Schedule.

B. 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. An automatic amount of $25,000 applies that 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 the device has a continuous reading instrument that records all amounts that are deposited or stored in the device that is covered.

Occurrence is defined under this segment as any loss that involves a single act or a series of related acts by one or more individuals. The named insured is required to keep records of all money and securities to verify any loss.

 

Example: Patsy is the bookkeeper for Marty’s Super Supermarket. She is at the bank leaving the vault after removing securities from the lockbox when a robbery occurs. She drops to the ground as commanded and surrenders the securities worth $20,000. This loss is covered.

 

2. Fire Extinguisher Systems Expense (07 13 change)

Up to $15,000 is available in 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 $15,000 limit. The coverage is not subject to a deductible.

There is no coverage if the system is discharged during testing or installation.

 

Example: Randall, a deli worker at Marty’s Super Supermarket, inadvertently trips the manual control for the automatic extinguishing system over the fryers. There is $15,000 coverage available to pay for recharging the system, clean up the floors and walls, and to replace the food that is ruined by the discharge.

 

3. Reward Payment

As an additional coverage, rewards are available to assist in solving crimes that result in covered property 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 loss to the property portion of the policy. The coverage limit is also subject to the actual cash value of the damaged property at the time of the loss or the amount it takes to repair or replace the property, or however the value of the property has been determined by policy 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 applies to the return of stolen property and is also for a maximum of $5,000. The reward amounts shown are the most that are available for any one occurrence. Should more than one source provide information or return stolen property, payment is made to the one that acts first.

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

 

Example: Marty is very upset about the bank robbery described earlier. He wants the perpetrator caught because Patsy is still shaking from her experience and has not been able to return to work. He offers a reward of $5,000 for information leading to the conviction of the robber. Jimmy, a resident who lives near the bank, supplies information to the police. With that information, they are able to apprehend a suspect who is later convicted and sent to prison. Jimmy receives the award, which is paid by the policy.

 

4. Money Orders and Counterfeit Money

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 money, coverage is provided for the loss to the named insured. The maximum payout is $5,000, 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 money is also restricted to only money accepted during the course of business.

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 instruments 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 $10,000. This limit can be increased.

7. Employee Dishonesty

Coverage of up to $25,000 is provided for employee dishonesty that results in the loss of money, securities, or business personal property. The limit of $25,000 can be increased by entering (and paying for) a higher limit.

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, partner, member, or “manager” of the named insured, there is no coverage.

There is no coverage for any type of indirect loss attributable to the employee dishonesty, such as a business income loss, any costs to establish the existence or the amount of a loss or any legal liabilities. Legal expenses incurred are also not covered.

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.

 

Example: Patsy tells Marty that someone may have been stealing from the store. She shows him that the physical inventory conducted in February is $15,000 less than should exist based on the January Inventory and register receipts. Marty reports the loss to his insurance company. Coverage is denied because there is no evidence that attributes the loss to an employee.

 

If the named insured, partner, officer, director, trustee, manager or member is aware of an employee’s prior dishonest acts, any loss caused by that employee is not covered unless the employee is acting in collusion with the individual who is aware of the past indiscretions.

If a loss that occurred during a prior policy period is discovered during the current policy period, this policy will pay for the loss provided there was no gap in coverage, and the loss would have been covered under this policy if it had been in effect at that time. The maximum payment is the lesser of the current limit of insurance or the prior insurance limit of insurance.

The $25,000 limit (or higher if purchased) is the total amount available to respond to a single occurrence. The dishonest act or event must happen during the policy period to be covered. However, the loss can be discovered up to one year after the expiration of the policy period.

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.

Any act or event 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 was not discovered until after the one-year limitation expired, there may be coverage. However, the old loss would have to meet two criteria. First, this 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 policy provision. In addition, any payment made is subject to the current policy term's insurance limit (unless the prior term's limit was lower).

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.

Related Court Case: Employee Dishonesty Exclusion Superseded Liability For Negligent Supervision

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 not only agrees that the branding and labeling can be removed but will also pay the reasonable costs the named insured incurs to remove/replace labels or mark the items as salvage even though doing so reduces the salvage value of the items.

There is no separate limit for this coverage. This means the anticipated costs associated with this coverage should be included in the business personal property limit of insurance.

 

Example: Marty has a contract with one of his suppliers to keep its product price above a certain amount. When a loss damages that product and other goods, the insurance company offers a settlement that includes receiving the damaged goods as salvage. Marty explains the supplier contract and asks to remove all labels before handing over the product as salvage. The insurer accepts the unlabeled salvage and then also pays Marty for the cost to remove the labels.

 

9. Ordinance or Law – Equipment Coverage

This coverage was inspired by the dynamism surrounding environmental laws. Federal, state and community standards may require changes in equipment when it is replaced for any reason. If so, this coverage pays for the upgrade but only if the equipment’s valuation is on replacement cost and the item is being replaced due to a covered cause of loss.

 If refrigeration equipment is damaged this coverage pays three additional costs:

Coverage applies per piece of equipment.

This coverage does not pay for costs related to pollutant enforcement. In addition, if the named insured had an order to comply with an ordinance or law prior to the loss and failed to comply, there will be no payment for that previously neglected upgrade under this Additional Coverage.

When the equipment is actually repaired or replaced, the payment is the lesser of:

·         Actual amount spent to repair or replace (repair cost cannot exceed the cost to actually replace) – this includes the cost to upgrade to the ordinance or law.

·         Limit on the Declarations for covered buildings or business personal property.

Note: Coinsurance does not apply to this Additional Coverage.

 

Example: Marty’s refrigeration units do not conform to current EPA guidelines. If they are damaged, he must replace them with such units. This means that each unit will cost $5,000 more than its true replacement cost. This coverage pays for that $5,000 per unit upgrade, but only if Marty’s limits are sufficient to pay the additional cost.

 

10. 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 a $100 per occurrence deductible.

Note: The keys can be to any locks as long as they are located on premises. The keys can be lost or stolen on or off premises.

11. Spoilage Coverage

Coverage applies if perishable stock is damaged by any of the following:

·         Change in temperature or humidity due to the failure of on-premises refrigeration, cooling or humidity controlling devices or to on-premises mechanical breakdown.

·         Refrigerant contamination

·         Power outage, but only when it is out of the named insured’s control. This is any type of interruption of electrical power, on or off the premises, that causes a temperature or humidity change.

The limit of $50,000 can be increased on the Supplemental Schedule.

The valuation is based on the selling price of the stock minus any discounts or expenses the named insured would have incurred in selling the product but did not incur because the items were damaged.

It is important to review the definition of perishable stock later in this analysis since it is a defined term.

This coverage has its own set of exclusions, deductibles, and warranty. They are as follows:

There is a statement that the deductible on the Declarations applies, but there is no spoilage deductible on the supplemental schedule. This paragraph specifically states that no other deductible on the policy applies to this coverage. If left as is, it would appear that no deductible does apply to this coverage even though it is clear that the writers intend for a specific spoilage deductible to apply.

The warranty states that the named insured must maintain a refrigeration maintenance or service agreement. If the named insured ends the agreement and fails to notify the insurance company, coverage is suspended at the location impacted. Coverage is restored when the service agreement is reinstated or replaced.

Note: There is no suspension if the supplier of the agreement ends the arrangement. This is ambiguous and leaves situations in question, such as how does a named insured voluntarily terminate a service agreement. Must they phone or mail a request for termination? What happens if they just don’t pay the bill and then wait for the service company to cancel the contract?

12. Artificially Generated Electrical Current

This coverage is applicable only to computers. When an artificially generated electrical current damages or destroys an insured's computers, the company will pay, but only if one of the following applies:

Any loss payment is subject to the deductibles in the policy and the limit on the Declarations that applies to this (computer) equipment.

16. Food Contamination (07 13 changes)

This coverage is activated when a Board of Health or similar governmental authority orders a named insured to stop serving food. The order must be due to authorities discovering contaminated food or suspecting food contamination. Under this provision, the insurance company will pay extra expenses for up to $10,000, business income loss up to $10,000 and additional advertising expense up to $5,000. These limits can be increased on the Supplemental Schedule.

The extra expenses include the cost to clean all equipment and to replace the contaminated food. It also pays to provide tests and vaccination for full and part-time employees and any leased or temporary employees if there is a possibility they may be infected by the contamination event. The medical tests and vaccinations are not covered under this form if covered under workers compensation coverage.

The business income loss includes the amount of income lost while the business is closed. There is a 24-hour waiting period for business income coverage. Advertising expense is the cost of advertising to restore the named insured’s reputation.

Food contamination is defined as food poisoning to guests, patrons or invitees due to distributed or purchased food that was tainted, food that was improperly handled in the named insured’s business operations or food contaminated by an employee-transmitted virus or bacteria.

One important limitation – the insurance company will NOT pay any fines or penalties imposed by any governmental authority.

Any exclusion in the policy related to viruses or bacteria does not apply to this additional coverage.

 

Example: The Board of Health notifies Marty that his bakery must be closed immediately because two customers were rushed to the hospital after eating his caramel pies. The local news channel picks up the story, and Marty’s business drops significantly. Careful investigation reveals that the pie was actually contaminated by one of the individuals demanding damages. This coverage reimburses Marty’s lost income caused by the accusation and for the extra expense to investigate the claim. It also helps with the cost of advertising that the story involved fraud.

C. Coverage Extensions Changes

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 computer.

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 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.

Related Articles:

AAIS Valuable Papers and Records Coverage Form

ISO Valuable Papers and Records Coverage Form

4. Property Off-Premises

The Supermarket Program enhances the property off-premises extension by adding computers while in transit. The limit of $10,000 can be increased on the Supplemental Schedule. The limit can be increased in the Supplemental Schedule.

5. Outdoor Property (07 13 changes)

The Supermarket Program provides coverage for outdoor property for the following Causes of Loss:

The enhanced Supermarket Program applies limits based on the type of outdoor property.

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 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. Accounts Receivable

The limit of insurance for the business personal property may be extended to include direct loss or damage caused by a covered cause of loss to accounts receivable. The coverage applies to the following:

The amount available is $5,000 for on-premises loss or damage and up to $1,500 for off-premises loss.

D. Valuation Condition Change

The valuation of any appliance used for refrigerating, ventilating, cooking, dishwashing, or laundering is based on Replacement Cost, even if the rest of the property is based on Actual Cash Value.

Note: While this is an attractive addition, if the policy is subject to coinsurance and these items weren’t properly valued when developing the limit of insurance, there could be a coinsurance penalty.

 

Example: Oliver purchases coverage for all property on an actual cash value basis and carries a limit of $150,000. A lightning loss occurs and causes damage of $10,000 ACV, which is $15,000 RCV. Because of this valuation condition change, Oliver submits the $15,000 damage estimate. The claims adjuster then computes the amount of insurance needed to be carried to satisfy the coinsurance as $225,000. The coinsurance penalty is computed as $150,000/$225,000 x $15,000 = $10,000. The penalty from the coinsurance negates the replacement valuation benefit.

 

One additional benefit of the change is that Ordinance or Law – Equipment Coverage applies to the listed equipment because it applies only to equipment subject to replacement cost valuation.

 

Example: Oliver is very pleased to discover that in addition to the $10,000 he will also receive compensation for the mandatory upgrades in the refrigeration equipment.

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

A. Ordinance or Law

In order to not confuse coverages, the Ordinance or Law exclusion in the Special Cause of Loss form applies to the entire policy except for the Ordinance or Law – Equipment Coverage Additional Coverage that was added earlier in this endorsement.

 B. Spoilage

The Utility Services Exclusion does not apply to the Spoilage Additional Coverages.

C. Mechanical Breakdown

The mechanical breakdown exclusion does not apply to computers.

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

The only change in the dampness, dryness, and 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 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.

 E. 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 that MS SM 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.)

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 loss or damage caused by lightning.

c. Computer-related Losses

There is no coverage for any loss or damage due to the failure, malfunction, or inadequacy of any of the following:

d. Computer Advice or Consultation

Any of the following that is 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.

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.

F. Employee Dishonesty

Most of the exclusions in the Cause of Loss–Special Form do not apply to the Employee Dishonesty Coverage provided in this endorsement. The only applicable exclusions are Governmental Action, Nuclear Hazard, War and Military Action, in addition to specific exclusions discussed in the Employee Dishonesty Additional Coverage in this endorsement.

Related Article: Basic, Broad and Special Causes Of Loss Forms Analysis

G. Outdoor Signs

Most of the exclusions in the Cause of Loss–Special Form do not apply to the Outdoor Sign Coverage provided in this endorsement. The only applicable exclusions are Governmental Action, Nuclear Hazard, War, Military Action, Wear and Tear, Rust and Mechanical Breakdown.

Related Article: Basic, Broad and Special Causes Of Loss Forms Analysis

H. Valuable Papers and Records and Accounts Receivable

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

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 collapse, 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. 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.

I. Accounts Receivables

As noted in H. above, most of the exclusions in the Cause of Loss Form do not apply to Accounts Receivable, but the following ones that are unique to Accounts Receivable are added:

III. Changes to the Commercial General Liability Coverage Part

A. Two New Coverages Are Added For Supermarkets

DELIVERY ERRORS AND OMISSIONS COVERAGE

This is a separate Coverage with its own Insuring Agreement and Exclusions.

1. Insuring Agreement

The coverage is against loss caused by an insured’s failure to deliver items the named insured holds for sale. The failure can be by the named insured, employees of the named insured or a concessionaire operating on behalf of the named insured. The coverage responds to claims that the named insured becomes legally obligated to pay due to damages caused by a failed delivery. The incident 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 damages or claims are ineligible for coverage. Any duty to defend ends when the limit is exhausted by payments.

A limit of $10,000 annual per premises limit, as well as a $250 per occurrence deductible, is applicable.

Note: While defense is provided there is no mention as to whether the defense coverage is provided within limits or outside limits. There is also no statement that Supplementary Payments are a part of this coverage.

2. Exclusions

There are only three exclusions under this coverage:

 

Example: Ernie has a pre-paid contract to deliver 20 cases of specialty beer to a tavern’s Super Bowl party. Ernie arranges for the beer order to be delivered. However, the day after the Super Bowl Ernie receives an angry call claiming that the beer was not received. The customer claims that he lost $4,000 in beer sales. Ernie discovers that the delivery truck broke down, and the truck, still filled with the order, is sitting in a garage awaiting repairs. This coverage would pay for the $4,000 documented loss.

 

3. Conditions

Duties in the Event of a Delivery Error or Omission replaces the Duties in the Event of Occurrence, Offense, Claim, or Suit condition with the following:

The named insured must make an effort to quickly notify the insurer that a potential claim has occurred. The notification should include the name and address of the customers, what happened when it took place, 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 as soon as it is practical, including providing the insurer with all relevant written notices and materials.

All insureds who may be involved in an occurrence must send the insurance company all legal papers, authorize the insurance company to obtain information, cooperate with the insurance company, and assist in enforcing (the insurer's) rights, particularly the right to subrogate.

No insured has the right or authority 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 with its own Insuring Agreement, Exclusions, and Supplementary Payments.

This is similar to Product Recall coverage for a manufacturer, and this provides some protection against a supermarket’s expenses related to withdrawing merchandise.

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 a governmental authority has requested the action.

The starting date of the withdrawal is at the earlier of when:

·         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

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

Each time a new defect is found, a new occurrence is started.                                   

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

2. Exclusions

There are six exclusions applicable to this coverage part. No coverage applies:

o    The product failed to perform unless the withdrawal is because the product might cause bodily injury

o    Copyright or similar type infringements

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

o     Date of use expired

Note: There is no reference in this coverage to supplementary payments.

 

Example: Jenna’s daughter is admitted to a hospital after ingesting a foreign object in a frozen dinner she had purchased at Marty’s. She notifies the store, and Marty immediately removes all of the items from his cooler and announces a recall to his customers. Coverage is provided up to $25,000 for Marty’s expenses.

 

3. Conditions

Duties in the Event of a Defect of Merchandise Withdrawal replace the Duties in the Event of Occurrence, Offense, and Claim or Suit condition as follows:

B. Who is An Insured

This section is not just for the new coverages – it applies to the entire policy. This section adds two additional insureds:

·         Any person or organization who has granted the named insured a franchise but only as respects their liability as such.

·         Any person or organization who is a concessionaire and has permission to trade under the named insured’s name but only as respects their liability as such.

C. Products/Completed Operations Refined

The wording from CG 24 07–PRODUCTS/COMPLETED OPERATIONS HAZARD REDEFINED is added to the policy so that a separate endorsement is no longer required.

IV. Definitions

Seventeen definitions are added:

Business income definition applies only to the Food Contamination Additional Coverage. (07 13 addition)

Business income starts with Net Income. Net Income is considered net profit or loss before taxes are paid and is the net income that would have been earned if not for the food contamination loss. The definition also states that the net income can be either a net loss or a net profit. An insured can have a time element loss even if there is a net loss because there is another element of business income. In addition to the net income, business income includes the expenses that continue following a loss, including payroll. An important limitation is included here – if net income would have increased because a food contamination loss creates windfall income, that income is not counted.

Computer is a programmable electronic device 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 money is a money imitation meant to deceive.

Defect, as defined here, applies only to the Merchandise Withdrawal coverage and refers to deficiencies, inadequacies, and dangerous conditions

Employee as used in the Money and Securities and Employee Dishonesty coverages provided in this endorsement 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.

Manager, as defined here, applies only to Employee Dishonesty and is any director in a limited liability company.

Member, as defined here, applies only to Employee Dishonesty and is an owner of a limited liability company.

Merchandise Tampering is the intentional alteration of the named insured’s product that is intended to cause bodily injury. If merchandise tampering is suspected, the merchandise withdrawal is limited to those tampered product batches.

Merchandise Withdrawal includes the withdrawal and the recall of any item the named insured sells. The withdrawal must be due to the discovery of a defect in the product. It also applies to a recall due to suspected tampering, and there is an expectation of bodily injury or property damage. The latter event may involve more than just items being held for sale by the named insured.

 

Example: Cabbageland Grocery’s manager receives an unsigned letter. It warns that many of the store’s grocery carts have had part of their handles partially sawn. At any moment, the tampered handles could break, causing spills and injuries to customers. The manager goes through the expense of having all of their carts carefully inspected. They determine the letter was a hoax, but it cost them nearly $9,000 to inspect the carts.

 

Merchandise Withdrawal Expenses define the type of withdrawal costs that are eligible for reimbursement. Included are costs: to notify and for stationery to produce the notice; for overtime and transportation costs of employees; for 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, regain goodwill, market share, or profit.

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

Occurrence, as defined here, applies only to the Crime portions of this form, and the meaning varies by the type of coverage. Under Money and Securities coverage, it means all loss that involves one or more related acts by one or more persons. Under Money Order and Counterfeit Money coverage, it means either one or more related acts or events by one or more persons or one or more related acts or events not involving any person. Under Forgery or Alteration coverage, it means all losses involving one or more instruments caused by any person or in which that person was involved. Under Employee Dishonesty, it means all loss that result from a single act or series of acts caused by one or more employees.

Perishable Stock is personal property that must be kept in a controlled environment to be preserved, and that could be damaged if the controlled environment is changed.

Profit, as defined here, applies only to Merchandise Withdrawal Expenses Coverage and is considered the business operations income minus all expenses. To be considered profit, the difference must be positive.

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.

ENDORSEMENTS

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

Only five specific endorsements are available to modify the coverage provided under the Supermarket program. However, all of the endorsements available under the Property and General Liability Coverage Parts are available under this division.

Related Articles:

Commercial Property Program Available Endorsements and Their Uses

Commercial General Liability Available Endorsements and Their Uses

MS SM 03– Supermarkets-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 SM 04– Supermarkets-Loss or Damage to Customers' Autos (Direct Primary Coverage)

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

It offers direct physical loss of or damage to customers’ “autos" and "auto" equipment while on the covered premises. In other words, the form provides valet parking coverage.

It pays only for damage that occurs on the covered premises when the insured bears legal responsibility for the damage. The Covered Cause of loss is ANY loss or damage, provided the named insured is found legally liable. However, there is no coverage for incidents involving:

·         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 SM 05–Supermarket--Extortion Coverage

This endorsement provides two types of extortion coverage.

The first provides a maximum of $25,000 for loss related to any threatened damage to the named insured’s property or premises.

The second provides a maximum of $50,000 if there is a threat to harm a captive named insured, director, officer, trustee, partner, employee, or invitees of the named insured. 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 a crime coverage form.

Related Articles:

CR 04 03–Extortion-Commercial Entities and CR 04 04–Extortion-Government Entities

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

MS SM 08–Supermarkets–Exclusion of Loss Due to Virus or Bacteria (07 13 addition)

CP 01 40–Exclusion of Loss Due to Virus or Bacteria is not to be attached to a Supermarket Market Segment policy. Instead, this endorsement is to be attached. It is an absolute exclusion that eliminates almost all loss or damage caused by disease or illness that causes viruses and microorganisms. There is an exception for coverage provided in the Food Contamination Additional Coverage.

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, as in the case of ISO’s Market Segments Program, it normally has a set of qualifying 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 Supermarkets Program is for the ISO generic program.

Specific Supermarkets Operations

This segment is not designed for the small grocery or convenience stores. It must have more than 3,000 square feet in area and have sales in excess of $500,000. Supermarkets operate on extremely tight margins, so finances are a crucial component of underwriting. Management should be experienced and located at the same location for at least three years. There are many potential sources of ignition throughout such stores, and all areas (public and storage) should be evaluated. Refrigeration units are under extreme pressure due to continuous usage. They should be on a regular maintenance agreement to prevent engine burnout that could trigger serious smoke damage. Because of the threat of food contamination, smoke could cause a total loss, resulting in a store's temporary closure. Deli and baking areas should be reviewed for the type of cooking performed and the sort and frequency of equipment use. All equipment should be regularly inspected for evidence of wear and damage.

All power sources should be grounded with little (if any) use of extension cords.

Trash storage, particularly boxes, is a major source of fire spread. Boxes should be broken down and taken to an outside area on a daily basis. Interior storage areas should be kept clean with adequate aisle space and pallet placement.

The major general liability exposure is injury to customers who slip and fall either inside or outside the supermarket. Food spills must be quickly handled with warnings placed around the area. Displays should be inspected for potential tripping hazards before installing. Sidewalks and parking lots must be kept clean of snow and ice and should be regularly inspected for defects that could cause trips.

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.

Related Article: Commercial Property Program Underwriting Considerations

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.

Related Article: Commercial General Liability Policy Underwriting Considerations

Property Enhancements

Several property enhancements are added to the commercial property coverages via the Market Segment endorsement. Any increase in exposure resulting from the broader coverage should be evaluated to determine if they are contemplated by the program's coverages and rating structure. The property enhancements with the most significant underwriting concerns are as follows:

Ordinance or Law equipment coverage is only effective if the values on the policy are sufficient to pay for needed upgrades in case of loss. The moral exposure of replacing not only old for new but new with the latest upgrade should be evaluated.

Spoilage coverage is significant, so an analysis of back-up plans in case of a power outage is important.

Accounts receivables are covered up to $5,000. The insured should have copies of records stored at a safe, off-premises location. The same is true of valuable papers and records that are covered for up to $25,000 on-premises and $10,000 off-premises.

Brands and Labels coverage 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 involving branding and labeling.

Lock Replacement coverage should not be used to encourage poor key handling. It is important that access to keys be controlled. Careful management minimizes exposure to lock replacement and, even more important, protects business personal property from “disappearing.”

Food Contamination Coverage is provided so an analysis should be made on past food poisoning incidents. It is important to know how their Health Department grades have been in the past and if there are any outstanding problems.

Crime and Dishonesty Enhancements

The Supermarkets Program endorsements add coverage for money and securities, money orders and counterfeit paper currency, forgery and alteration, and employee dishonesty. The limits of $10,000 for money and securities and $25,000 for Employee Dishonesty are significant and can be increased.

The insured should be evaluated for crime protection devices, including the type of devices used and how they are maintained. The evaluation should include alarms, locks, lighting, fencing, guards, or other security measures.

Sound hiring procedures, background checks, and internal controls are necessary to minimize employee dishonesty losses. Procedures should be implemented and reviewed regularly to monitor and prevent the potential for crime and dishonesty losses.

Related Article: Crime Underwriting Considerations

Liability Enhancements

Two enhancements are added.

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 orders with customers and take particular care when delivery deadlines are involved.

 

Merchandise Withdrawal Expense This coverage encourages an insured to take quick action when a problem has been identified. The faster the product is removed, and affected customers are notified, the fewer product claims will occur. Proper underwriting should consider the types of product the named insured carries and whether any product recalls have ever occurred.

RATING CONSIDERATIONS

The rating for this product is the same as any other package product. All coverages must be rated according to the rules found in the ISO Commercial Lines Manual. The MS SM 01 has a number of enhancements, and pricing should be in place for any one that is used. It is rated based on the number of employees and whether Earthquake and/or Flood are covered in the policy's other parts.