AAIS NON-FILED INLAND MARINE COVERAGE FORMS ARCHIVE

(February 2024)

This document is a repository of articles and analyses that relate to earlier editions of the AAIS Non-filed Inland Marine Coverage Forms. Refer to the various Coverage Forms Analyses for information on the current edition.

Related Article: AAIS Non-filed Inland Marine Coverage Forms Overview

 

Archive Index

Analysis

AAIS Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form (06 04 edition)

Analysis

AAIS Builders’ Risk Coverage Forms (04 04 edition)

Analysis

AAIS Builders’ Risk Coverage Forms (10 08 edition)

Analysis

IM 7060–Delay In Completion Coverage Part–Green Building Form

 (07 09 edition)

Analysis

IM 7061–Delay In Completion Coverage Part (07 09 edition)

Analysis

IM 7079–Delay In Completion Coverage Part–Includes Rental Income And Income Coverage (07 09 edition)

Analysis

AAIS Fine Arts Coverage Forms (04 04 edition)

Analysis

AAIS Renewable Energy Generating Equipment Coverage (11 10 edition)

Comparisons

Reserved for Future Use

AAIS BAILEE CUSTOMERS FLOATER COVERAGE–DRY CLEANERS AND LAUNDRY COVERAGE FORM

 

Introduction

Eligibility

Policy Construction

IM 7555–Schedule of Coverages–Bailee Customers Floater

IM 7550–Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form Coverage Form Analysis

   Agreement

   Definitions

   Property Covered

   Property Not Covered

   Coverage Extensions

   Supplemental Coverages

   Perils Covered

   Perils Excluded

   What Must Be Done In Case Of Loss

   Valuation

   How Much We Pay

   Loss Payment

   Reporting Conditions

   Other Conditions

Endorsements and Schedules

Underwriting Considerations

INTRODUCTION

The American Association of Insurance Services (AAIS) Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form covers direct physical loss or damage to property of others in the named insured's care, custody, and control. The property must be at the location(s) on the schedule of coverages and must be there for the purpose of being processed. Dry cleaning, laundering, dyeing, alterations, and repairs are examples of processes. Coverage applies to direct damage to covered property caused by a covered peril. Covered property is limited to only garments, clothing, rugs, drapes, and similar items.

Coverage also applies when the named insured stores items for a charge but only when there is a storage limit and a location on the schedule of coverages. Only property for which the named insured issued a storage receipt is covered.

This analysis is of the 06 04 edition.

ELIGIBILITY

Any commercial dry cleaning operation is eligible. This coverage form excludes furs or fur-trimmed garments but IM 7561–Fur Garment Endorsement can be added to provide this coverage.

Individual insurance companies may further limit eligibility. Common limitations include size of operations, commercial laundry operations, self-service laundries, and fur or leather cleaning businesses.

POLICY CONSTRUCTION

AAIS Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form requires at least these four forms:

IM 7555–SCHEDULE OF COVERAGES–BAILEE CUSTOMERS FLOATER

IM 7555–Schedule of Coverages–Bailee Customers Floater contains the following information:

Covered Premises

All covered premises must be listed. Coverage does not apply to any premises not listed.

Limits

The following coverages have spaces for limits at each premises:

Coverage Extensions

The following coverage extensions have spaces for limits at all covered premises:


Supplemental Coverages:

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

Note: It is important to note that Earthquake, Flood, and Sewer Backup Coverages do not have default coverage. Coverage applies only when the box is checked and a limit is entered.

Deductible

One deductible is entered that applies to all covered premises.

Note: Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage boxes are checked, a deductible that applies specifically to that selected coverage must be entered. This deductible applies instead of the deductible that applies to all covered premises.

Reporting Conditions

This section of the schedule of coverages allows the reporting condition to be selected. When selected, the reporting period, adjustment period, reporting rates, and premiums must be entered.

Optional Coverages and Endorsements

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM-7550–BAILEE CUSTOMERS FLOATER COVERAGE–DRY CLEANERS AND LAUNDRY FORM ANALYSIS

AGREEMENT

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

DEFINITIONS

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Twelve terms are defined:

1. You and your

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

2. We, us and our

This is the insurance company that provides the coverage.

3. Earth movement

This is earthquake, landslide, mudflow, mudslide, mine subsidence, sinking, rising, or shifting of earth or any other movement of the surface of the earth. It does not include sinkhole collapse.

4. Flood

This is flood, surface water, waves, tidal water, or overflow of bodies of water. Spray resulting from these, whether driven by wind or not, is also considered flood.

5. Limit

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

6. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal, or radioactive contaminants and irritants including, but not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

7. Schedule of coverages

This is any page labeled as such that contains coverage information, including declarations or supplemental declarations.

8. Sinkhole collapse

This is the sudden settling or collapsing of the earth's surface into an underground opening created by water that acts on limestone or some other rock formation. Sinkhole collapse does not include either the value of the land or the cost to fill sinkholes.

9. Specified perils

These are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm.

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

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

10. Suit

This is a judicial proceeding. It also includes arbitration proceedings. The proceeding’s purpose must be to determine liability that relates to direct physical loss to covered property of others while in the named insured's possession.

11. Terms

These are all provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

12. Volcanic action

This is airborne volcanic blast or shock waves, ash, dust, and particulate matter. It includes lava flow but does not include the cost to remove dust, ash, or particulate matter that does not directly damage covered property.

PROPERTY COVERED

Only property of others is covered. This property must be in the named insured's custody for processing and/or storage. This property is covered for direct physical loss or damage caused by a covered peril.

Not all property of others is covered. There may be limitations or exclusions.

1. Processing

The limit of insurance on the schedule of coverage for processing coverage applies to customer’s property that is at the scheduled location for dry cleaning, laundering, dyeing, altering, repairing, and related work. Covered property includes garments, clothing, rugs, drapes, and similar property.

2. Storage

The limit of insurance on the schedule of coverage for storage coverage applies to customers’ property at the scheduled location. It applies only to such property for which the named insured issued a storage receipt.

 

Example: Martha stores her winter clothes at Action Dry Cleaners. A fire occurs and the resulting smoke damages all stored property. Although Martha cannot find her copy of the receipt, Action produces its copy and Martha is reimbursed for the value of her ruined clothing.

PROPERTY NOT COVERED

Four types of property are specifically excluded:

1. Contraband

These are goods that are illegal to possess or that are legal but in the course of illegal transportation.

 

Example: Millie stores her rhinoceros skin jacket with Ace Cleaning. The jacket was made from an endangered animal and was not permitted in this country. This coverage form did not compensate Millie when a loss occurred at Ace Cleaning.

 

2. Furs

This also includes garments trimmed with fur. This property is more correctly insured under furriers customers coverage forms.

Note: A separate endorsement is available to cover this type of property.

 

Example: Jim and Tammy take some of their winter garments to Davis Dry Cleaners for laundering and dry cleaning. Several of Tammy's garments have fur trim on the collar and cuffs. A small fire that an electrical short circuit causes starts in one of the dry-cleaning machines and damages a number of articles in it, including Tammy's fur-trimmed garments. Since the fur garment endorsement was not added, the damage to those garments is not covered.

 

3. Money and Securities

This means a number of different types of property. It includes accounts, bills, currency, food stamps, evidence of debt and lottery tickets not held for sale, in addition to money, notes or securities.

Note: This property should be insured under commercial crime coverage forms.

4. No Charge for Service

This means that coverage does not apply to any property of others accepted for processing or storage when a charge is not made.

Note: This basically excludes gratuitous work or service.

COVERAGE EXTENSIONS

Provisions That Apply To Coverage Extensions

There are three coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it, unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

The insurance company pays costs incurred to remove debris caused by a covered peril occurring. The most paid is 25% of the amount paid for the actual direct physical loss or damage. The combined value of the direct loss or damage and the debris removal cannot exceed the limit of insurance for the covered property.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property. Debris removal expenses must be reported to the insurance company within 180 days of the loss date in order for this extension to apply.

Note: This coverage extension does not apply to any pollutant cleanup, extraction, removal, restoration, or replacement involving either land or water.


2. Defense Costs

At its option, the insurance company may defend suits brought against the named insured resulting from loss or damage to covered property by a covered peril. This includes investigating and settling such claims or suits. However, it is not obligated to defend once it has paid the limit based on a judgment or written settlement. In return, the named insured may not interfere with the insurance company's actions or negotiations for a settlement or admit liability for a loss, settle a claim, or incur any expense related to the claim without the insurance company's written consent.

Once the insurance company agrees to defend a suit, it also agrees to pay seven specific expenses related to it. No deductible applies to any of these expenses:

Note: Defense costs are part of the limit of insurance. If there is a limit on the schedule of coverages, it is a sub-limit to the premises limit and is not in addition to that limit. This means any entry on the schedule of coverages limits coverage and does not increase it.

3. Emergency Removal

This covers direct physical loss or damage to covered property while it is being moved or stored elsewhere in order to avoid loss or damage caused by a covered peril at a scheduled location. Coverage applies for up to ten days after the property is first moved but does not extend past the policy expiration date. An entry can be made on the schedule of coverages to increase the number of days.

Note: Coverage does not extend past the expiration date. If the insured has property at an emergency location when coverage renews, the emergency location must be listed as a premises or coverage no longer applies.

 

Example: Action Dry Cleaners' owner knows the enormous summer storm forecast for the next day could easily wipe out his less than well-maintained building. If that happens, virtually all of the customer property he has for cleaning or storage will be badly damaged if not completely destroyed. He packs up all the customers' property, places it in a box truck, and drives to a business associate's secure and well-built storage facility. He knows he can simply drive the vehicle into the facility and wait out the storm.

In the excitement of the moment, he leaves the keys in the truck. When the owner returns, the truck is gone. Because the property was moved to protect it from the property from the storm, the theft of the cargo is covered even though property on or in unattended vehicles is normally excluded.

SUPPLEMENTAL COVERAGES

Provisions That Apply To Supplemental Coverages

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

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Earned Charges

When customer property is lost or damaged by a covered peril, the customer normally refuses to pay for any service the named insured performed on the property prior to the loss. This coverage pays the earned charges the named insured is owed that it cannot collect. The limit is $5,000. This limit can be increased.


 

Example: A tornado badly damages Action Dry Cleaning and ruins all the clothing in the shop. Most of the items had already been processed. Since the processing charges cannot be collected, Action is eligible to receive up to $5,000 to cover its loss.

 

2. Earthquake Coverage

The insurance company covers direct physical loss or damage to covered property caused by earthquake and volcanic eruption but only if the box on the schedule of coverages is checked and a limit entered in the space provided.

Note: Since there is no default limit for this coverage, coverage applies only if there is a limit on the schedule of coverages. Because this could be confusing, if earthquake coverage is not provided, the word "none" should be entered in the limits space provided on the schedule of coverages.

3. Flood Coverage

The insurance company covers direct physical loss or damage to covered property caused by flood but only if the box on the schedule of coverages is checked and a limit entered in the space provided.

Note: Since there is no default limit for this coverage, coverage applies only if a limit is indicated on the schedule of coverages. Because this could be confusing, if flood coverage is not provided, the word "none" should be entered in the limits space provided on the schedule of coverages.

4. Newly Acquired Premises

Coverage applies to direct physical loss or damage caused by or resulting from a covered peril to covered property at a location the named insured acquires during the policy period. The limit is $5,000 (unless there is a different limit on the schedule of coverages) at each such location for up to 60 days from the acquisition date or until reported to the insurance company, whichever occurs first. Coverage does not extend past the policy expiration date.

Note: Additional premium for the coverage must be paid from the acquisition date.

5. Off-Site Property

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

 

Example: Action Dry Cleaning’s owner detects a strange odor when he arrives in the morning to open the business. He cannot find the source and notices that the odor is getting stronger. Rather than taking a chance on garments that are already cleaned being saturated with the odor, he removes them to another dry cleaners premises (with whom he has a reciprocal agreement for such events) until he locates the source of the odor and removes it. This supplemental coverage insures the garments for up to $5,000.

 

6. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if their release or discharge was caused in any way by a covered peril that occurred during the policy period.

b. The expenses to extract pollutants are paid only if reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are not covered but the costs of testing necessary to extract pollutants from land or water are covered.

d. The most paid is $25,000 for all such expenses caused by a covered peril that occurs during each separate 12-month policy period, unless there is a different limit on the schedule of coverages.

7. Sewer Backup Coverage

Coverage applies to direct physical loss or damage to covered property caused by water damage from the backup of a sewer or drain. It also applies to loss from sub-surface water pressure on or leakage through or into a covered building or structure. However, coverage does not apply unless the box on the schedule of coverages for this coverage is checked and a limit entered in the space provided.

Note: Since this coverage does not have a default limit, coverage applies only if there is a limit on the schedule of coverages. Because this could be confusing, if sewer backup coverage is not provided, the word "none" should be entered in the limits space provided on the schedule of coverages.

8. Transit

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

PERILS COVERED

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

PERILS EXCLUDED

1. The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

a. Civil Authority

There is no coverage for loss resulting from the order of any civil or government authority. This includes (but is not limited to) seizure, confiscation, destruction, or quarantine of property. Coverage does apply for loss or damage caused when a civil authority destroys property in order to prevent the spread of fire. However, that fire must be the result of a covered peril.

b. Earth Movement or Volcanic Eruption

Coverage does not apply to loss or damage caused by earth movement or eruption, explosion, or effusion of a volcano. Coverage does apply to direct loss or damage by fire, explosion, or volcanic action that results from any of these events. Coverage also applies for loss or damage caused by sinkhole collapse and to covered property in transit.

Note: Earthquake coverage is for only one type of earth movement and volcanic eruption. Coverage applies for these perils if the box is checked on the schedule of coverages for Supplemental Coverages–Earthquake Coverage and a limit entered. However, losses from other types of earth movement are still excluded.

c. Flood

The insurance company does not pay for loss or damage caused by flood. It does cover direct loss or damage caused by fire, explosion, or sprinkler leakage that results from a flood occurrence. However, this exclusion does not apply to covered property in transit.

Note: Flood coverage applies if the box is checked and a limit entered on the schedule of coverages for the Supplemental Coverages–Flood Coverage.

d. Nuclear Hazard

The insurance company does not insure against loss or damage caused by or resulting from any nuclear reaction, radiation, or contamination, whether the nuclear incident was controlled or not, or was caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke. However, coverage applies to direct loss or damage caused by fire that results from the nuclear hazard.

e. Sewer Backup and Water below the Surface

Coverage does not apply to loss or damage caused by water backup from a sewer or drain. It also does not apply when water below the surface of the ground that exerts pressure on covered buildings or structures causes damage. However, fire, explosion, and theft losses that result from such backup or hydrostatic pressure are covered.

Note: Sewer backup coverage applies when a check is placed in the box for sewer backup coverage and a limit is entered on the schedule of coverages for Supplemental Coverages–Sewer Backup Coverage.

f. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. This means undeclared and civil war or warlike action by a military force is not covered. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also not covered. Acts of insurrection, rebellion, revolution, or unlawful seizure of power are not covered and any action any government authority takes to prevent or defend against any such acts are also not covered. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

2. The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or resulting from any of these events.

a. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This includes corrosion, decay, fungus, mildew, mold, rot, rust, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself.


b. Criminal, Fraudulent, Dishonest or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts, committed alone or in collusion with another, by any of the following:

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

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

c. Loss of Use

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

d. Missing Property

Unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to indicate what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. This exclusion does not apply to covered property in the custody of carriers for hire.

e. Pollutants

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

f. Processing Work

The insurance company does not pay for loss to covered property of others caused by processing or other work performed on it. However, if the processing or work performed results in the occurrence of a specified peril, coverage applies to the loss or damage caused by that specified peril.

 

Example: Carl rips a dress he is pressing. Coverage does not apply because the damage occurs during processing and ripping is not a specified peril. Coverage applies if Carl leaves an iron on a dress, walks away to talk on the telephone, and then returns to find the dress and pressing board on fire.

 

g. Temperature/Humidity

Loss or damage to covered property caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded.

h. Theft from an Unattended Vehicle

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

 

Example: Zachary is told to always close and lock the doors of the van when making deliveries. He enters a client’s premises to deliver and pick up cleaning and forgets to lock the vehicle. When he returns to it, he discovers a full rack of processed uniforms is missing. The theft loss is not covered because the van was not locked.

 

i. Voluntary Parting

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

j. Wear and Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded. However, if any of these events results in a covered peril occurring, the loss or damage caused by or resulting from that peril is covered.

Note: Wear and tear is damage, diminishment in value, or erosion due to long or hard use or exposure, including breakdown over time and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.


WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified.

Note: The insurance company has the right to require that the notice be in writing.

2. You Must Protect Property

During and after a loss, all reasonable steps must be taken to protect covered property from further loss. The insurance company pays reasonable costs incurred to do so provided the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: Such costs incurred reduce the amount available to pay the actual loss.

 

Example: Let’s use Zachary again. A month after the uninsured theft loss, Zachary is being much more careful. His first stop of the day on his route is a restaurant. Zachary locks the van before he takes the clean aprons and tablecloths inside. Unfortunately, he is forced to wait nearly 20 minutes because a shift manager can’t find the key to the closet where the dirty linen is kept. When Zachary finally goes out to the van with the dirty linen, he discovers that thieves pried open the van’s doors with crowbars and removed half of the cleaned items inside. Visibly upset, Zachary re-enters the restaurant, telephones his supervisor, and informs him of the loss. When he hears about the break-in, the restaurant manager gives Zachary a free breakfast. When Zachary returns to the van, the remaining cleaned items are also gone. The second loss is not covered because Zachary did not take any steps to protect the rest of the cleaning.

 

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days of its request to do so. The information provided must include the time, place, and circumstances surrounding the loss and information on any other insurance coverage that may apply. It must also include the interest of the named insured and others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations on multiple occasions but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must maintain and produce any records related to the loss. The insurance company must be permitted to make copies and take extracts of them as often as it reasonably requests. Records include (but are not limited to) tax returns and bank microfilms of all related cancelled checks.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

If the named insured voluntarily makes any payments, assumes any obligations, pays or offers rewards, or incurs any other expenses without the insurance company's express approval, it does so at its own expense. The only exceptions are those costs incurred to protect property as outlined in item 2. of this section.

8. Abandonment

Abandoning damaged property to the insurance company without its written consent is prohibited.

9. Cooperation

The named insured must cooperate with the insurance company and perform all acts the coverage form requires.

VALUATION

1. Actual Cash Value

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


2. Pair or Set

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

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

3. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

HOW MUCH WE PAY

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

2. Deductible

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

3. Earthquake Period

All earthquakes, tremors, or volcanic eruptions that occur within a 168-consecutive hour period are considered a single loss. This time period is not limited by the policy expiration date.

4. Loss Settlement Terms

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

5. Insurance under More Than One Coverage

If two or more coverages in the coverage form apply to the same loss, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

6. Insurance under More Than One Policy

a. Proportional Share

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

 

Example: The Three Wize Guyz' Dry Cleaning Plant has three partners. Each partner decides to buy his own Bailee Customers Floater Coverage and each has a limit of $500,000. When a $15,000 covered loss occurs, each pays $5,000.

 

b. Excess Amount

If other coverage is available that pays for the loss (other than as described in item 7.a.), this coverage form pays on an excess basis. This means that only the amount of covered loss that exceeds the amount due from the other coverage (whether collectible or not) is paid. Any payment is subject to the applicable limit of insurance.

 

Example: Continuing the example above, Partner # 1 purchased this coverage form. Partner #2 purchased identical coverage. However Partner #3 purchased considerably different coverage. As a result, this coverage form was excess over Partner #3’s coverage but proportional with Partner # 2’s coverage.

LOSS PAYMENT

1. Loss Payment Options

a. Our Options

The insurance company has four loss payment options if a covered loss occurs.


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

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

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured, unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

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

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

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

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

When the insurance company pays the property owner, it is not obligated to pay the named insured. In addition, if the property owner sues the named insured, the company has the option of defending the named insured in that suit.

REPORTING CONDITIONS

The reporting conditions apply only if there are entries for Reporting Conditions on the schedule of coverages. This section includes details on the timing and content of the required reports, provisions in the event of cancellation, how premium is calculated and adjusted, and provisions that affect how losses are paid.

1. Reports

a. You Will Report To Us

All reports of the total receipts due from processing operations (whether collected or not) for the reporting period involved must be submitted to the insurance company within 30 days after the end of the reporting period.

b. Cancellation

If coverage is cancelled, the reports of total receipts from processing operations described above (whether collected or not) must be for the period up to and including the cancellation date. Any additional premium for that period must be paid.

2. Premium Computation and Adjustment

Premiums are calculated by multiplying the value of the reported receipts by the reporting rate on the schedule of coverages. The adjustment periods may be annual or for some other period.

a. Annual Adjustment

If the adjustment period on the schedule of coverages is annual, the calculated premium is compared to the deposit premium. If the calculated premium is more than the deposit, the named insured pays the insurance company the difference. If it is less, the insurance company refunds the difference to the named insured, subject to any applicable minimum premium.

b. Other Adjustment Period

If the adjustment period is other than annual, the calculated and reported premium is applied to the deposit until it is exhausted. After that, the named insured pays the insurance company any premiums that exceed the deposit. At expiration, if the calculated premium is less than the deposit, the insurance company refunds the difference to the named insured, subject to any applicable minimum premium.

3. Provisions That Affect How Much We Pay

a. Failure to Submit Reports

If required reports are not submitted and a loss occurs, the most that the insurance company pays for that loss is 90% of the limit at the designated location.

b. Reported Values Are Less than the Full Value

If the receipts reported are less than the actual receipts earned during the reporting period, the insurance company pays only part of the loss. The proportion is the receipts reported divided by the actual receipts. The loss is multiplied by the proportion to determine the adjusted loss amount. The deductible is then subtracted from that amount prior to payment.

c. We Will Not Pay More than the Limit

The insurance company does not pay more than the applicable limit at the designated location, regardless of the values reported and used to calculate the premium.

OTHER CONDITIONS

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and supply the appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within 15 days, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

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

b. Policy Period Is Not Extended

This coverage does not extend past the policy expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. If it intentionally misrepresents or conceals a material fact or information, its rights of recovery may be voided. This means that the insurance is treated as simply having never existed versus a particular claim being denied.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Payment of the loss does not end the obligations of the insured and the insurance company toward one another. If the insurance company pays a loss and the lost or damaged property is subsequently recovered (or the parties responsible for the loss pay for it), additional provisions apply.

Either party that recovers property or payment must inform the other. Recovery expenses incurred by either party are reimbursed first. If the insured keeps the recovered property, it must refund the amount of the claim the insurance company paid (unless the company agrees to a different amount). If the claim paid is less than the agreed loss due to application of a deductible or other limitations, any recovery is prorated between the named insured and the insurance company, based on the company's respective interest in the loss.

8. Restoration of Limits

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

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must assist the insurance company in securing those rights. If it hinders or impairs the company's rights of subrogation, the company is not obligated to pay the loss.

Note: The named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been met. Suits must be brought within two years after the insured first had knowledge of a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories and possessions, Canada, or Puerto Rico in order for coverage to apply.

ENDORSEMENTS AND SCHEDULES

AAIS has developed one endorsement for use with this coverage form.

IM 7561 04 04–Fur Garment Endorsement

This endorsement adds supplemental coverage for furs and fur-trimmed garments. Coverage applies only if the named insured has the items for processing. There is no coverage for fur and fur-trimmed items while in storage Coverage applies when at premises listed on the endorsement schedule, in transit, or temporarily off-site at unscheduled premises. Coverage applies for only the limits scheduled on the endorsement and subject to the deductible in the schedule.

UNDERWRITING CONSIDERATIONS

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

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

 

Examples:

  • Angela is going on vacation. She asks Terri, a close friend, to watch her cat and water her plants while she is gone. Terri is the bailee and Angela is the bailor. In this situation, even though Terri has care, custody and control of Angela's house, there is no business relationship involved because only Angela benefits.
  • Glenn borrows a pair of hedge clippers from his neighbor, Marty. In this situation, Glenn is the bailee and Marty is the bailor. Glenn receives the benefit from the transaction. There is no business relationship or exchange of money.
  • Jim takes his power suit to Acme Dry Cleaners. He leaves the suit, expecting it to be cleaned and available for pick-up by Friday, the date on his receipt. The receipt also states that he must pay $14.75 when he returns to pick up the cleaned suit. This is an insurable bailment. In exchange for Jim's promise to pay the $14.75 dry cleaning fee, Acme accepts his suit with the promise to clean it and have it ready for him by Friday. This is a business transaction because of the relationship of the parties and the exchange of money for services.

 

Dry cleaners, launderers, and other types of bailees are actually liable by law only for loss to customers' goods caused by their negligence. However, customers expect to be reimbursed for loss regardless of negligence and it is customary for the bailee to accept responsibility for any covered loss or damage to customers’ property even though it may not be legally liable.

Bailee Customers coverage does not require negligence on the part of the named insured before the customer can collect for a loss. Purchasing Bailee Customers coverage reflects a concern on the named insured's part for the goodwill of its customers. It also addresses a customer’s expectation to be reimbursed for its loss without regard to negligence on the part of a bailee entrusted with property.

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

A given risk should be evaluated carefully for its potential exposure at any one time and at any one location. For a dry cleaner, value estimates can be made based on the average and maximum number of bundles of laundry or dry cleaning received each day or week. A further estimate should be made as to the average value per bundle. Another method is to determine exposure by developing an estimate based on the average value of each article. Since these values vary, depending on the nature of the clientele, estimating values is always difficult.

AAIS BUILDERS' RISK COVERAGE FORMS

INTRODUCTION

The American Association of Insurance Services (AAIS) Builders' Risk Coverage Forms insure buildings or structures during construction, renovation or repair. The named insured may be the building owner, the builder/contractor or the party for whom the building is being constructed, renovated or repaired. Coverage may apply to either a single construction project or multiple jobsites. In general, non-reporting builders risk coverage is written for the full, completed value of the project but loss payment is based on the amount of construction actually completed at the time of loss. The premium is based on the full, completed value but is discounted by a mathematical formula, since the value of the building when construction begins is zero and does not reach the full value until construction is complete and the building released for occupancy. On the other hand, a number of reporting techniques or methods are available and used when builders' risk coverage is written on a reporting basis. It is important to understand the method a particular insurance company uses before arranging coverage since coverage form comparisons should include a comparison of the reporting method used and the premium payment arrangements available.

Builders risk coverage is not a controlled line of insurance and no standard form is available for use. In the past, each insurance company designed its own coverage form or policy and provided its own unique coverages and other features. However, AAIS has a reputation for developing excellent inland marine coverage forms used in whole or in part by its members and subscribers. AAIS coverage forms are used here as the model to analyze, evaluate and explain the various builders' risk coverage forms.

AAIS has developed five builders' risk coverage forms, each having its own corresponding schedule of coverages. This analysis outlines and discusses each of these forms. (04 04 edition)

ELIGIBILITY

Any builder or contractor, owner or purchaser with a financial interest in the building or structure under construction, renovation or repair is eligible for coverage using the scheduled locations or jobsite forms. Only builders or contractors can use the Builders Risk Coverage–Contractors' Reporting Form or the Builders' Risk Coverage–Builders Risk And Installation Floater Form.

POLICY CONSTRUCTION

AAIS Builders' Risk coverage requires at least these four forms:

SCHEDULE OF COVERAGES

The various Schedule Of Coverages forms do not have spaces in which to enter the name, mailing address or other named insured information. That and other information is indicated on IM 7900–Inland Marine Declarations.

IM 7055–SCHEDULE OF COVERAGES–BUILDERS' RISK–BROAD FORM

This Schedule Of Coverages is used with IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Broad Form.

Note: IM 7055–Schedule Of Coverages–Builders' Risk Broad Form does not have spaces in which to enter the name, mailing address or other named insured information. That and other information appear on IM 7900–Inland Marine Declarations. IM 7055 contains the following information:

Scheduled Locations

All covered locations must be listed. Unlisted locations are not covered. IM 7087–Additional Builders' Risk Schedule is used to indicate locations that cannot fit on IM 7055 because of space considerations.

Note: Do not list a location without indicating either a limit or the word "none."

Coverage Extensions

The limits on the Schedule Of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full policy limit applies, subject to any limitations in the coverage extension. Any entry under Additional Debris Removal Expenses reduces coverage. Emergency Removal coverage is limited to 10 days but the number of days can be increased.

Supplemental Coverages

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

Note: It must be noted that Earthquake and Flood coverages have no default coverage. Coverage applies only when the box is checked and a limit is entered.

Deductible

One deductible is entered that applies to all covered premises.

Note: Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage is provided, a deductible that applies specifically to that selected coverage must be entered. This deductible applies instead of the deductible that applies to all covered premises.

Permission To Occupy

The permission to occupy granted box or the permission to occupy not granted box must be checked. If permission to occupy is granted, the date that the building or structure can be occupied is indicated in the spaces provided.

Optional Coverages And Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included at the time of policy issuance.

FORM ANALYSIS–IM 7050–BUILDERS' RISK COVERAGE–SCHEDULED JOBSITE FORM–BROAD FORM (04 04 edition)

AGREEMENT

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

DEFINITIONS

Defined terms are used throughout the policy. Restricting their meaning to the definition in it provides the means for all parties involved with the policy to have a clearer understanding of the coverage intended. Thirteen terms are defined:

1. You and your are the parties indicated on the declarations as the insured.

2. We, us and our refer to the insurance company providing the coverage.

3. Earth movement includes, but is not limited to, earthquake, landslide, mudflow, mudslide, mine subsidence, sinking, rising or shifting of earth or any other movement of the surface of the earth. It does not include sinkhole collapse.

4. Flood includes flood, surface water, waves, tidal water or overflow of bodies of water. It also includes spray resulting from these, whether driven by wind or not.

5. Fungus includes, but is not limited to, mold, mildew, protists, algae, slime mold, wet rot and dry rot. It also includes bacterium or a chemical, matter or compound produced or released by any of these elements including, but not limited to, toxins, spores, fragments and metabolites, such as microbial volatile organic compounds.

6. Jobsite is any location, project or work site at which the insured is constructing, erecting or fabricating buildings or structures.

7. Limit is the amount of coverage that applies to the insured property.

8. Pollutant is a broad and expansive term. It includes solids, liquids, thermal or radioactive contaminants and irritants including, but not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor and waste. Waste also includes materials intended for recycling, reclamation and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants and are included.

9. Schedule of coverages is any page labeled as such that contains coverage information, including declarations or supplemental declarations.

10. Sinkhole collapse is the sudden settling or collapsing of the earth's surface into an underground opening created by water acting on limestone or some other rock formation. It does not include similar collapse into mines or other man-made voids, the value of the land or the cost to fill sinkholes.

11. Specified perils are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm. Falling objects excludes loss to personal property stored in the open or to the interior of buildings or personal property stored in buildings unless the building's exterior is first damaged and opened by a falling object. Water damage is sudden or accidental discharge or leakage of water or steam directly resulting from the breaking or cracking of a part of the system or appliance holding the water or steam.


12. Terms are all policy provisions, limitations, exclusions, conditions and definitions that apply to this coverage.

13. Volcanic action is airborne volcanic blast or shock waves, including ash, dust and particulate matter. It includes lava flow but does not include the cost to remove dust, ash or particulate matter that does not directly damage covered property.

PROPERTY COVERED

Course Of Construction: Coverage applies to the property described below, subject to any exclusions or limitations.

1. Coverage

Coverage applies to direct physical loss or damage to buildings or structures in the course of construction, erection or fabrication caused by or resulting from a covered peril, limited to:

2. Coverage Limitation

Coverage applies only to buildings or structures in the course of construction at scheduled locations on the schedule of coverages.

Example: Carol is acting as her own general contractor for her new home and purchases builders risk coverage for the designated project. The supplies arrive and are kept in a storage shed on the jobsite, awaiting arrival of the construction crew. A sudden windstorm destroys the shed and $35,000 worth of building supplies. Coverage applies since the supplies were all intended to become part of the dwelling.

PROPERTY NOT COVERED

Six types of property are specifically listed as not covered:

1. Aircraft Or Watercraft are excluded. This property is more correctly insured under aircraft and watercraft coverage forms and policies.

2. Contraband is goods prohibited by law or treaty from being imported or exported. It also includes legal property in the course of illegal transportation or trade.

3. Land of any kind, including the land on which the covered property is located.

4. Money And Securities means a number of different types of property. It includes accounts, bills, currency, food stamps, evidence of debt and lottery tickets not held for sale, in addition to money, notes or securities.

Note: This property is more correctly insured under commercial crime coverage forms.

5. Standing Building Or Structures or any parts of them are not covered. A standing building or structure being repaired or altered is not covered.

Note: A standing building is also one that is totally or partially constructed. It includes all buildings already being built as of the inception date of this particular policy. This is very important because this policy is designed for buildings on which construction commences on or after the policy inception date.

6. Vehicles are excluded. This includes automobiles or self-propelled vehicles intended for use on public highways.

Note: This property is more correctly insured under commercial automobile or truckers coverage forms.

COVERAGE EXTENSIONS

Provisions That Apply To Coverage Extensions

There are six coverage extensions. The limit for each is either the limit indicated on the schedule of coverages or the default limit included in the coverage form if no limit is entered on the schedule of coverages. These coverages are part of the applicable limit for covered property and not in addition to it, unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.


1. Debris Removal

The insurance company pays costs incurred to remove debris caused by the occurrence of a covered peril but the amount is limited to 25% of the amount paid for the actual direct physical loss or damage. The combined value of the direct loss or damage and the debris removal cannot exceed the limit of insurance for the covered property. An additional $5,000 is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property. Debris removal expenses must be reported to the insurance company within 180 days of the loss date in order for this extension to apply.

Note: This coverage extension does not apply to any pollutant cleanup, extraction, removal, restoration or replacement involving either land or water.

Note: Debris removal costs are part of the limit of insurance and the full limit of insurance is available to pay these costs, subject to the limitations indicated above. If a limit is indicated on the schedule of coverages, it is a sub-limit to the premises limit and is not in addition to that limit. This means increasing the limit on the schedule of coverages increases the $5,000 sub-limit but the total claim remains limited to the premises limit of insurance.

2. Emergency Removal

This covers direct physical loss or damage to covered property while being moved or stored elsewhere to avoid loss or damage caused by a covered peril. Coverage applies for up to ten days after the property is first moved but does not extend past the expiration date.

Note: Coverage does not extend past the expiration date. If the insured has property at an emergency location when coverage renews, the emergency location must be indicated as a premises or coverage no longer applies.

Example: Cutting Corners Contractors' owner knows that tomorrow's predicted tornado watches and warnings might wreak havoc on the incomplete apartment building under construction as well as the assortment of building materials and supplies scattered around the jobsite. Since the storage facility on the jobsite is in generally poor condition, he packs up as much of it as he can fit on a 26-foot box truck and drives it to a fellow contractor's warehouse that he simply drives the vehicle into and keeps there until the watches and warnings expire. Because of this coverage extension and his quick action, coverage applies on his building materials and supplies at the temporary storage location until the storm passes and he gets everything back to the jobsite the next day. Amazingly, the building under construction sustained no damage.

3. Emergency Removal Expenses

If the insured moves covered property to another location to protect it from loss or damage by a covered peril, this coverage extension pays the expenses to do so for up to ten days after the property is first moved, but not past the expiration date. The most paid for such expenses in any one occurrence is $10,000.

Note: This is additional coverage. As a result, all such expenses are paid in addition to the limit of insurance for this property.

4. Fraud And Deceit

The insurance company covers theft of covered property when the insured or its agents, consignees or customers part with it because of the fraudulent actions of persons falsely representing themselves as the proper persons to receive it. This includes accepting fraudulent bills of lading or other shipping receipts and such losses resulting from or directly related to use of any electronic data processing hardware or software. The most paid in any one occurrence is $50,000.

Note: This is a sub-limit. If the property limit at the location is less than $50,000, the property limit caps the amount available. The limit can be increased on the schedule of coverages but remains a sub-limit to the property limit.

Example: Ron is notified via email that the cabinets he just received are faulty and should be returned immediately. He dutifully sends the cabinets to the “Return Center” referred to in the notice and waits for the replacement cabinets. When Ron contacts the cabinetmaker ten days later, he discovers that he did not send the notice. By then, the cabinets are long gone and Ron sadly realizes that he has been swindled.

5. Limited Fungus Coverage

This coverage extension applies to direct physical loss or damage to covered property caused by or resulting from the existence or any activity of fungus. Loss or damage caused by or resulting from fungus is covered only when it results form a covered peril, other than fire, lightning or flood that occurs during the coverage period. This is subject to the insured having taken all reasonable steps to protect the property from additional loss or damage at and after the time of loss. The limit can be increased on the schedule of coverages.


The most paid for all loss or damage at all buildings or structures is $15,000, regardless of the number of claims, locations, buildings or structures during any 12-month policy period or extensions of the policy period of less than 12 months, unless a different limit is indicated on the schedule of coverages. This limit also applies with respect to a specific occurrence of a loss that results in fungus, even if such fungus recurs or continues to exist during the current or future policy periods. The same limit also applies to cleanup, removal and testing activities and costs related to a fungus incident.

Note: If a covered loss or damage not caused by fungus occurs, that loss payment is not limited by the terms of this coverage extension. If fungus increases such losses, the increase is subject to the terms of this coverage extension.

6. Waterborne Property

The insurance company pays up to $10,000 in any one occurrence for direct physical loss or damage to covered property caused by or resulting from a covered peril while waterborne. The limit can be increased on the schedule of coverages.

SUPPLEMENTAL COVERAGES

Provisions That Apply To Supplemental Coverages

There are 15 supplemental coverages. The limit for each is either the limit indicated on the schedule of coverages or the default limit included in the coverage form if no limit is entered on the schedule of coverages. If there is no limit for a supplemental coverage, coverage is provided up to the full limit for the applicable covered property unless a different limit is indicated on the schedule of coverages. Limits indicated for any supplemental coverage are separate from and not part of the applicable limit for coverage as indicated for covered property.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit indicated for a supplemental coverage and the limit for coverage described under property covered. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the policy.

1. Contract Penalty

The insurance company pays up to $10,000, or a different limit if indicated on the schedule of coverages, for the costs of contractual penalties the insured must pay because it cannot complete construction of a covered building or structure due to direct physical loss or damage to it caused by or resulting from a covered peril.

Example: A building contract calls for building construction to be finished by January 1st or a $500 per day penalty will be assessed. A hailstorm destroys the roof and delays construction completion by nearly three weeks. This supplemental coverage pays up to $10,000 for the penalty assessed.

2. Earthquake Coverage

The insurance company covers direct physical loss or damage to covered property caused by earthquake and volcanic eruption but only if the box indicating that coverage applies is checked and a limit indicated on the schedule of coverages, subject to that limit and any deductible amount indicated.

Note: Since there is no default limit for this coverage, coverage applies only if a limit is indicated on the schedule of coverages. Because this could be confusing, if earthquake coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

3. Expediting Expenses

When a covered loss causes a job to fall behind schedule, the insurance company pays up to $10,000, or a different limit if indicated on the schedule of coverages, in any one occurrence under this supplemental coverage for expenses the insured incurs to meet the construction timetable specified in the construction contract. These costs include, but are not limited to, overtime pay, hiring additional labor, transportation costs, storage expenses and costs of renting additional equipment.

Example: A windstorm blows down the framing for a building and forces construction to start all over again. This puts the project two weeks behind schedule and results in enforcement of the $1,000 per day penalty clause in the construction contract. The contractor must also hire three additional workers to get caught up. This supplemental coverage applies to the wages of the additional workers but not the penalty.

4. Fire Department Service Charges

Coverage applies to the liability the insured assumed under a written contract or agreement before a loss for fire department service charges. However, the coverage provided is limited to such charges incurred that relate to covered property to save or protect it from a covered peril. Payment is limited to $1,000 or the limit for this coverage indicated on the schedule of coverages.

Note: This supplemental coverage is not subject to a deductible.

5. Flood Coverage

The insurance company covers direct physical loss or damage to covered property caused by flood but only if the box indicating that coverage applies is checked and a limit indicated on the schedule of coverages, subject to that limit and any deductible amount indicated.

Note: Since there is no default limit for this coverage, coverage applies only if a limit is indicated on the schedule of coverages. Because this could be confusing, if flood coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

6. Ordinance Or Law (Undamaged Parts Of A Building)

When a covered building or structure sustains direct physical loss or damage from a covered peril and a governmental entity requires that the rest of it be demolished because of enforcement of an ordinance, law or decree, the insurance company pays for the value of any undamaged portions. Coverage applies only if the regulation requires demolition of the undamaged parts, regulates the construction or repair of the property or establishes specific requirements for zoning or land use at the covered location.

Note: The ordinance, law or decree must be in force at the time of loss.

However, there is no coverage for:

Note: A separate limit does not apply to this coverage.

7. Ordinance Or Law (Increased Cost To Repair And Cost To Demolish/Clear Site)

When a covered building or structure sustains direct physical loss or damage from a covered peril, the insurance company pays the increased cost to repair, rebuild or reconstruct damaged portions of a building or structure as well as undamaged portions, whether they must be demolished or not, resulting from enforcement of building, zoning or land use laws in effect at the time of loss. If the property is repaired or rebuilt, it must be for a similar occupancy or purpose as before, unless regulations require otherwise. Increased costs of construction are not covered until the construction is actually done and completed within two years after the date of loss.

The insurance company also pays the costs to demolish and clear the undamaged portions of the covered building or structure on the site of the covered loss if required by a government regulation in force at the time of the covered loss or damage.

However, there is no coverage for:

If the covered property is repaired or replaced, the insurance company pays the amount spent to demolish and clear the site plus the actual increased cost to rebuild with like kind and quality for the same purpose, but not more than $50,000 or the limit for this coverage indicated on the schedule of coverages.

If the covered property is not repaired or replaced, the insurance company pays the amount actually spent to demolish and clear the site plus the cost that would have been incurred if the property was rebuilt with other property of like kind and quality and for the same purpose, but not more than $50,000 or the limit for this coverage indicated on the schedule of coverages.

8. Personal Property

Business personal property at a covered location not intended to be installed in or become a permanent part of the covered building or structure is covered for loss or damage caused by a covered peril but only when the property is in a covered building or structure. Payment is limited to $10,000 or the limit shown for this coverage indicated on the schedule of coverages.

Example: A contractor sets up a small office area, from which it directs continuing construction activities, as well as a break room/lunch room area for its employees inside and on the ground floor of a covered building under construction. Loss or damage by a covered peril to the business personal property in this area is covered.

9. Pollutant Cleanup And Removal

The insurance company pays the insured's expenses to extract pollutants from land or water if their release or discharge in any manner was caused by a covered peril that occurred during the policy period. The expenses to extract pollutants are paid only if reported to the insurance company within 180 days of the date of loss. Costs related to testing, evaluating, observing or recording pollutants are not covered but the costs of testing necessary to extract pollutants from land or water are covered. The most paid is $25,000, unless a different limit is indicated on the schedule of coverages, at each location for all such expenses caused by a covered peril that occurs during each separate 12-month policy period.

10. Rewards

If the insured has a covered arson, theft or vandalism loss, this coverage provides a reward for information leading to the conviction of whoever caused the loss. The payment limit of $1,000 is based on the occurrence, not the number of persons who provide information. The limit can be increased on the schedule of coverages.

11. Sewer Backup Coverage

Coverage applies to direct physical loss or damage to covered property caused by water that backs up from a sewer or drain or from the sub-surface water pressure on or leakage through or into a covered building or structure. Payment is limited to $10,000 or the limit for this coverage indicated on the schedule of coverages.

12. Storage Locations

The following items are covered while in storage if damaged by a covered peril:

Payment is limited to $10,000 or the limit for this coverage indicated on the schedule of coverages.

Example: Since the valuable plants, shrubs and trees delivered from out of state arrive before the siding on the building is installed, they are stored at a nearby greenhouse until the jobsite is ready. A sudden violent windstorm destroys the greenhouse and all the plants. Since windstorm is not a covered peril in the supplemental coverages for this type of property, the loss is not covered.

13. Testing

Coverage applies to direct physical loss or damage to a covered building or structure caused by a covered peril resulting from testing of machinery, equipment and other objects intended to become a permanent part of it. Payment is limited to $10,000 or the limit for this coverage indicated on the schedule of coverages.

Example: The purchaser of a building under construction requests that the pressure on all gas lines be checked. The builder arranges for the testing but high pressure is applied instead of standard pressure and the pipes burst. Coverage applies to the resulting damage up to the $10,000 limit.

14. Transit

Coverage applies to direct physical loss or damage caused by or resulting from a covered peril to covered property consisting of following while in transit.

Payment is limited to $10,000 or the limit for this coverage indicated on the schedule of coverages.

15. Trees, Shrubs And Plants

Outdoor trees, shrubs, plants and lawns are covered for direct physical loss or damage caused by a covered peril, including debris removal expense, at covered construction project locations. Covered perils consist of fire, lightning, explosion, riot, civil commotion, falling objects and vandalism. Payment is limited to $10,000 or the limit for this coverage indicated on the schedule of coverages.

PERILS COVERED

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

PERILS EXCLUDED

1. The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

a. Civil Authority

There is no coverage for loss resulting from the order of any civil or government authority, including seizure, confiscation, destruction or quarantine of property. Coverage does apply for loss or damage resulting from such acts when done to prevent the spread of fire, as long as the fire resulted from a covered peril.

b. Earth Movement Or Volcanic Eruption

Coverage does not apply to loss or damage caused by earth movement or eruption, explosion or effusion of a volcano. Coverage does apply to direct loss or damage by fire, explosion or volcanic action resulting from any of these events.

Note: Earthquake coverage applies if a limit is entered on the schedule of coverages for the Supplemental Coverages–Earthquake Coverage. Coverage also applies for loss or damage caused by sinkhole collapse and to covered property in transit.

c. Flood

The insurance company does not pay for loss or damage caused by flood. It does cover direct loss or damage caused by fire, explosion or sprinkler leakage resulting from a flood occurrence.

Note: Flood coverage applies if a limit is entered on the schedule of coverages for the Supplemental Coverages–Flood Coverage. However, this exclusion does not apply to covered property in transit.

d. Fungus

Coverage does not apply to loss, damage, cost or expense caused by or related to the existence or any activity of fungus, except as provided under Coverage Extensions–Limited Fungus Coverage. However, if fungus results in a specified peril, coverage applies to the loss or damage caused by that specified peril.

Note: This exclusion does not apply to loss or damage resulting from fire, lightning or collapse caused by hidden decay.

e. Nuclear Hazard

The insurance company does not insure against loss or damage caused by or resulting from any nuclear reaction, radiation or contamination, whether the nuclear incident was controlled or not or was caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion or smoke. However, coverage applies to direct loss or damage caused by fire resulting from the nuclear hazard.

f. Ordinance Or Law

There is no coverage for any loss or increased construction costs because of the enforcement of any government regulation that controls the use, construction or repair of any property. This includes demolition of that property and the removal of its debris. This exclusion also applies to enforcement that occurs even if the property has not been damaged and to increased costs incurred as a result of complying with the regulation, including any construction, demolition or debris removal activities.

Note: Limited coverage is available under Supplemental Coverages–Ordinance Or Law (Increased Cost To Repair And Cost To Demolish/Clear Site).

g. Penalties

Other than as provided under Supplemental Coverages–Contract Penalty, there is no coverage for penalties an insured incurs because it cannot complete a project according to the terms of a contract.

h. Sewer Backup And Water Below The Surface

Coverage does not apply to loss or damage caused by water backup from a sewer or drain or from water below the surface of the ground that exerts pressure on covered buildings or structures. However, fire, explosion and theft losses that result from such backup or hydrostatic pressure are covered.

Note: Sewer backup coverage applies if a limit is entered on the schedule of coverages for the Supplemental Coverages–Sewer Backup Coverage. However, this exclusion does not apply to covered property in transit.

i. War And Military Action

The insurance company does not pay for loss or damage caused by any act of war, including undeclared and civil war or warlike action by a military force. It includes actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents. It also includes acts of insurrection, rebellion, revolution, or unlawful seizure of power taken by any government authority to prevent or defend against any of these. If any action within the terms of this exclusion involves nuclear reaction, radiation or contamination, this exclusion applies in place of the nuclear hazard exclusion.

2. The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or resulting from any of these events.

a. Contamination Or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This includes corrosion, decay, rust or any quality, fault or weakness in covered property that causes it to damage or destroy itself.

Note: If contamination or deterioration results in the occurrence of a covered peril, coverage applies to the loss or damage caused by that peril.

b. Criminal, Fraudulent, Dishonest Or Illegal Acts

Coverage does not apply to loss caused by or resulting from criminal, fraudulent, dishonest or illegal acts, committed alone or in collusion with another, by any of the following:

Note: If the covered property is in the custody of carriers for hire, this exclusion does not apply.

Note: Coverage applies if employees destroy property. It does not apply to acts of theft done by employees.

c. Defects, Errors And Omissions

There is no coverage for loss or damage caused by any act, defect, error or omission relating to any construction activities due to acts of negligence or otherwise. Examples of such activities include design, specifications, construction, materials and workmanship, as well as maintenance, installation, renovation, remodeling or repair. It also includes planning, zoning, development, siting, surveying, grading or compaction activities.

Note: If any of these activities results in the occurrence of a covered peril, coverage applies to the resulting loss or damage caused by that covered peril.

d. Electrical Currents

Loss or damage caused by electrical arcing or currents is excluded, unless caused by lightning. However, if the excluded arcing or currents results in the occurrence of a covered peril, the resulting loss or damage is covered. Note: This exclusion does not apply to losses due to testing as provided under Supplemental Coverages–Testing.

e. Explosion, Rupture Or Bursting

The insurance company does not pay for loss or damage caused by explosion, rupture or other bursting of steam boilers, pipes and engines or steam and gas turbines.

Note: This exclusion applies only to loss or damage to the steam object or gas turbine in which the loss occurred.

f. Loss Of Use

There is no coverage for loss caused by or resulting from delay, loss of use or loss of market.


g. Mechanical Breakdown

Loss or damage due to mechanical breakdown is not covered. This includes damage to moving parts of machinery because of centrifugal force. However, if such a loss results in the occurrence of a covered peril, the resulting loss or damage is covered.

Note: This exclusion does not apply to losses due to testing as provided under Supplemental Coverages–Testing.

h. Missing Property

Unexplained or mysterious disappearance of covered property is not covered if the only proof that a loss occurred is based on an audit or physical inventory and there is no physical evidence to indicate what happened to it.

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

i. Pollutants

There is no coverage for loss or damage caused by or resulting from any release, discharge, seepage, migration, dispersal or escape of pollutants. However, coverage applies if a specified peril causes the pollutant release. In addition, limited coverage is provided under Supplemental Coverages–Pollutant Cleanup And Removal.

j. Temperature/Humidity

Loss or damage caused by dryness, dampness, humidity, changes in or extremes of temperature is not covered.

Note: If any of these events results in the occurrence of a covered peril, the resulting loss or damage caused by that peril is covered.

k. Voluntary Parting

Loss or damage caused by or resulting from the insured voluntarily parting with either title to or possession of any covered property because of a fraudulent scheme, trick or false pretense is not covered, except as provided under Coverage Extensions–Fraud Or Deceit.

l. Wear And Tear

Loss or damage caused by wear and tear, marring or scratching is excluded.

Note: If any of these events results in the occurrence of a covered peril, the resulting loss or damage caused by that peril is covered.

Note: Wear and tear is damage, diminishment in value or erosion due to long or hard use or exposure, including breakdown over time and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

The insured must give prompt notice of a loss to the insurance company or its agent and include a description of the property lost or damaged. In addition, the appropriate law enforcement agency must be notified if the event causing the loss is a crime.

Note: The insurance company may also require that the notice be in writing.

2. You Must Protect Property

During and after a loss, all reasonable steps must be taken to protect covered property from further loss. The insurance company pays reasonable costs the insured incurs to do so, subject to the insured keeping records of such costs incurred, but payment of these costs does not increase the limit. However, coverage does not apply for any repairs or emergency measures performed on property not already damaged by a covered peril.

3. Proof Of Loss

The insured must send the insurance company its prescribed proof of loss forms within 60 days of its request to do so. The information provided must include the time, place and circumstances surrounding the loss and information on any other insurance coverage that may apply. It must also include the interest of the insured and others with respect to the property involved, including lienholders, loss payees and mortgages. Any changes in title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.


4. Examination

Examination under oath may be required in matters relating to the loss as often as reasonably requested by the insurance company. The company has the right to examine each individual and receive statements separately and not in the presence of others, if more than one person is examined.

5. Records

The insured must maintain and produce any records relating to the loss and allow the insurance company to make copies and take extracts of them as often as it reasonably requests. Records include, but are not limited to, tax returns and bank microfilms of all cancelled checks.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

If the insured voluntarily makes any payments, assumes any obligations, pays or offers rewards or incurs any other expenses without the insurance company's express approval, except to protect covered property from further damage, it does so at its own expense.

8. Abandonment

Abandoning damaged property to the insurance company without its written consent is prohibited.

9. Cooperation

The insured must cooperate with the insurance company in all matters and in performing all acts required.

VALUATION

1. Replacement Cost

The value of covered property is based on its replacement cost without a deduction for depreciation. The value includes labor, appropriate overhead and profit margins, and delivery charges. However a limitation states that the value is limited to use of similar materials on the same site or location and for essentially the same purpose and cannot exceed the actual amount spent to repair or replace the lost or damaged property.

2. Pair Or Set

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

Note: This recognizes that the value of the whole is greater than the value of the individual parts.

3. Loss To Parts

The value of a lost or damaged part of property consisting of several parts is the cost to repair or replace only the lost or damaged part.

HOW MUCH WE PAY

1. Insurable Interest

The insurance company does not pay more than the insured's insurable interest in the covered property at the time of loss.

Note: Insurance is meant to restore a person’s pre-loss financial position, not to improve or enhance it.

2. Deductible

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

3. Earthquake Period

All earthquakes, tremors or volcanic eruptions that occur within a 168-consecutive hour period are considered a single loss. This time period is not limited by the policy expiration date.


4. Loss Settlement Terms

The insurance company pays the lesser of the amount determined under Valuation, the cost to repair, replace or rebuild the property with material of similar kind and quality to the extent possible, or the limit of insurance that applies to the covered property. If the schedule of coverages indicates a catastrophe limit, and a covered peril causes loss at more than one premises listed on the schedule, the most the insurance company pays in any one occurrence is either the sum of the limits for covered property at all locations where the loss occurred or the catastrophe limit, whichever is less.

5. Coinsurance

When coinsurance applies to a coverage provided, the insurance company pays only part of the loss if the limit is less than 100% of the estimated completed value of the covered property as determined at the time of loss. The three steps in determining the amount of the loss to be paid are:

a. Determine the full 100% value of the property if it had been completed and as if no loss had occurred.

b. Divide the coverage limit for that property by the figure obtained in step a.

c. If step b. is less than 1.00, multiply the amount of loss after application of any deductible by the percentage determined in step b, if the limit is less than the full value of the property.

The insurance company pays no more than the amount determined in step c or the policy limit, whichever is less. If more than one limit is indicated on the schedule of coverages, this procedure applies separately to each limit. If only one limit is indicated on the schedule of coverages, this procedure applies to the total of all covered property to which that limit applies.

Example: The estimated completed value of a building indicated on the schedule of coverages is $300,000. Construction is almost 90% complete when a fire amounting to a loss of $275,000 occurs. After a review of the changes made as construction progressed, the actual completed value should have been $325,000, had no loss occurred. As a result, the loss is paid as follows:

a. The estimated completed value is $325,000.

b. $300,000 divided by $325,000 = .923. This is the coinsurance penalty factor.

c. $275,000 multiplied by .923 = $253.825.

In this example, the insurance company pays $253,825 and the insured is responsible for the remaining $21,175.

6. Insurance Under More Than One Coverage

If two or more coverages in the coverage form apply to the same loss, the insurance company pays no more than the value of the actual claim, loss or damage sustained.

7. Insurance Under More Than One Policy

a. Proportional Share

If the insured has another policy subject to the same terms as this coverage, it pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance on all policies that cover on the same basis.

b. Excess Amount

If the insured has another policy covering the loss other than as described above, this coverage form pays only the amount of covered loss that exceeds the amount due from that other policy, whether collectible or not, subject to the applicable limit of insurance.

LOSS PAYMENT

1. Loss Payment Options

a. Our Options

The insurance company has four loss payment options if a covered loss occurs. It can pay the value of the lost or damaged property, pay the cost of repairing or replacing the lost or damaged property, rebuild, repair or replace the property with similar property, to the extent possible and within a reasonable period of time, or take any part or all of the property at the agreed on or appraised amount.

b. Notice Of Our Intent To Rebuild, Repair Or Replace

The insurer must notify the insured of its intent to rebuild, repair or replace within 30 days after receiving a properly completed proof of loss.


2. Your Losses

a. Adjustment And Payment Of Loss

The insurance company adjusts all losses with the insured and pays the insured, unless another loss payee is included on the policy.

b. Conditions For Payment Of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. This is done through either a written agreement between the insurer and the insured or after an appraisal award is filed with the insurer.

3. Property Of Others

a. Adjustment And Payment Of Loss To Property Of Others

The insurance company can adjust and pay losses involving property of others with either the insured acting on behalf of the property owner or with the property owner, at its discretion.

b. We Do Not Have To Pay You If We Pay The Owner

When the insurer pays the property owner, it is not obligated to pay the insured. In addition, if the property owner sues the insured, the company has the option of defending the insured in that suit.

OTHER CONDITIONS

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and supply the appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within 15 days, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

2. Benefit To Others

The insurance provided does not directly or indirectly benefit any other party having custody of the insured's property.

3. Conformity With Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the insured is an individual.

a. Your Death

If the insured dies, the person having custody of the insured's property is an insured until a qualified legal representative is appointed. At that point, the insured’s legal representative becomes an insured. Both are insureds but only with respect to the property insured under this coverage form.

b. Policy Period Is Not Extended

This coverage does not extend past the coverage expiration date.

5. Misrepresentation, Concealment Or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact relating to the insurance provided, the property covered or its interest in the property, or if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The insured must deal with the insurance company honestly. If the insured intentionally misrepresents or conceals a material fact or information, its rights of recovery may be voided. This means that the insurance contract is treated as simply having never existed versus a particular claim being denied.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Payment of the loss does not end the obligations of the insured and the insurance company toward one another. If the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it, additional provisions apply.

Either party recovering property or payment must inform the other. Recovery expenses incurred by either party are reimbursed first. If the insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless a different amount is agreed to. If the claim paid is less than the agreed loss due to application of a deductible or other limitations, any recovery is prorated between the insured and the insurer based on the insurer's respective interest in the loss.

8. Restoration Of Limits

Payment of a claim does not reduce the policy limit available for future claims except as indicated under Limited Fungus Coverage.

9. Subrogation

The insurance company acquires the insured's rights of recovery from third parties after it pays a loss. The insured must assist the insurance company in securing those rights. If it hinders or impairs those rights, the insurer is not obligated to pay the loss.

Note: The insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit Against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been met. Suits must be brought within two years after the insured first had knowledge of a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements addressing issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories and possessions, Canada or Puerto Rico in order for coverage to apply.

12. Carriers For Hire

The insured may accept shipping documents from transportation companies that limit their liability to amounts less than the replacement cost or actual cash value of the covered property.

ADDITIONAL COVERAGE LIMITATIONS

1. Coverage Not Provided During Occupancy And Use

Coverage does not apply if a covered building or structure is partially or completely occupied or put to its intended use without the insurance company's written consent and agreement.

Note: This provision does not apply if permission to occupy is granted based on an entry on the schedule of coverages.

Example: ABC Construction builds four-unit condominium buildings. The entire building is constructed first and then each unit is finished one at a time. Once a unit is finished out, ABC attempts to sell it and transfer the title in order to free up capital. The insurance company agrees to this partial occupancy situation and verifies it by the appropriate entry on the schedule of coverages.

2. When Coverage Ceases

Coverage ends when the first of the following events occurs:


Note: This is an important area that could cause the insured problems. Even though coverage extends up to 90 days after construction is complete, this becomes only two days in the case of construction being completed only two days before the expiration date. In other words, 90 days of coverage is available after construction is complete but only if 90 or more days remain until expiration. This coverage limitation is subject to a number of variations, since insurance companies recognize the problems that can arise, particularly with coverage forms written on a reporting basis. This coverage limitation must be reviewed carefully and discussed with the client, with particular care taken to point out the potential problems.

IM 7056–SCHEDULE OF COVERAGES–BUILDERS' RISK

This Schedule Of Coverages is used with IM 7051–Builders' Risk Coverage–Scheduled Jobsite Form.

Note: IM 7056–Schedule Of Coverages–Builders' Risk does not have spaces in which to enter the name, mailing address or other named insured information. That and other information appear on IM 7900–Inland Marine Declarations. IM 7056 contains the following information:

Scheduled Locations

All covered locations must be listed. Unlisted locations are not covered. IM 7087–Additional Builders' Risk Schedule is used to indicate locations that cannot fit on IM 7055 because of space considerations.

Note: Do not list a location without indicating either a limit or the word "none."

Coverage Extensions

The limits on the Schedule Of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full policy limit applies, subject to any limitations in the coverage extension. Any entry under Additional Debris Removal Expenses reduces coverage. Emergency Removal coverage is limited to 10 days but the number of days can be increased.

Supplemental Coverages

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

Note: The coverage form provides this coverage. The advisory schedule of coverages does not list it.

Deductible

One deductible is entered that applies to all covered premises.

Optional Coverages And Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included at the time of policy issuance.

FORM ANALYSIS–IM 7051–BUILDERS' RISK COVERAGE–SCHEDULED JOBSITE FORM (04 04 edition)

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Broad Form analyzed above except for five sections. This analysis addresses only the five sections that are different.

PROPERTY NOT COVERED

Two additional property items are not covered. This coverage form does not insure Trees, Shrubs And Plants or Waterborne Property.

COVERAGE EXTENSIONS

Emergency Removal Expenses, Fraud And Deceit and Waterborne Property Extensions are not included in this coverage form. The language in Limited Fungus Coverage, paragraph g. is worded slightly differently but has the same coverage intent.

SUPPLEMENTAL COVERAGES

The only Supplemental Coverages provided under IM 7051 are Fire Department Service Charges, Pollutant Cleanup And Removal, Storage Locations and Transit. As a result, the Supplemental Coverages for Contract Penalty, Earthquake Coverage, Expediting Expenses, Flood Coverage, Ordinance Or Law (Undamaged Parts Of A Building), Ordinance Or Law (Increased Cost To Repair And Cost To Demolish/Clear Site), Personal Property, Rewards, Sewer Backup Coverage, Testing and Trees, Shrubs And Plants are not included.

PERILS EXCLUDED

HOW MUCH WE PAY

The only difference is the definition of the earthquake period is deleted because coverage is not provided in this coverage form.

IM 7057–SCHEDULE OF COVERAGES–BUILDERS' RISK–CONTRACTORS' REPORTING FORM

This Schedule Of Coverages is used with IM 7052–Builders' Risk Coverage–Contractors' Reporting Form.

Note: IM 7057–Schedule Of Coverages–Builders' Risk–Contractors' Reporting Form does not have spaces in which to enter the name, mailing address or other named insured information. That and other information appear on IM 7900–Inland Marine Declarations. IM 7057 contains the following information:

Limits

A limit of insurance is indicated for each of the following:

Coverage Extensions

The limits on the Schedule Of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full policy limit applies, subject to any limitations in the coverage extension. Any entry under Additional Debris Removal Expenses reduces coverage. Emergency Removal coverage is limited to 10 days but the number of days can be increased.

Supplemental Coverages

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

Note: It must be noted that Earthquake and Flood coverages have no default coverage. Coverage applies only when the box is checked and a limit is entered.

Reporting Conditions

The estimated completed value of each covered building or structure are reported monthly, quarterly, annually or any other specified period. Premiums are adjusted monthly, quarterly, annually or any other specified period.

Note: Reporting conditions may be waived.

Additional Premium Due After Expiration

When the premium is based on reports of value, any additional premium the insured owes is due and payable on the date indicated on the billing statement.

Premiums

Spaces are provided in which to enter the deposit and minimum premiums.

Deductible

One deductible is entered that applies to all covered premises.

Note: Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage is provided, a deductible that applies specifically to that selected coverage must be entered. This deductible applies instead of the deductible that applies to all covered premises.

Permission To Occupy

The permission to occupy granted box or the permission to occupy not granted box must be checked. If permission to occupy is granted, the date that the building or structure can be occupied is indicated in the spaces provided.

Optional Coverages And Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included at the time of policy issuance.

FORM ANALYSIS–IM 7052–BUILDERS' RISK COVERAGE–CONTRACTORS' REPORTING FORM (04 04 edition)

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Broad Form analyzed above except for four sections. This analysis addresses only the four sections that are different.

PROPERTY COVERED

1. Course Of Construction, b. Coverage Limitation is revised to reflect the addition of the two following items of covered property under this coverage form.

2. Contingent Coverage

Buildings and structures in the course of construction, erection or fabrication are covered under this coverage form subject to all of the following conditions:

This property is covered only if a limit of insurance for contingent coverage is entered on the schedule of coverages and the property is at the named insured’s jobsite.

Example: Paul is a custom homebuilder. He allows his customers to purchase their own builders risk policies. If they choose that option, they sign an agreement that they will provide the coverage so that Paul's interest is also protected. Maxine signed the construction contract and the agreement but neglected to contact her agent to purchase the coverage. A loss occurred and Paul discovered that there was no coverage on the project. Paul's insurance company paid based on this Contingent Coverage and then subrogated against Maxine because of her breach of contract.

3. Difference in Conditions Coverage

Buildings and structures in the course of construction, erection or fabrication are covered under this coverage form only if all named insureds are contractually obligated to provide difference in conditions coverage on buildings under construction. Under this coverage form, difference in conditions coverage is defined as coverage for all physical loss except those caused by an excluded or a specified peril.

This property is covered only if a limit of insurance for difference in conditions coverage is entered on the schedule of coverages and the property is at the named insured’s jobsite.

Example: Paul’s latest client agrees to provide basic coverage for his new home but requires that Paul obtain difference in conditions coverage for other potential perils. When Paul discovers that $10,000 in copper stolen from the jobsite, the loss is covered. However, Paul's coverage does not respond when windstorm destroys the building. Instead, the purchaser has coverage under his basic perils policy.

COVERAGE EXTENSIONS

Under Limited Fungus Coverage, paragraph g. Loss Caused In Total Or In Part By Fungus replaces paragraph g. Loss Not Caused By Fungus in IM 7050.

HOW MUCH WE PAY

IM 7050 contains coinsurance provisions. IM 7052 does not because it is a reporting form.

REPORTING CONDITIONS

This provision in IM 7052 does not appear in IM 7050. It outlines the detailed steps in the reporting process and the consequences for failure to submit reports or to report proper values.

IM 7058–SCHEDULE OF COVERAGES–BUILDERS' RISK AND INSTALLATION FLOATER

This Schedule Of Coverages is used with IM 7053–Builders' Risk Coverage–Builders' Risk And Installation Floater Form.

Note: IM 7058–Schedule Of Coverages–Builders' Risk And Installation Floater does not have spaces in which to enter the name, mailing address or other named insured information. That and other information appear on
IM 7900–Inland Marine Declarations. IM 7058 contains the following information:

Builders' Risk Coverages

A limit of insurance is indicated for each of the following:

Installation Floater Coverage

A limit if insurance is indicated for the most paid for loss to any one installation project.

Catastrophe Limit

A limit of insurance is entered for the most paid for loss in any one occurrence.

Coverage Extensions

The limits on the Schedule Of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full policy limit applies, subject to any limitations in the coverage extension. Any entry under Additional Debris Removal Expenses reduces coverage. Emergency Removal coverage is limited to 10 days but the number of days can be increased.

Supplemental Coverages

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

Note: It must be noted that Earthquake and Flood coverages have no default coverage. Coverage applies only when the box is checked and a limit is entered.


Reporting Conditions

The estimated completed value of each covered building or structure are reported monthly, quarterly, annually or any other specified period. Premiums are adjusted monthly, quarterly, annually or any other specified period.

Note: Reporting conditions may be waived.

Additional Premium Due After Expiration

When the premium is based on reports of value, any additional premium the insured owes is due and payable on the date indicated on the billing statement.

Premiums

Spaces are provided in which to enter the deposit and minimum premiums.

Deductible

One deductible is entered that applies to all covered premises.

Note: Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage is provided, a deductible that applies specifically to that selected coverage must be entered. This deductible applies instead of the deductible that applies to all covered premises.

Permission To Occupy, Builders' Risk Coverage

The permission to occupy granted box or the permission to occupy not granted box must be checked. If permission to occupy is granted, the date that the building or structure can be occupied is indicated in the spaces provided.

Optional Coverages And Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included at the time of policy issuance.

FORM ANALYSIS–IM 7053–BUILDERS' RISK COVERAGE–BUILDERS' RISK AND INSTALLATION FLOATER FORM (04 04 edition)

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Broad Form analyzed above except for seven sections. This analysis addresses only the seven sections that are different.

DEFINITIONS

The definition of jobsite includes locations where the insured is engaged in an installation or construction project. The same definition in IM 7050 does not include this language.

PROPERTY COVERED

Two types of coverages are provided since this is a combination form.

1. a. The first is Builders Risk coverage. This is similar to the coverage provided under IM 7050 but Course Of Construction, b. Coverage Limitation is revised to reflect the addition of the two following items of covered property under this coverage form.

1.b. Contingent Coverage

Buildings and structures in the course of construction, erection or fabrication are covered under this coverage form subject to all of the following conditions:

This property is covered only if a limit of insurance for contingent coverage is entered on the schedule of coverages and the property is at the named insured’s jobsite.

1.c. Difference in Conditions Coverage

Buildings and structures in the course of construction, erection or fabrication are covered under this coverage form only if all named insureds are contractually obligated to provide difference in conditions coverage on buildings under construction. Under this coverage form, difference in conditions coverage is defined as coverage for all physical loss except those caused by an excluded or a specified peril.

This property is covered only if a limit of insurance for difference in conditions coverage is entered on the schedule of coverages and the property is at the named insured’s jobsite.

2. Installation Floater Coverage is added. It covers physical loss to property the named insured is installing on or at a project. Coverage applies to owned property and non-owned property in the named insured's care, custody and control. Only property intended to become part of the completed installation is covered.

PROPERTY NOT COVERED

In addition to the six types of property not covered items under IM 7050, airborne property is also not covered, except for property in transit on regularly scheduled airline flights. In addition, under Standing Building Or Structure, coverage applies to materials, supplies, machinery, fixtures and equipment the insured installs, constructs or lifts in conjunction with any installation or construction project in a building or structure. IM 7050 does not contain this language.

COVERAGE EXTENSIONS

The Limited Fungus Coverage Extension limit is amended to apply to buildings or structures in the course of construction and all installation or construction projects. This means that the aggregate amount of coverage available over all projects and buildings under construction for an entire year is limited to $15,000 or the limit indicated on schedule of coverages.

SUPPLEMENTAL COVERAGES

The supplemental coverages in both forms are identical but IM 7053 has words added to extend coverage to the installation coverage.

HOW MUCH WE PAY

IM 7050 contains coinsurance provisions. IM 7053 does not because it is a reporting form.

REPORTING CONDITIONS

This provision in IM 7053 does not appear in IM 7050. It outlines the detailed steps in the reporting process and the consequences for failure to submit reports or to report proper values. It separates the requirements for installation floater and states them separately from those for builders risk.

IM 7059–SCHEDULE OF COVERAGES–BUILDERS' RISK–REHABILITATION AND RENOVATION

This Schedule Of Coverages is used with IM 7054–Builders' Risk Coverage–Rehabilitation And Renovation Form.

Note: IM 7059–Schedule Of Coverages–Builders' Risk–Rehabilitation And Renovation does not have spaces in which to enter the name, mailing address or other named insured information. That and other information appear on IM 7900–Inland Marine Declarations. IM 7059 contains the following information:

Scheduled Jobsite

All covered jobsites must be listed, described and have a job number and/or jobsite location entered. Unlisted locations are not covered. IM 7090–Additional Scheduled Jobsite Locations is used to indicate jobsites that cannot fit on IM 7059 because of space considerations.

A Building Materials Limit and an Existing Building Limit must be indicated. If existing building coverage is provided, the valuation that applies to it must also be indicated. The valuation options are Stated Value or Actual Cash Value.

Coverage Extensions

The limits on the Schedule Of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full policy limit applies, subject to any limitations in the coverage extension. Any entry under Additional Debris Removal Expenses reduces coverage.

Supplemental Coverages

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

Deductible

One deductible is entered that applies to all covered premises.

Coverage Limitation

Coverage applies to a vacant existing building for up to the indicated number of consecutive days from the coverage inception date unless building permits have been obtained and rehabilitation work or renovation has begun on the existing building.

Note: The Vacant Building Limitation may be waived.

When Coverage Ceases

Coverage ends when one of the following first occurs:

1. At expiration or when coverage is cancelled

2. The purchaser accepts a covered building or structure

3. The insured's insurable interest in the covered property ends

4. The insured abandons construction without intending to complete it

5. A covered building or structure is completed more than 30 days or the number of days indicated in the space provided.

Optional Coverages And Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included at the time of policy issuance.

FORM ANALYSIS–IM 7054–BUILDERS' RISK COVERAGE–REHABILITATION AND RENOVATION FORM (04 04 edition)

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Broad Form analyzed above except for ten sections. This analysis addresses only the ten sections that are different.

Note: The current edition of this form has numerous minor editorial and format changes compared to the previous edition, to emphasize coverages and limitations, with no change in intent. Those changes are not addressed in this analysis.

DEFINITIONS

Two definitions are added:

Three definitions are changed:

Note: The Definitions section in IM 7054 is at the end of the coverage form instead of at the beginning.

PROPERTY COVERED

IM 7054's description of property covered is completely different compared to the definition in IM 7050 because the nature of the work insured is that of rehabilitation and renovation of existing buildings or structures instead of new construction.

Coverage applies to:

Coverage is limited to the jobsite indicated on the schedule of coverages. Vacant buildings may be covered if so indicated on the schedule of coverages. The vacant building coverage selected on the schedule of coverage determines the length of time that coverage continues.

Separate limits of insurance must be indicated on the schedule of coverages for Building Materials and Existing Buildings. These limits are the most paid for loss in any one occurrence.

PROPERTY NOT COVERED

Four types of property are added as property not covered and one type of property is changed. The four types of property added are:

The one type of property changed is Standing Building Or Structure. It is amended so that coverage for existing buildings can be provided.

COVERAGE EXTENSIONS

The Coverage Extensions for Emergency Removal, Emergency Removal Expenses, Fraud And Deceit and Waterborne Property in IM 7050 are not in IM 7054.

SUPPLEMENTAL COVERAGES

The only Supplemental Coverages provided are Pollutant Cleanup And Removal, Temporary Storage Locations and Transit. The Pollutant Cleanup And Removal Limit is $10,000 instead of $25,000 in IM 7050 but can be increased on the schedule of coverages. Temporary Storage Locations and Transit are slightly different than the corresponding supplemental coverage in IM 7050.

This means the Supplemental Coverages for Contract Penalty, Earthquake Coverage, Expediting Expenses, Fire Department Service Charges, Flood Coverage, Ordinance Or Law (Undamaged Parts Of A Building), Ordinance Or Law (Increased Cost To Repair And Cost To Demolish/Clear Site), Personal Property, Rewards, Sewer Backup Coverage, Testing and Trees, Shrubs and Plants in IM 7050 do not apply.

PERILS EXCLUDED

OTHER COVERAGES

This provision in IM 7054 does not appear in IM 7050. The only coverage added is Collapse and it is defined in terms of what it means as well as what it does not mean. Coverage is only for loss or damage caused by or resulting from the specified perils, hidden decay, hidden insect or vermin damage, weight of people, personal property or rain that collects on a roof, or use of defective materials. The Limited Fungus Coverage provided under Coverage Extensions does not increase or decrease the coverage for Collapse.

VALUATION

IM 7054 does not have the provision for replacement cost valuation found in IM 7050. The value of existing buildings or structures being rehabilitated or renovated is the limit indicated on the schedule of coverages. Materials and supplies, attachments and fixtures intended to become a permanent part of these buildings or structures are valued at their actual cash value at the time of loss.

HOW MUCH WE PAY

Earthquake Period as provided for in IM 7050 does not appear in this section of IM 7054 since that coverage is not available.

ADDITIONAL COVERAGE LIMITATIONS

This section is not in IM 7050.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the various Builders' Risk coverage forms.

IM 7061–Soft Cost And Rental Income Endorsement

This endorsement can be used with any of the builders' risk coverage forms. It adds coverage for soft costs, defined as advertising expenses, design fees, professional fees, interest, lease administration and realty taxes, as well as loss of rental income.

IM 7062–Soft Cost Schedule–Soft Cost And Rental Income

This schedule is used with IM 7061–Soft Cost And Rental Income Endorsement and together they can be used with any of the builders' risk coverage forms. It indicates the locations or descriptions of covered buildings or structures, the limits for soft costs and rental income and the applicable waiting period, if any.

IM 7063–Permission To Occupy Endorsement

This endorsement extends coverage and permits occupancy of the finished part of the building or structure before construction of the entire project is complete.

IM 7064–Reporting Conditions Endorsement

When attached to a builders' risk coverage form, this endorsement puts it on a reporting basis.

IM 7066–Reporting Conditions Schedule–Builders Risk

This schedule is used with IM 7064–Reporting Conditions Endorsement. It has spaces in which to indicate the reporting and adjustment periods and the premium adjustment basis, along with the applicable rates and premium for the coverage involved.

IM 7068–Trees, Shrubs And Plants Endorsement

This endorsement provides coverage for direct physical loss or damage to trees, shrubs, plants and lawns at designated jobsites or construction projects caused by six designated perils on a per occurrence basis.

IM 7070–Rehabilitation And Renovation Endorsement

This endorsement covers existing buildings or structures for direct physical loss or damage caused by or resulting from a covered peril when the building or structure is being rehabilitated or renovated.

IM 7071–Business Personal Property Endorsement

This endorsement covers business personal property other than that intended to become a permanent part of the building or structure under construction.

IM 7072–Ordinance Or Law Coverage

This endorsement is used with IM 7051–Builders' Risk Coverage–Scheduled Jobsite Form. It applies when a covered peril causes direct physical loss or damage to a covered building or structure. It extends coverage for the additional loss due to the enforcement of a government regulation that requires demolition of undamaged parts of the property or establishes use requirements and regulations that apply to the property. The coverage can also apply to increased costs of construction or reconstruction and any costs to demolish and clear debris from the location or jobsite.

IM 7073–Contract Penalty Endorsement

This endorsement covers loss due to contractual penalties imposed on the insured because of a delay in completing an insured construction project within the defined contract terms as a result of a covered loss.

IM 7075–Expediting Expenses Endorsement

Expediting expenses include the costs for additional labor, overtime labor, transportation, equipment rental and storage. This endorsement covers these costs or expenses when incurred to complete the construction project by the date or within the period of time specified in the construction contract.

IM 7076–Testing Coverage

Testing includes the start-up or commencement of normal occupancy. It evaluates and measures the performance, stress, pressure and overload abilities of materials, supplies, machinery, fixtures and equipment intended to be a permanent part of a covered building or structure under construction. This endorsement covers direct physical loss or damage to a covered building or structure by a covered peril resulting from testing.

IM 7077–Fraud And Deceit Coverage

This endorsement covers losses due to theft if the insured is falsely influenced to part with covered property. However, the coverage provided does not apply to the insured voluntarily parting with covered property.

IM 7079–Soft Cost, Extra Expense And Rental Income Endorsement

This endorsement is used with builders' risk coverage forms to add soft costs. These include fees for advertising, professional, design and permit activities, financing, lease and general administration costs, realty taxes, lease expenses and insurance premiums. It is also used to add any extra expenses incurred and necessary to resume or continue construction work on the project. It can cover the loss of rental revenue that occurs due to a delay in completing the project because of loss or damage caused by or resulting from a covered peril. It also includes construction delays caused by enforcement of an ordinance or law.

IM 7080–Soft Cost Schedule–Soft Cost, Extra Expense And Rental Income

This schedule is used with IM 7079–Soft Cost, Extra Expense And Rental Income Endorsement and can be used with any builders' risk coverage form. It has spaces in which to indicate the locations and descriptions of covered property and the limits for soft costs, extra expense and rental income, as well as any applicable waiting periods.

IM 7082–Freezing Exclusion

This endorsement excludes the peril of freezing unless the insured takes certain steps and precautions to prevent against such losses.

IM 7083–Equipment Breakdown Endorsement

Subject to entries made on the Equipment Breakdown Schedule making up part of this endorsement, it provides coverage for Explosion, Rupture or Bursting, Mechanical Breakdown or Electrical Currents otherwise excluded in builders' risk coverage forms. Coverage applies to losses from the bursting of steam boilers, steam or gas turbines, steam pipes or steam engines, mechanical breakdown and arcing by electrical currents, other than lightning.

IM 7084–Mortgageholders Endorsement

This endorsement is used with any of the builders' risk coverage forms. It includes mortgage provisions for mortgagees named on the policy and also includes details on the notice periods for policy cancellation or non-renewal and information on premium payments and loss payments.

IM 7085–Earthquake, Flood And Sewer Backup Endorsement

This endorsement is only used with IM 7051–Builders' Risk Coverage–Scheduled Jobsite Form to provide coverage for any or all of these perils, as indicated on IM 7086–Earthquake, Flood And Sewer Backup Schedule.

IM 7086–Earthquake, Flood And Sewer Backup Schedule

This schedule is used with IM 7086–Earthquake, Flood And Sewer Backup Endorsement to indicate the coverages, limits and deductibles that apply. It is only used with IM 7051–Builders' Risk Coverage–Scheduled Jobsite Form.

IM 7087–Additional Builders' Risk Schedule

This schedule is used to list additional covered locations when the space provided on the schedule of coverages is inadequate.

IM 7088–Windstorm Deductible

This endorsement provides the means to indicate separate deductibles for the perils of Windstorm and Hail. The deductible can be expressed as either a flat amount or as a percentage, using percentages of 1%, 2% or 5%.

IM 7090–Additional Scheduled Jobsite Locations

This schedule is used with IM 7054–Builders' Risk Coverage–Rehabilitation And Renovation Form to list and describe additional buildings being rehabilitated or renovated.

UNDERWRITING CONSIDERATIONS

Builders' risk and installation coverage forms both provide coverage for building materials and supplies at the construction site, in transit to the site and similar property intended for the construction project at other locations as necessary or because of lack of storage space at the construction site. The principal exposures and causes of loss are fire, theft, vandalism, windstorm, collapse and transit. The underwriting process involves evaluating the location and transit exposures and the protective services and arrangements incorporated at the project to eliminate or reduce the possibility of loss.


The most important element in underwriting builders risk insurance lies in understanding the nature of the contractor involved. The contractor should have experience in building the type of structure being considered. A residential contractor may be very successful building one and two family homes but that does not mean it will be similarly successful building a six-family condominium building or some other kind of commercial property. In the same manner, a commercial building contractor may not be aware of all of the aspects and pitfalls involved in residential construction. Simply being a contractor is not sufficient. A good contractor is aware of all aspects and hazards of a particular job and takes the appropriate steps to address them all, both in advance planning and as they come up during the course of the construction project.

Another major issue is job site supervision. Some contractors are "paper contractors." These contractors bring together the various subcontractors to handle the job but do not regularly have any of their own employees on the job site. In situations like these, relationships are extremely important. A good "paper contractor" will, to the extent possible, use the same subcontractors on as many jobs as possible. This makes it more likely that the different crews will work well together. The contractor should have a detailed checklist and an established timetable for checking the work. The general contractor is usually responsible for all functional aspects at the job site and should be aware of all elements of job site safety and the normal arrangements that should apply.

The number of jobs being worked on at the same time is also important. In the case of multiple job sites, the contractor should have sufficient supervision at all sites on a regular basis. The job site that is not visited regularly by the contractor having authority can quickly become disorderly and fall behind schedule. Inferior workmanship in plumbing, electrical and framing is quickly covered up and hidden if not observed regularly and frequently.

If the building is being constructed in areas subject to high winds, the walls should be properly shored up and braced before the roof is added to eliminate or reduce the chance of wind losses. Any other similar atmospheric or geographic issues that can affect construction need to be evaluated and adequate protection or needed safeguards implemented to reduce loss potential.

Written contracts and agreements are as important in the construction field as they are anywhere else. Contracts should be in place to establish ownership and responsibility and to reduce the chances of ambiguity and disagreement if a loss occurs. Ownership of building materials needs to be established, since the contractor in many cases is simply installing the goods and does not actually own them during the construction or installation process.

Attention to details early in the process pays benefits later. Small and insignificant details may not seem important until a loss occurs. The nature and details of the transit exposure should be analyzed and understood by all affected parties. Paper contractors usually have little or no exposure in this area compared to contractors that are more active and involved on the job site. Workers’ tools, scaffolding and related equipment are frequently overlooked but are subject to transit exposures and losses as much as building materials. Some types of property should be insured under contractors' equipment coverage. Others should be insured under builders' risk coverage. It is important to be certain that the transit limit is sufficient to cover the values exposed to the variety of transportation hazards.

The type of construction is a major factor in both underwriting and rating. Construction methods vary greatly, as do wind and fire exposures. Frame construction is by far the most common construction type and is also most subject to wind and fire losses. Brick veneer construction has little impact on loss potential, since it is simply a layer of masonry veneer attached to the wood frame and the basic construction must still be considered frame. Solid brick or masonry bearing walls construction stand up better to wind and fire but require greater construction time and damage can be more expensive to repair. Metal buildings are similar to frame with respect to the wind exposure. Metal building construction is vulnerable to a number of issues until the roof is securely attached but fire is not ordinarily one of them. Masonry-non-combustible and fire-resistive are the best types of construction but building using these materials takes more time and is considerably more expensive.

Any type of construction has its own issues relating to job site security against vandalism and theft. The more involved, elaborate and expensive types of construction require use of a variety of heavier equipment and this element affects the job site security issue more than anything else. As a result, these job sites require more security measures than those of lesser quality and having less equipment on the site whether occupied and operating or not.

It is important to understand the financial interests of all the parties in the property under construction and any contractual obligations that they have to one another. The worse case scenario is where each party believes the other is responsible for purchasing the builders’ risk coverage and nobody purchases it at all. If more than one policy is purchased, the only damage done is the amount of extra premium paid. If nobody arranges for coverage, it means the entire project is unprotected.

The coverage form to be used must be considered, since reporting forms are available in addition to scheduled and non-reporting forms. Each approach has advantages, disadvantages and responsibilities that the insured needs to understand. The reporting form is flexible and leads to a greater feeling of security but improper or inadequate reporting can diminish those advantages and spell disaster in the event of a loss.

Editor's Note: The coverages provided under IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Broad Form are included in IM 8000–Contractor's Combination Form–Scheduled Coverage. This form combines the coverages provided by four separate coverage forms into a single combination coverage form. The separate forms are IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Broad Form, IM 7000–Contractors' Equipment Coverage, IM 7203–Business Computer Coverage and IM 7100–Installation Floater Coverage.

IM 8000 is not analyzed or evaluated because the coverages provided are analyzed under the other coverage forms indicated.

AAIS BUILDERS' RISK COVERAGE FORMS

 

Introduction

Eligibility

Policy Construction

Schedules of Coverages

IM 7055–Schedule of Coverages–Builders' Risk Comprehensive Form

IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Comprehensive Form Analysis

   Introduction

   Agreement

   Property Covered

   Property Not Covered

   Coverage Extensions

   Supplemental Coverages

   Perils Covered

   Perils Excluded

   What Must Be Done in Case of Loss

   Valuation

   How Much We Pay

   Loss Payment

   Other Conditions

   Additional Coverage Limitations

   Definitions

IM 7056–Schedule of Coverages–Builders' Risk

IM 7051–Builders' Risk Coverage–Scheduled Jobsite Analysis

IM 7057–Schedule of Coverages–Builders' Risk–Contractors' Reporting Form

IM 7052–Builders' Risk Coverage–Contractors' Reporting Form Analysis

IM 7058–Schedule of Coverages–Builders' Risk and Installation Floater

IM 7053–Builders' Risk Coverage–Builders' Risk and Installation Floater Form Analysis 

IM 7059–Schedule of Coverages–Builders' Risk–Rehabilitation and Renovation

IM 7054–Builders' Risk Coverage–Rehabilitation and Renovation Form Analysis

Endorsements and Schedules

Underwriting Considerations

INTRODUCTION

The American Association of Insurance Services (AAIS) Builders' Risk Coverage Forms insure buildings or structures during construction, renovation, rehabilitation, or repair. The named insured may be the building owner, the builder/contractor, or the party whose building is being constructed, renovated, rehabilitated, or repaired. Coverage may apply to either a single construction project or multiple jobsites.

Non-reporting builders' risk coverage is written for the full, completed value of the project, but losses are paid based on the actual value of construction completed when the loss occurs. The premium is based on the full, completed value. The rating formula includes a discount factor that anticipates the value of the building when construction begins as zero and that does not reach its full value until construction is complete.

A number of reporting techniques or methods are available when builders' risk coverage is written on a reporting basis. Coverage form comparisons should include comparing the reporting method used and the premium payment arrangements available.

AAIS has developed five builders' risk coverage forms, each with its own corresponding schedule of coverages. A number of endorsements are available to tailor coverage to fit the unique needs of different types of construction projects. This analysis examines each of these coverage forms.

ELIGIBILITY

Any builder or contractor, owner, or purchaser with a financial interest in the building or structure under construction, renovation, or repair is eligible for coverage using the scheduled locations or jobsite forms. IM 7057–Builders' Risk Coverage–Contractors' Reporting Form and IM 7058–Builders' Risk Coverage–Builders' Risk And Installation Floater Form are restricted to only builders and contractors.

POLICY CONSTRUCTION

AAIS Builders' Risk coverage requires at least these four forms:

SCHEDULES OF COVERAGES

IM 7055–SCHEDULE OF COVERAGES–BUILDERS' RISK COMPREHENSIVE FORM

This Schedule of Coverages is used with IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Comprehensive Form. This analysis is of the 09 08 edition. Changes from the previous edition are in bold print. IM 7055–Schedule of Coverages–Builders' Risk Comprehensive Form contains the following information:

Scheduled Jobsites

All covered jobsites must be listed. Coverage does not apply to any jobsite not listed. IM 7087–Additional Builders' Risk Schedule is used to list jobsites that cannot fit on IM 7055 because of space considerations. Each listed jobsite must have a limit.

Catastrophe Limit

This is the most paid in any one occurrence or loss, regardless of the number of buildings, structures, or jobsites.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:


Supplemental Coverages

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

Deductible

One deductible is entered that applies per occurrence.

Coinsurance

An entry must be made that states that either 100% coinsurance applies or coinsurance provisions are waived.

Permission to Occupy

Either the permission to occupy granted box or the permission to occupy not granted box must be checked. If permission to occupy is granted, the date that the building or structure can be occupied is entered in the space provided.

Optional Coverages and Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included when the policy is issued.

IM 7050–BUILDERS' RISK COVERAGE–SCHEDULED JOBSITE FORM–COMPREHENSIVE FORM COVERAGE FORM ANALYSIS

INTRODUCTION

This coverage form insures buildings or structures during construction, erection, or fabrication against risks of direct physical loss or damage unless the loss is excluded or limited. Coverage applies only to buildings or structures at jobsites on the schedule of coverages.

Note: This analysis is based on the 09 08 edition. Changes from the previous edition are in bold print.

Lead-in language has been added with respect to the terms "you," "your," "we," "us," and "our." The terms you and your refer to the named insured. The terms we, us and our refer to the insurance company that issues the coverage. In addition, the Definitions section is now at the end of the coverage form.
(09 08 addition)

AGREEMENT

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

PROPERTY COVERED

Course of Construction: Coverage applies to the property described below, subject to any exclusions or limitations.

1. Coverage

Coverage applies to direct physical loss or damage to buildings or structures in the course of construction, erection, or fabrication. The loss or damage must be caused by or result from a covered peril.

2. Scaffolding, Fencing And Temporary Structures (09 08 addition)

Coverage also applies to direct physical loss or damage to scaffolding, construction forms, temporary fencing, and temporary structures. The loss or damage must be caused by or result from a covered peril.

 

Example: Carol acts as her own general contractor for her new home and purchases builders' risk coverage for the designated project. The building materials are delivered to the jobsite and are kept in a temporary storage shed on the jobsite, awaiting arrival of the construction crew. A sudden windstorm destroys the shed and $35,000 worth of materials. Coverage applies since the materials were intended to become part of the dwelling.

 

3. Coverage Limitation (09 08 changes)

Coverage applies only to buildings or structures in the course of construction, scaffolding, construction forms, temporary fencing, and temporary structures at jobsites listed on the schedule of coverages.

4. We Do Not Pay (09 08 addition)

The insurance company does not pay penalties imposed because:

 

Example: Carol's construction project affects the appearance of the neighborhood and traffic patterns in the nearby area. As a condition for approving the project, she agrees to clean up the jobsite daily and place debris to be disposed of in an area not visible to passers-by. Failure to do so results in a daily fine of $100. Carol fails to clean up the site on seven different occasions and is fined for each one of them. She submits these penalties to the insurance company but it refuses to pay them because of this condition.

PROPERTY NOT COVERED

Ten specific types of property are excluded:

1. Aircraft or Watercraft

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

2. Contraband

These are goods that are illegal to possess or that are legal but in the course of illegal transportation.

3. Land

This is any land, including the land where the covered construction jobsite is located.

4. Money and Securities

This means a number of different types of property. Accounts, bills, currency, food stamps, evidences of debt, and lottery tickets not held for sale, in addition to money, notes or securities are not covered.

Note: This property should be insured under commercial crime coverage forms.

5. Not A Permanent Part of Building (09 08 addition)

Coverage does not apply to materials, supplies, machinery, tools, equipment, and any other business personal property when they are not intended to become a permanent part of a covered building or structure. The only exception is coverage provided under Supplemental Coverages–Personal Property.

 

Example: Gus is having a new building constructed to house his coin-operated laundry and dry cleaning business. He decides to store some of his older cleaning equipment that he intends to sell in one section of the building under construction until he can sell it. Straight-line winds cause an improperly braced bearing wall to collapse, fall on, and destroy the equipment. The loss to the equipment is not covered because of this provision.

 

6. Roadways and Walkways (09 08 addition)

There is no coverage for walkways, roadways, and other paved surfaces over 1,000 feet from the covered building or structure. Such items are also not covered if they are not next to (or part of) a covered building or structure.


 

Example: Gus is constructing a building at the far end of the jobsite. He built an access road to the site from the highway but recent rains washed it away. As a temporary measure, the crew uses the driveway that services the completed buildings at the front of the jobsite. A concrete truck causes that driveway to give way because the land under it is also inundated. The damage to the driveway is excluded because it is over 1,000 feet from the building under construction.

 

7. Standing Building or Structure (09 08 change)

There is no coverage for any part of a standing building or structure that was wholly or partially constructed, erected, or fabricated prior to this coverage form’s effective date. Buildings or structures being rehabilitated or renovated are also not covered. Examples of rehabilitation and renovation are alterations, improvements, repairs, and additions.

8. Trees, Shrubs Or Plants (09 08 addition)

The insurance company does not pay for loss or damage to trees, shrubs, plants, or lawns. The only exception is coverage provided under Supplemental Coverages–Trees, Shrubs, and Plants.

 

Example: Gus purchased a number of decorative and ornamental trees and shrubs at a deeply discounted price at the end of the season and planted them around the building after the walls and roof were in place, figuring they would be safe. In addition to the damage caused to the driveway in the example above, the concrete truck failed to observe them as it backed up and over a number of them. The loss was excluded under this coverage as well as under the supplemental coverage because it was not caused by a covered peril.

 

9. Vehicles

Any type of self-propelled vehicle intended for use on public highways (including automobiles) is not covered property. It is more correctly insured under an automobile coverage form.

10. Waterborne Property (09 08 addition)

Property that is waterborne is covered only while in transit and in the custody of carriers for hire. The only exception is coverage provided under Coverage Extensions–Waterborne Property.

COVERAGE EXTENSIONS

Provisions That Apply To Coverage Extensions

There are six coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the specific coverage item. These coverages are part of the limit that applies for covered property and not in addition to it, unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

The insurance company pays costs incurred to remove debris caused by a covered peril occurring. The most paid is 25% of the amount paid for the actual direct physical loss or damage. The combined value of the direct loss or damage and the debris removal cannot exceed the limit of insurance for the covered property.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property. Debris removal expenses must be reported to the insurance company within 180 days of the loss date in order for this extension to apply. Debris removal is demolishing, clearing, and removing debris of covered property (09 08 addition).

Note: This coverage extension does not apply to any pollutant cleanup, extraction, removal, restoration, or replacement that involves either land or water.

2. Emergency Removal

This covers direct physical loss or damage to covered property while it is being moved or stored elsewhere in an attempt to avoid loss or damage from a covered peril. Coverage applies for up to 365 days after the property is first moved but does not extend past the expiration date. The number of days can be increased.

Note: Since coverage does not extend past the expiration date, if the named insured has property at an emergency location when coverage renews, the emergency location must be listed as a premises or coverage no longer applies.

 

Example: Cutting Corners Contractors' owner knows that tomorrow's predicted tornado activity might wreak havoc on the incomplete apartment building under construction and the building materials and supplies scattered around the jobsite. Since the storage facility on the jobsite is in generally poor condition, he packs up as much of the materials as he can fit on a 26-foot box truck and drives it to a fellow contractor's warehouse where he parks the vehicle inside and keeps it there until the weather clears. A flash flood causes a creek to rise, pick up the truck, and destroy all the cargo. Even though this coverage form does not cover flood, this loss is covered because the items were initially moved to protect them from the covered peril of wind.

 

3. Emergency Removal Expenses

This coverage extension pays the expenses for the named insured to move covered property away from a covered location threatened by a covered peril. It also pays for the storage fees incurred to keep it at a safe location for up to ten days after the property is first moved. The most paid for such expenses in any one occurrence is $10,000. Coverage ends when the policy expires, even if the items are still at the safe location.

This is additional coverage. As a result, all such expenses paid are in addition to the limit of insurance for this property.

4. Fraud and Deceit

The insurance company covers theft of covered property when the named insured (or its agents, consignees, or customers) give the property away. This applies when it is given because persons falsely represent themselves as the proper persons to receive the property it. It also applies when it is given because fraudulent bills of lading or other shipping receipts are presented. This also applies when electronic data processing hardware or software fraudulently induces the property to be given away. The most paid in any one occurrence is $50,000.

Note: This is a sub-limit. If the property limit at the location is less than $50,000, the property limit caps the amount available. The limit can be increased but remains a sub-limit to the property limit.

 

Example: Ron is notified via email that the cabinets he just received are faulty and should be returned immediately. He dutifully sends the cabinets to the “Return Center” referred to in the notice and waits for the replacement cabinets. When Ron contacts the cabinetmaker ten days later, he discovers that the cabinetmaker did not send the notice. By then, the cabinets are long gone and Ron sadly realizes that he has been swindled. This coverage extension covers the loss.

 

5. Limited Fungus Coverage (09 08 change)

Note: This coverage extension is only a small amount of coverage provided as an exception to the Fungus exclusion.

a. This coverage extension applies to only the costs and expenses required because fungus is present on covered property. The fungus must be on the covered property because of a covered peril. Coverage also applies to direct physical loss or damage to covered property when due to any activity of fungus.

b. Loss or damage caused by or that results from fungus is covered only if it is a result if a specified peril (other than fire, lightning, or flood). The specified peril must occur during the same policy period as the fungus loss or damage. This is subject to the named insured having taken all reasonable steps to protect the property from additional loss or damage at and after the time of loss. The limit can be increased.

c. The most paid for all loss or damage at all buildings or structures is $15,000 (regardless of the number of claims, locations, buildings, or structures) during any 12-month policy period. The limit can be increased.

d. When a policy is extended instead of being renewed, the limitation continues to apply. The extension does not provide an additional limit of coverage.

e. If a specific loss occurrence results in fungus (and that fungus recurs or continues to exist during the current or future policy periods), it continues to be subject to the amount of the initial policy’s limitation.

f. Cleanup, removal, and testing activities and costs related to a fungus incident are covered but subject to the same limit of insurance.

g. This coverage does not limit coverage for other covered loss or damage that is not caused by fungus. However, if fungus damage increases otherwise covered losses, any such increase is subject to the terms of this coverage extension.

6. Waterborne Property

The insurance company pays up to $10,000 in any one occurrence for direct physical loss or damage to covered property caused by or that results from a covered peril while waterborne. This limit can be increased.

SUPPLEMENTAL COVERAGES

Provisions That Apply To Supplemental Coverages

There are 12 supplemental coverages. Each has its own default limit that can be increased on the schedule of coverages. If there is no limit for a supplemental coverage, coverage is provided up to the full limit for the applicable covered property. Limits for any supplemental coverage are separate from and not part of the applicable limit for covered property.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

Note: The Supplemental Coverages for Contract Penalty, Earthquake Coverage, Flood Coverage, and Testing in the previous edition are not in this edition. (09 08 change)

1. Expediting Expenses

When a covered loss causes a job to fall behind schedule, the insurance company pays up to $10,000 in any one occurrence for expenses the named insured incurs to meet the construction timetable specified in the construction contract. Some examples are overtime pay, hiring additional labor, transportation costs, storage expenses, and costs of renting additional equipment. This limit can be increased.

 

Example: A windstorm blows down the framing for a building and forces construction to re-start. This puts the project two weeks behind schedule and results in enforcing the $1,000 per day penalty clause in the construction contract. The contractor decides to hire three additional workers to get caught up and avoid the penalties. This supplemental coverage applies to the wages of the additional workers but not the penalty.

 

2. Expense to Re-erect Scaffolding (09 08 addition)

This supplemental coverage pays the named insured's expenses to re-erect scaffolding after covered loss or damage to a building or structure. The most paid is $5,000. This limit can be increased.

Note: The building or structure must have been damaged, not necessarily the scaffolding.

 

Example: A sudden wind burst from a squall line causes the partial collapse of a building for Wally's Wineries. As a result, Brad's Builders must incur the extra expense to re-erect the scaffolding so construction can continue. This supplemental coverage pays those expenses up to the $5,000 limit.

 

3. Fire Department Service Charges

Coverage applies to liability the named insured assumes under a written contract or agreement for fire department service charges. The contract or agreement must be in place before a loss occurs. The coverage provided is limited to only such charges incurred to save or protect covered property from a covered peril. Payment is limited to $1,000. This limit can be increased.

Note: This supplemental coverage is not subject to a deductible.


4. Ordinance or Law (Undamaged Parts of a Building)

a. When a covered building or structure sustains direct physical loss or damage from a covered peril, and a governmental entity requires that the rest of it be demolished because of enforcing an ordinance, law, or decree, the insurance company pays for the value of the undamaged portions. Coverage applies only if the regulation requires demolishing the undamaged parts, regulates the construction or repair of the property, or establishes specific requirements for zoning or land use at the covered location. The ordinance, law, or decree must be in force at the time of loss.

b. However, there is no coverage for:

c. This coverage is part of the applicable limit for coverage described under Property Covered, not in addition to it.

5. Ordinance or Law (Increased Cost to Repair and Cost to Demolish/Clear Site)

a. The insurance company pays the increased cost to repair, rebuild, or reconstruct the damaged portions of a building or structure. Such changes to undamaged portions are also covered without requiring that they be demolished. The costs must occur when building, zoning, or land use laws that were in effect when a covered building or structure sustains direct physical loss or damage from a covered peril are enforced.

The repaired or rebuilt property must be for a similar occupancy or for the same purpose as the prior building (unless regulations require a change). Increased costs of construction are not covered until construction is actually done and completed. The time limit for completion is as soon as possible (within reason) but not more than two years following the date of loss.

b. The building or structure may be repaired/rebuilt at the same location or rebuilt at another one. The insurance company may extend the two-year period to repair or replace if it does so in writing. (09/08 change)

The insurance company also pays the costs to demolish and clear undamaged portions of the covered building or structure on the site of the covered loss. However, this is only when it is required by a government regulation in force at the time of the covered loss or damage.

c. There is no coverage for:

d. If the building is repaired or replaced at the same site or the named insured chooses to build at another location, the insurance company pays the amount spent to demolish and clear the site of undamaged parts of the covered building or structure. The company also pays the actual increased cost to rebuild with like kind and quality for the same purpose. The most paid for the combination of demolition and rebuild/repair is $50,000, unless there is a different limit on the schedule of coverages.

If the building is relocated due to requirements of an ordinance or law, the insurance company pays the amount the named insured spends to demolish and clear the site. The company also pays the increased cost to construct a near duplicate building or structure at a new location. The most paid for the demolition and reconstruction is $50,000 unless there is a different limit on the schedule of coverages. (09/08 changes)

If the building is not repaired or replaced, the insurance company pays the amount actually spent to demolish and clear the site. The most paid $50,000 unless there is a different limit on the schedule of coverages.

6. Personal Property

Business personal property not intended to be installed in (or become a permanent part of) the covered building or structure has limited coverage. It is covered for loss or damage caused by or that results from a covered peril but only when it is in a covered building or structure. Coverage is further limited to not more than $10,000 unless there is a different limit on the schedule of coverages.

 

Example: Brad's Builders sets up a small temporary office area and break room on the ground floor of a building it is constructing. Loss or damage caused by a covered peril to the business personal property in this area is covered.

 

7. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if the pollutant release or discharge was caused in any way by a covered peril that occurred during the policy period.

b. The expenses to extract pollutants are paid only if reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are not covered but the costs of testing that are a necessary part of extracting pollutants from land or water are covered.

d. The most paid is $25,000 at each location for all such expenses caused by a covered peril that occurs during each separate 12-month policy period. The limit can be changed.

8. Rewards (09 08 changes)

a. This coverage pays rewards to eligible persons for information that leads to the arrest and conviction of anyone who commits an act of arson, vandalism, or theft. The arson, vandalism, or theft must have caused a loss that this coverage form insures. It also pays rewards to eligible persons who return stolen covered property.

b. An eligible person is the first one who returns stolen covered property or voluntarily provides law enforcement with necessary information. Eligible persons do not include:

c. A reward payment is not made until and unless stolen covered property is returned (or the person or persons who committed the crime are convicted).

d. The most paid in any one occurrence is $1,000. This limit can be increased.

9. Sewer Backup (09 08 changes)

a. Coverage

Coverage applies to direct physical loss or damage to covered property caused by or that results from water or water-borne material:

b. Coverage Limitations

Coverage does not apply to loss or damage caused by or that results from:

c. Limit

The most paid in any one occurrence is $10,000. This limit can be increased.

10. Temporary Storage Locations

a. Coverage

The following are covered for direct physical damage caused by or that results from a covered peril while at a location not listed on the schedule of coverages:

Note: This item applies only to personal property described under Supplemental Coverage 6. Personal Property

b. We Do Not Cover

Coverage does not apply to stored property not specifically destined for or identified with a covered building or structure. (09 08 change)

c. Limit

The most paid in any one occurrence is $10,000. This limit can be increased.


 

Example: The valuable plants, shrubs, and trees delivered from out of state arrive before the siding on the building is installed and are stored at a nearby greenhouse until the jobsite is ready. A sudden violent windstorm destroys the greenhouse and all the plants. This loss is not covered because windstorm is not a covered peril in the trees, plants and shrubs supplemental coverage. Had the loss been due to fire, they would have been covered for up to $10,000.

 

11. Transit

a. Coverage

Coverage applies to direct physical loss or damage caused by or that results from a covered peril to the following property while being transported:

Note: This item applies only to personal property described under Supplemental Coverage 6.

b. Limit

The most paid in any one occurrence is $10,000. This limit can be increased.

12. Trees, Shrubs, and Plants

Outdoor trees, shrubs, plants, and lawns are covered for direct physical loss or damage caused by a covered peril at covered jobsites. The debris removal expenses of damaged trees, shrubs, and plants are part of this supplemental coverage. The only covered perils are fire, lightning, explosion, riot, civil commotion, falling objects, and vandalism. The most paid in any one occurrence is $10,000. This limit can be increased.

PERILS COVERED

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

PERILS EXCLUDED

1. The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

Note: The Penalties Exclusion in the previous edition is not in this edition.

a. Civil Authority

There is no coverage for loss that results from the order of any civil or government authority. This includes (but is not limited to) seizure, confiscation, destruction, or quarantine of property. Coverage does apply for loss or damage caused when a civil authority destroys property in order to prevent the spread of fire. However, that fire must be the result of a covered peril.

b. Earth Movement (09 08 change)

Coverage does not apply to loss or damage caused by any earth movement. However, if eruption, explosion, or effusion of a volcano results in volcanic action, the insurance company pays for the loss or damage caused. If earth movement results in fire, the insurance company pays for its resulting loss or damage. If earth movement other than eruption, explosion, or effusion of a volcano results in an explosion, the insurance company pays for its resulting damage. This exclusion does not apply to loss or damage to covered property in transit.

c. Flood (09 08 change)

The insurance company does not pay for loss or damage caused by flood or waterborne material carried or moved by flood. There is no coverage even when driven by wind. Storm surge or material carried or moved by mudslide or mudflow is also excluded. However, coverage does apply to loss or damage caused by or that results from fire, explosion, or sprinkler leakage caused by flood. This exclusion does not apply to loss or damage to covered property in transit.

d. Fungus

Coverage does not apply to loss, damage, cost, or expense caused by or related to the existence or any activity of fungus, except as provided under Coverage Extensions–Limited Fungus Coverage. However, if fungus results in a specified peril, coverage applies to the loss or damage caused by that specified peril. This exclusion does not apply to loss or damage that results from fire, lightning, or when collapse is caused by hidden decay.

e. Nuclear Hazard (09 08 change)

The insurance company does not insure against loss or damage caused by or that results from any nuclear reaction, radiation, or contamination (whether controlled or not) or caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke. However, coverage applies to direct loss or damage caused by fire that results from the nuclear hazard.

f. Ordinance or Law

There is no coverage for any loss or increased construction costs because of enforcing any government regulation that controls the use, construction, or repair of any property. Loss because of a requirement to demolish property and remove its debris is also not covered. This exclusion also applies to enforcement that occurs even if the property has not been damaged and to increased costs incurred as a result of complying with the regulation. This includes any construction, demolition, or debris removal activities.

Note: Limited coverage is available under Supplemental Coverages–Ordinance or Law (Increased Cost to Repair and Cost to Demolish/Clear Site).

g. Sewer, Septic Tank, Sump or Drain Backup and Water below the Surface (09 08 change)

Coverage does not apply to loss or damage to covered property caused when water or waterborne material backs up, overflows, or overflows or is discharged through a sewer, drain, sump, septic tank, eaves trough, or downspout. Loss or damage caused when water or waterborne material below the surface exerts pressure on (or that flows, seeps, or leaks through or into) buildings, sidewalks, driveways, foundations, swimming pools, or other structures (whether it occurs naturally or artificially) is also excluded. However, if any of these results in fire, explosion, or sprinkler leakage, the insurance company pays for the loss or damage caused by the fire, explosion, or sprinkler leakage.

Note: Limited coverage is available under Supplemental Coverages–Sewer Backup. In addition, this exclusion does not apply to loss or damage to covered property in transit.

h. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. This means undeclared and civil war or warlike action by a military force is excluded. In addition, all actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also excluded. Acts of insurrection, rebellion, revolution, or unlawful seizure of power are not covered and any action any government authority takes to prevent or defend against any such acts are also excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

2. The second group of exclusions applies to loss or damage caused by or that results from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be examined carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. Corrosion, decay, fungus, mildew, mold, rot, rust, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself are examples of contamination or deterioration (but other items could be included). If any of these causes a covered peril to occur, the loss or damage from that covered peril is covered

b. Criminal, Fraudulent, Dishonest, Or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts, committed alone or in collusion with another, by any of the following:

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

Coverage applies if employees destroy property. It does not apply if employees steal.

This exclusion does not apply to covered property in the custody of a carrier for hire.


c. Defects, Errors, and Omissions

There is no coverage for loss or damage caused by any act, defect, error, or omission that relates to specific construction activities due to acts of negligence or otherwise. The defects, errors, and omissions can be in design, specifications, construction, materials, and workmanship, as well as maintenance, installation, renovation, remodeling, or repair. They may also be in planning, zoning, development, siting, surveying, grading, or compacting activities. If any of these excluded activities results in a covered peril, coverage applies to the resulting loss or damage caused by that covered peril.

d. Delay in Completion and Increased Construction Costs (09 08 addition)

The insurance company does not pay for any direct or indirect loss or damage caused by or that results when construction, erection, or fabrication of a building or completing a structure is delayed or its sequence changes. Increased construction costs caused by or that results from such delays in completion or changes in sequence are also excluded. Some examples of increased construction costs that are excluded are:

e. Electrical Currents

Loss or damage caused by electrical arcing or currents is excluded, unless caused by lightning. However, if the excluded arcing or currents results in a specified peril occurring, the resulting loss or damage caused by that peril is covered.

Note: This exclusion applies only to property that artificially generates the current.

f. Loss of Use and Consequential Loss

Loss or damage caused by or that results from loss of use, delay, loss of market, or any consequential loss or damage of any kind is excluded.

g. Mechanical Breakdown

Coverage does not apply to loss or damage caused by or that results from mechanical breakdown, rupture, or bursting of the moving parts of machinery caused by centrifugal force. However, if one of these events results in a specified peril occurring, coverage applies to the loss or damage caused by or that results from that specified peril.

h. Missing Property

Unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to indicate what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. This exclusion does not apply to covered property in the custody of carriers for hire.

i. Pollutants

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

j. Steam Boiler Explosion (09 08 change)

The insurance company does not pay for loss or damage caused by or that results from explosions of steam boilers, pipes, turbines, or engines. However, if one of these explosions results in a fire or combustion explosion, coverage applies to the loss or damage caused. Loss or damage caused by or that results from explosion of gas or fuel in a firebox, flue, or combustion chamber is also covered.

Note: This exclusion replaces the Explosion, Rupture or Bursting Exclusion in the previous edition.

k. Temperature/Humidity

Loss or damage caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded. If any of these events results in a covered peril occurring, the resulting loss or damage caused by that peril is covered.

l. Voluntary Parting

If covered property is voluntarily given to another, there is no coverage for the loss of that property. There is no coverage even if a fraudulent scheme, trick, or false pretense caused the property or title to be surrendered. However, Coverage Extensions–Fraud or Deceit provides limited coverage.

m. Wear And Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded. However, if any of these results in a covered peril occurring, the loss or damage caused by or resulting from that covered peril is covered.

Note: Wear and tear is damage, diminishment in value, or erosion due to long or hard use or exposure, including breakdown over time and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If the act that caused the loss was criminal, the appropriate law enforcement agency must also be notified.

Note: The insurance company has the right to require the notice be in writing.

2. You Must Protect Property

During and after a loss, all reasonable steps must be taken to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs to do so provided accurate records are kept that substantiate the costs. Payment of these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days of its request to do so. The information provided must include the time, place, and circumstances surrounding the loss and information on any other insurance coverage that may apply. It must also include the interest of the named insured and others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations on multiple occasions but only if such requests are reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must maintain and produce any records that relate to the loss. The insurance company must be permitted to make copies and take extracts of them as often as it reasonably requests. Records include (but are not limited to) tax returns and bank microfilms of all related cancelled checks.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company to inspect as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

If the named insured voluntarily makes any payments, assumes any obligations, pays or offers rewards, or incurs any other expenses without the insurance company's express approval, it does so at its own expense. The only exceptions are those costs incurred to protect property as outlined in item 2. of this section.

8. Abandonment

Abandoning damaged property to the insurance company without its written consent is prohibited.

9. Cooperation

The named insured must cooperate with the insurance company in performing all acts the policy requires.

VALUATION

1. Replacement Cost (09 08 changes)

The value of covered property is based on its replacement cost.

a. Replacement Cost means costs of materials and labor the named insured incurs to repair or replace the part of covered property that sustains direct physical loss or damage. The costs must be both reasonable and necessary. There is no deduction for depreciation. Overhead and profit related to the lost or damaged covered property are included but cannot be for more than the amount charged in the construction contracts for the project and work.

If included within the limits, other related construction costs and expenses also incurred to repair or replace the lost or damaged part of covered property are also covered.

b. Replacement Cost Limitations

Replacement cost is not more than the cost to repair the lost or damaged property with similar materials for the same purpose and at the same job site.


 

Example: Mary is building a new house at 131 Robin Lane. A truck slides off the road and destroys the house midway through construction. Mary decides that she doesn’t want to build at that location and trades her lot back to the developer for one at 145 Robin Lane instead. The insurance company pays the same amount to build the house at 145 Robin Lane that it would have paid to replace the building at 131 Robin Lane.

 

c. Payment Limitation

If the lost or damaged covered property is repaired or replaced, payment does not exceed the amount the named insured spent to do so.

2. Pair or Set

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

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

3. Loss to Parts

The value of a lost or damaged part of property consisting of several parts is the cost to repair or replace only the lost or damaged part.

HOW MUCH WE PAY

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: Insurance is meant to restore a person’s pre-loss financial position, not to improve or enhance it.

2. Deductible

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

Note: This is an occurrence deductible.

3. Loss Settlement Terms

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

4. Catastrophe Limit

The Catastrophe Limit on the schedule of coverages is the most the insurance company pays for a single occurrence. This limit applies regardless of the number of buildings, structures, jobsites, or combination of all that sustain loss or damage in the same occurrence.

5. Coinsurance (09 08 change)

a. When Coinsurance Applies

The insurance company pays only part of the loss if, at the time of the loss, the limit is less than 100% of the estimated completed value of the covered property. This provision can be waived by an entry on the schedule of coverages.

b. How We Determine Our Part Of The Loss

The three steps in determining the amount of the loss to be paid are:

Step 1. Determine the full 100% value of the property as if it had been completed and as if no loss had occurred.

Step 2. Divide the limit for covered property by the result determined in step 1.

Note: There is no coinsurance penalty if the result is1.00 or higher.

Step 3. When step 2. is less than 1.00 a coinsurance penalty applies. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in step 2.

The insurance company does not pay more than the amount determined in step 3. or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If There is More Than One Limit

If there is more than one limit on the schedule of coverages, this procedure applies separately to each limit.

d. If There is Only One Limit

If there is only one limit on the schedule of coverages, this procedure applies to the total of all covered property to which that limit applies.


 

Example: The estimated completed value of a building on the schedule of coverages is $300,000. A $1,000 deductible applies. Construction is almost 90% complete when a fire causes a loss amounting to $275,000. After a review of the changes made as construction progressed, the actual completed value would have been $325,000 if there had been no loss. As a result, the loss is paid as follows:

Step1. The estimated completed value is $325,000.

Step 2. $300,000 divided by $325,000 = .923. This is the coinsurance penalty factor.

Step 3. $275,000 minus the $1,000 deductible equals $274,000 multiplied by .923 = $252,902.

In this example, the insurance company pays $252,902 and the named insured is responsible for the remaining $22,098.

 

6. Insurance under More Than One Coverage

If two or more coverages in the coverage form cover the same loss, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

7. Insurance under More Than One Policy

a. Proportional Share

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

b. Excess Amount

If there is other coverage available that would pay for the loss (other than as described in item 7.a.) this coverage form pays on an excess basis. This means that only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not, is paid. Any payment is subject to the policy limit of insurance.

LOSS PAYMENT

1. Loss Payment Options

a. Our Options

The insurance company has four loss payment options if a covered loss occurs.

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

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

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured, unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

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

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company can adjust and pay losses that involve property of others with either the named insured acting on behalf of the property owner or with the property owner, at its option.

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

When the insurance company pays the property owner, it is not obligated to pay the named insured. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.


OTHER CONDITIONS

1. Appraisal

The insurance company and the named insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and supply the appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within 15 days, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

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

b. Policy Period Is Not Extended

This coverage does not extend past the coverage expiration date.

5. Misrepresentation, Concealment, Or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. If it intentionally misrepresents or conceals a material fact or information, its rights of recovery may be voided. This means that the insurance is treated as simply having never existed versus a particular claim being denied.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Payment of the loss does not end the obligations of the named insured and the insurance company toward one another. If the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it, additional provisions apply.

Either party that recovers property or payment must inform the other. Recovery expenses incurred by either party are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless the parties agree to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or other limitations, any recovery is prorated between the named insured and the company based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims unless it is a total loss to a scheduled item. In that case, the insurance company refunds any unearned premium on that item to the named insured.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must assist the insurance company to secure those rights. If it hinders or impairs the company's rights of subrogation, the company is not obligated to pay the loss.

Note: The named insured can agree in writing to waive rights of recovery from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been met. Suits must be brought within two years after the named insured first had knowledge of a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories and possessions, Canada, or Puerto Rico in order for coverage to apply.

12. Carriers for Hire

The named insured is permitted to accept shipping documents from transportation companies that limit the carrier's liability to amounts that are less than the replacement cost or actual cash value of the covered property.

ADDITIONAL COVERAGE LIMITATIONS

1. Coverage Not Provided During Occupancy and Use

Coverage does not apply if a covered building or structure is partially or completely occupied or put to its intended use without the insurance company's written consent and agreement. This provision does not apply if permission to occupy is granted and there is such an entry on the schedule of coverages.

 

Example: ABC Construction builds four-unit condominium buildings. The entire building is constructed first and then each unit is finished one at a time. Once a unit is finished out, ABC attempts to sell it and transfer the title in order to free up capital. The insurance company agrees to this partial occupancy situation and verifies it by the appropriate entry on the schedule of coverages.

 

2. When Coverage Ceases

Coverage ends at the earliest of the following events:

Note: This is an important area that could cause the named insured problems. Even though coverage extends up to 90 days after construction is complete, this becomes two days when construction is completed only two days before the expiration date. In other words, 90 days of coverage is available after construction is complete but only if 90 or more days remain until expiration. This coverage limitation is subject to a number of variations, since insurance companies recognize the problems that can arise, particularly with coverage forms written on a reporting basis. This coverage limitation must be reviewed carefully and discussed with the client, with particular care taken to point out the potential problems.

 

Example: Peter finishes a home and designates it as a model home. He believes it is covered under his builders risk coverage for up to 90 days and does not obtain separate insurance for it. Unfortunately, his builders risk coverage expired and was renewed three days after the model home was completed. Even though the coverage provided was not interrupted and was with the same carrier, the builders' risk coverage expired and, with it, the coverage on the completed model home.

DEFINITIONS

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Twelve terms are defined:

1. Buildings or structures

This is the buildings and structures as well as materials and supplies intended to be a permanent part of the building or structure. It is also foundations, grading, permanent fixtures and fencing plus attachments. (09/08 addition)

Note: This is very important because it affects what is considered completed value. A misunderstanding could result in a coinsurance penalty.

2. Earth movement

The following items are earth movement:

Note: Earth movement does not include sinkhole collapse.

3. Flood

This is water that overflows or inundates areas normally dry and not covered by water, whether caused naturally or artificially. It can be caused by human or animal forces or by acts of nature. Flood is all of the following but is not limited to them:

4. Fungus

Fungus is part of this definition but is not limited to only mold and mildew. Protists such as algae and slime mold are included but other protists are also included. This definition also considers wet rot, dry rot, and bacterium as fungus. Chemicals, matter, or compounds produced or released by any of the above items are also fungus, including their toxins, spores, fragments, and metabolites, such as microbial volatile organic compounds.

5. Jobsite

This is any location, project, or work site where the named insured is constructing, erecting, or fabricating buildings or structures.

6. Limit

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

7. Pollutant

This is a broad and expansive term. It includes solids, liquids, thermal, or radioactive contaminants and irritants including, but not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste also includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

8. Schedule of coverages

This is any page labeled as such that contains coverage information, including declarations or supplemental declarations.

9. Sinkhole collapse

This is the sudden settling or collapsing of the earth's surface into an underground opening created by water that acts on limestone or some other rock formation. Sinkhole collapse does not include either the value of the land or the cost to fill sinkholes.

10. Specified perils

These are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm.

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

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

11. Terms

These are all the policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.


12. Volcanic action

This is airborne volcanic blast or shock waves. It includes ash, dust, and particulate matter. It also includes lava flow but does not include the cost to remove dust, ash, or particulate matter that does not directly damage covered property.

IM 7056–SCHEDULE OF COVERAGES–BUILDERS' RISK

This Schedule of Coverages is used with IM 7051–Builders' Risk Coverage–Scheduled Jobsite Form. IM 7056–Schedule of Coverages–Builders' Risk contains the following information:

Scheduled Jobsites

All covered jobsites must be listed. Coverage does not apply to any premises not listed. IM 7087–Additional Builders' Risk Schedule is used to list jobsites that cannot fit on IM 7056 because of space considerations.

Catastrophe Limit

This limit is the most paid in any one occurrence or loss, regardless of the number of buildings, structures, jobsites, or any combination of these.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full limit in the coverage form applies, subject to any limitations in the coverage extension.

Supplemental Coverages

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

Deductible

One deductible is entered that applies in a single occurrence.

Coinsurance

An entry must be made to show that either 100% coinsurance applies or coinsurance provisions are waived.

Optional Coverages and Endorsements

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7051–BUILDERS' RISK COVERAGE–SCHEDULED JOBSITE FORM COVERAGE FORM ANALYSIS

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Comprehensive Form analyzed above except for four sections. This analysis addresses only the four sections that are different.

PROPERTY NOT COVERED

IM 7050 excludes property that is Not A Permanent Part Of Building and Trees, Shrubs Or Plants, except as provided under Supplemental Coverages. IM 7051 also excludes this property but does not have provisions for them under Supplemental Coverages.

COVERAGE EXTENSIONS

The following Coverage Extensions in IM 7050 are not in IM 7051:

SUPPLEMENTAL COVERAGES

The only Supplemental Coverages in IM 7051 are Expense to Re-erect Scaffolding, Fire Department Service Charges, Pollutant Cleanup and Removal, Storage Locations, and Transit. The Expense to Re-erect Scaffolding limit in IM 7050 is $5,000. It is $2,500 in IM 7051.

The following Supplemental Coverages in IM 7050 are not in IM 7051:

PERILS EXCLUDED

IM 7057–SCHEDULE OF COVERAGES–BUILDERS' RISK–CONTRACTORS' REPORTING FORM

This Schedule of Coverages is used with IM 7052–Builders' Risk Coverage–Contractors' Reporting Form.
IM 7057–Schedule of Coverages–Builders' Risk–Contractors' Reporting Form contains the following information:

Limits

A limit of insurance is entered for each of the following:

Catastrophe Limit

This is the most paid in any one occurrence or loss, regardless of the number of buildings, structures, jobsites, or any combination of these.


Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Supplemental Coverages

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

Deductible

This is the most paid in any one occurrence or loss, regardless of the number of buildings, structures or jobsites.

Reporting Conditions

The estimated completed value of each covered building or structure is reported monthly, quarterly, annually, or any other specified period. Premiums are adjusted monthly, quarterly, annually, or any other specified period.

Note: Reporting conditions may be waived.

Additional Premium Due After Expiration

When the premium is based on reports of value, any additional premium the named insured owes is due and payable on the date stated on the billing statement. This is based on the rate that applies to the Coverage/Construction.

Premiums

Spaces are provided to enter the deposit and minimum premiums.

Permission to Occupy

Either the permission to occupy granted box or the permission to occupy not granted box must be checked. If the named insured is granted permission to occupy, the date that the building or structure can be occupied is entered in the spaces provided.

Optional Coverages And Endorsements

This section of the schedule of coverages shows endorsements and forms included when the policy is issued.

IM 7052–BUILDERS' RISK COVERAGE–CONTRACTORS' REPORTING FORM ANALYSIS

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Comprehensive Form analyzed earlier except for four sections. This analysis addresses only the four sections that are different.

PROPERTY COVERED

One coverage is changed.

1. Course Of Construction

The coverage limitations are modified to:

Two coverages are added.

2. Contingent Coverage

a. Coverage

Coverage applies to direct physical loss or damage to buildings or structures in the course of construction, erection, or fabrication. The loss or damage must be caused by or result from a covered peril.

b. When Coverage Applies

Coverage applies only when there is a contractual obligation for the building purchaser to maintain insurance coverage in force and it fails to do so. In addition, the named insured must be unable to collect its interest in the building or structure.

c. Coverage Limitations

Coverage applies only if a limit is entered on the schedule of coverages for Contingent Coverage and the buildings or structures in the course of construction are at the named insured's jobsite. This limit is not to be combined with or added to the limit for any other coverage described in Property Covered.

 

Example: Paul is a custom homebuilder. He gives his customers the option of purchasing their own builders' risk coverage. If they do, they agree contractually to provide the coverage so that Paul's interest is also protected. Maxine signs the construction contract and the agreement but neglects to contact her insurance agent to arrange the coverage. A loss occurs and Paul discovers that there is no coverage on the project. Paul must attempt to collect the loss from Maxine. If he cannot, his insurance company pays based on this Contingent Coverage.

 

3. Difference in Conditions Coverage

a. Coverage

Coverage applies to direct physical loss or damage to buildings or structures in the course of construction, erection, or fabrication. The loss or damage must be caused by or result from a covered peril.

b. When Coverage Applies

Coverage applies only when the named insured is contractually required to provide Difference In Conditions Coverage for a building or structure. This is coverage for direct physical loss or damage unless caused by an excluded peril or a specified peril.

c. Coverage Limitations

Coverage applies only if there is a limit on the schedule of coverages for Difference In Conditions Coverage and the buildings or structures in the course of construction are at the named insured's jobsite. This limit is not to be combined with or added to the limit for any other coverage described in Property Covered.

 

Example: Paul’s latest client agrees to provide basic perils coverage for his new home but requires that Paul obtain difference in conditions coverage for other potential perils. When Paul discovers that copper valued at $10,000 is stolen from the jobsite, the loss is covered. However, Paul's coverage does not respond when windstorm destroys the building because the client's basic perils coverage insures that loss.

PROPERTY NOT COVERED

Item 7. in IM 7050 is Standing Building or Structure. It removes coverage for any part of a standing building or structure that was wholly or partially constructed, erected, or fabricated prior to this coverage form’s effective date. Buildings or structures being rehabilitated or renovated are also not covered. Examples of rehabilitation and renovation are alterations, improvements, repairs, and additions.

Item 7. in IM 7052 is Rehabilitation Or Renovation Property. It excludes only standing buildings or structures being renovated or rehabilitated.  Examples of rehabilitation and renovation are alterations, improvements, repairs, and additions. It does not exclude coverage for new construction started prior to the policy inception date.

Note: This is an important difference in coverage.

HOW MUCH WE PAY

4. Catastrophe Limit in IM 7052 includes one or more coverages described under Property Covered. This is not in IM 7050.

IM 7050 contains coinsurance provisions. IM 7052 does not because it is a reporting form.

REPORTING CONDITIONS

This provision in IM 7052 is not in IM 7050. It outlines the detailed steps in the reporting process, including the consequences for not submitting reports or not reporting proper values.

1. Reports

a. You Will Report to Us

A report of the estimated completed value of each building or structure must be submitted to the insurance company within 30 days after the end of each reporting period. This includes the estimated completion cost, address, and construction classification of each building or structure.

b. Cancellation

If coverage is cancelled, the report described above must be provided for the period up to and including the cancellation date. Any additional premium for that period must be paid.

2. Premium Computation and Adjustment

Premiums are calculated by multiplying the reported values by the reporting rate on the schedule of coverages. The adjustment periods may be annual or for some other period.

a. Annual Adjustment

If the premium is adjusted annually, the insurance company compares the calculated premium to the deposit premium. If the calculated premium exceeds the deposit, the named insured pays the insurance company the difference. If the calculated premium is less than the deposit, the insurance company refunds the difference to the named insured (subject to any minimum premium that applies).

b. Other Adjustment Period

If the premium adjustment is other than annual, the insurance company draws down the deposit premium based on reports until the deposit is exhausted. After that, the named insured pays additional premium to the company. At expiration, any remaining deposit premium in excess of the minimum premium is returned to the named insured.

3. Provisions That Affect How Much We Pay

Three provisions apply to reports submitted that may affect the amount of loss that the insurance company pays. a. Failure to Submit Reports

If required reports are not submitted and a loss occurs, the most that the insurance company pays for that loss is 90% of the limit.

b. Reported Values are Less than the Full Value

If the value reported is less than the actual value, the insurance company pays only a proportion of the loss. That is the proportion developed by dividing the reported value by the actual estimated completed value. The deductible is then subtracted from the loss and the remaining amount multiplied by the proportion.

c. We Will Not Pay More than the Limit

The insurance company does not pay more than the limit of insurance that applies even if the value reported used to calculate the premium exceeds that limit.

IM 7058–SCHEDULE OF COVERAGES–BUILDERS' RISK AND INSTALLATION FLOATER

This Schedule Of Coverages is used with IM 7053–Builders' Risk Coverage–Builders' Risk And Installation Floater Form. IM 7058–Schedule of Coverages–Builders' Risk And Installation Floater contains the following information:

Limits

A limit of insurance is entered for each of the following:

Installation Floater Coverage

This limit is the most paid for loss or damage at any single installation project.

Catastrophe Limit

This is the most paid in any one occurrence or loss, regardless of the number of buildings, structures, or jobsites.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full limit in the coverage form applies, subject to any limitations in the coverage extension.

Supplemental Coverages

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

Deductible

One deductible is entered that applies per occurrence.

Reporting Conditions

The estimated completed value of each covered building or structure is reported monthly, quarterly, annually, or any other specified period. Premiums are adjusted monthly, quarterly, annually, or any other specified period.

Note: Reporting conditions may be waived.

Additional Premium Due After Expiration

When the premium is based on reports of value, any additional premium the named insured owes is due and payable on the date stated on the billing statement. This is based on the rate that applies to the Coverage/Construction separate from the rate that applies to Installation Floater Coverage.

Premiums

Spaces are provided for the deposit and minimum premiums.

Permission to Occupy, Builders' Risk Coverages

Either the permission to occupy granted box or the permission to occupy not granted box must be checked. If the named insured is granted permission to occupy, the date that the building or structure can be occupied is entered in the space provided.

Optional Coverages and Endorsements

This section of the schedule of coverages shows endorsements and forms included when the policy is issued.

IM 7053–BUILDERS' RISK COVERAGE–BUILDERS' RISK AND INSTALLATION FLOATER FORM ANALYSIS

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Comprehensive Form analyzed above except for nine sections. This analysis addresses only the nine sections that are different.

PROPERTY COVERED

Note: The primary change is that Installation Floater Coverage is added. However, the Builders' Risk coverage is also changed.

1. Builders' Risk Coverages

One coverage is changed.

a. Course of Construction

The coverage limitations are modified to:

Two coverages are added.

b. Contingent Coverage

(1) Coverage

Coverage applies to direct physical loss or damage to buildings or structures in the course of construction, erection, or fabrication. The loss or damage must be caused by or result from a covered peril.

(2) When Coverage Applies

Coverage applies only when there is a contractual obligation for the building purchaser to maintain insurance coverage in force and it fails to do so. In addition, the named insured must be unable to collect its interest in the building or structure.

(3) Coverage Limitations

Coverage applies only if there is a limit on the schedule of coverages for Contingent Coverage and the buildings or structures in the course of construction are at the named insured's jobsite. This limit is not to be combined with or added to the limit for any other coverage described in Property Covered.

 

Example: Jake builds turnkey projects. Some of his customers prefer to provide their own builders' risk coverage. In those cases, Jake requires a written contract that requires that his interest in the project be protected. Jake and Sylvester execute the contract but Sylvester completely forgets to obtain the insurance he agreed to. When a covered loss occurs and this oversight comes to light, Jake's insurance company pays based on this coverage and subrogates against Sylvester for reimbursement of its payment under breach of contract.

 

c. Difference In Conditions Coverage

(1) Coverage

Coverage applies to direct physical loss or damage to buildings or structures in the course of construction, erection, or fabrication. The loss or damage must be caused by or resulting from a covered peril.

(2) When Coverage Applies

Coverage applies only when the named insured is contractually required to provide Difference In Conditions Coverage for a building or structure. This is coverage for direct physical loss or damage unless caused by an excluded peril or is a specified peril.

(3) Coverage Limitations

Coverage applies only if there is a limit on the schedule of coverages for Difference In Conditions Coverage and the buildings or structures in the course of construction are at the named insured's jobsite. This limit is not to be combined with or added to the limit for any other coverage described in Property Covered.

 

Example: Mickey is Jake's next client. The written contract requires Mickey to obtain basic perils coverage on the project and Jake to obtain additional perils coverage. Jake's coverage does not respond when a vehicle strikes and damages the building because Mickey's coverage does. Jake's coverage responds when the fence surrounding the jobsite is breached and a significant amount of electrical fixtures and showcases intended to be installed in the building are stolen.

 

2. Installation Floater Coverage

Note: This new coverage is unique to this coverage form.

a. Coverage

Coverage applies to direct physical loss or damage caused by a covered peril to the named insured's materials, supplies, machinery, fixtures, and equipment that are related to its construction project. Similar property of others in the named insured’s care, custody, or control is also covered.

b. Coverage Limitations

PROPERTY NOT COVERED

Aircraft or Watercraft, Contraband, Land, Money and Securities, Trees, Shrub and Plants, Vehicles, and Waterborne Property are the same as in IM 7050.

Two Property Not Covered items in IM 7050 are different in IM 7053:

Two additional types of Property Not Covered are added:

This property is excluded except when it is in transit on regularly scheduled airline flights.

This property is excluded with respect to Installation Floater Coverage but property that is part of the named insured's installation project and that is connected with any building or structure is covered.

There is one substitution:

Item 7. in IM 7050 is Standing Building or Structure. It removes coverage for any part of a standing building or structure that was wholly or partially constructed, erected, or fabricated prior to this coverage form’s effective date. Buildings or structures being rehabilitated or renovated are also not covered. Examples of rehabilitation and renovation are alterations, improvements repairs and additions.

Item 8 in IM 7053 is Rehabilitation Or Renovation Property It excludes only standing buildings or structures being renovated or rehabilitated.  Examples of rehabilitation and renovation are alterations, improvements, repairs, and additions. It does not exclude coverage for new construction started prior to the policy inception date.

Note: This is an important difference in coverage.

This item covers materials, supplies, machinery, fixtures and other equipment the named insured uses to install, construct, or lift as part of an installation project.

SUPPLEMENTAL COVERAGES

The supplemental coverages in IM 7050 and IM 7053 are identical but IM 7053 has additional words that apply to the installation coverage.

1. Expediting Expenses

Under a. Coverage, the words "or installation project" are added.

6. Personal Property

Under a. Coverage and b. Coverage limitation, the words "or installation project" are added.


9. Sewer Backup

10. Temporary Storage Locations

11. Transit

Under a. Coverage 1) the words "or installation project" are added.

PERILS EXCLUDED

2. d. Delay in Completion and Increased Construction Costs adds the words installation and installation project throughout. This is in order to recognize the addition of Installation Floater coverage.

VALUATION

1. Replacement Cost is changed to add the words installation and installation project throughout in order to recognize the addition of Installation Floater coverage.

HOW MUCH WE PAY

4 Catastrophe Limit is expanded to include both coverages on this form. IM 7050 contains coinsurance provisions. IM 7053 does not because it is a reporting form.

REPORTING CONDITIONS

This provision in IM 7053 is not in IM 7050. It outlines the detailed steps in the reporting process and the consequences for failing to submit reports or to report proper values and is based on entries made on the schedule of coverages.

1. Builders' Risk Coverages

These are the Builders' Risk Coverages reporting conditions.

a. Reports

(1) You Will Report to Us

A report of the estimated completed value of each building or structure must be submitted to the insurance company within 30 days after the end of each reporting period. This includes the estimated completion costs, address, and construction classification of each building or structure.

(2) Cancellation

If coverage is cancelled, the report described above must be provided for the period up to and including the cancellation date. Any additional premium for that period must be paid.

b. Premium Computation and Adjustment

Premiums are calculated by multiplying the value of the reported values by the reporting rate on the schedule of coverages. The adjustment periods may be annual or for some other period.

(1) Annual Adjustment

If the premium is adjusted annually, the insurance company compares the calculated premium to the deposit premium. If the calculated premium exceeds the deposit, the named insured pays the insurance company the difference. If the calculated premium is less than the deposit, the insurance company refunds the difference to the named insured, subject to any minimum premium that applies.

(2) Other Adjustment Period

If the premium adjustment is other than annual, the insurance company draws down the deposit premium based on reports until the deposit is exhausted. After that, the named insured pays additional premium to the company. At expiration, any remaining deposit premium in excess of the minimum premium is returned to the named insured.


c. Provisions That Affect How Much We Pay

Three provisions apply to reports submitted that may affect the amount of loss that the insurance company pays. (1) Failure to Submit Reports

If required reports are not submitted and a loss occurs, the most that the insurance company pays for that loss is 90% of the limit.

(2) Reported Values Are Less than the Full Value

If the latest value reported was less than its actual value, the insurance company does not pay the entire loss. It does not pay a greater portion than the value reported divided by the actual value during the reporting period before applying the deductible.

(3) We Will Not Pay More than the Limit

The insurance company does not pay more than the limit of insurance that applies, regardless of reported values used to calculate the premium.

2. Installation Floater Coverage

These are the Installation Floater Coverage reporting conditions.

a. Reports

1) You Will Report to Us

A report of the total receipts (both collected and uncollected) earned from the named insured's installation projects must be submitted to the insurance company within 30 days after the end of each reporting period. This includes receipts from materials, labor, reasonable overhead and profit, and delivery charges that make up part of the installation projects.

2) Cancellation

If coverage is cancelled, the report described above. must be provided for the period up to and including the cancellation date. Any additional premium for that period must be paid.

b. Premium Computation and Adjustment

Premiums are calculated by multiplying the value of the reported receipts by the reporting rate on the schedule of coverages. The adjustment periods may be annual or for some other period.

(1) Annual Adjustment

If the premium is adjusted annually, the insurance company compares the calculated premium to the deposit premium. If the calculated premium exceeds the deposit, the named insured pays the insurance company the difference. If the calculated premium is less than the deposit, the insurance company refunds the difference to the named insured, subject to any minimum premium that applies.

(2) Other Adjustment Period

If the premium adjustment is other than annual, the insurance company draws down the deposit premium based on reports until the deposit is exhausted. After that, the named insured pays additional premium to the company. At expiration, any remaining deposit premium in excess of the minimum premium is returned to the named insured.

c. Provisions That Affect How Much We Pay

Three provisions apply to reports submitted that may affect How Much We Pay.

(1) Failure to Submit Reports

If required reports are not submitted and a loss occurs, the most that the insurance company pays for that loss is 90% of the limit.

(2) Reported Values Are Less than the Full Value

If the receipts reported are less than the actual receipts, the insurance company pays only a proportion of the loss. That proportion is determined by dividing the reported receipts by the actual receipts. The deductible is then subtracted from the loss and the remaining amount multiplied by the proportion.

3) We Will Not Pay More than the Limit

The insurance company does not pay more than the limit of insurance that applies, regardless of reported values used to calculate the premium.

ADDITIONAL COVERAGE LIMITATIONS

1. Occupancy and Use applies to only Builders' Risk Coverages.

2. When Coverage Ceases is changed to add the words installation and installation project throughout in order to recognize the addition of Installation Floater coverage.


DEFINITIONS

One definition is added and one is modified.

The definition added is:

Installation project

This is an installation or construction project where the named insured engages in installing, constructing, or rigging materials, supplies, machinery, fixtures, or equipment.

The definition changed is:

Jobsite

The definition of jobsite is broadened to include locations where the named insured is engaged in installation, construction, or rigging materials, supplies, machinery, fixtures, or equipment.

IM 7059–SCHEDULE OF COVERAGES–BUILDERS' RISK–REHABILITATION AND RENOVATION

This Schedule of Coverages is used with IM 7054–Builders' Risk Coverage–Rehabilitation and Renovation Form. IM 7059–Schedule of Coverages–Builders' Risk–Rehabilitation And Renovation contains the following information:

Scheduled Jobsite

All covered jobsites must be listed, described, and have a job number and/or jobsite location entered. Coverage does not apply to any premises not listed. IM 7090–Additional Scheduled Jobsite Locations is used to list jobsites that cannot fit on IM 7059 because of space considerations.

Building Materials Limit

This limit applies to materials, supplies, attachments, and fixtures on the jobsite intended to be permanent additions to the existing building being renovated or rehabilitated.

Existing Building Coverage

If coverage is provided on an existing building, a limit must be entered in the space provided. Otherwise, the box for Existing Building Coverage Not Provided must be checked.

Catastrophe Limit

This is the most paid in any one occurrence or loss, regardless of the number of buildings, structures, or jobsites.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Supplemental Coverages

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

Deductible

One deductible is entered that applies per occurrence.

Valuation

If coverage on an existing building is provided, either the box for Stated Value or the one for Actual Cash Value must be checked. Building Materials Valuation is always Actual Cash Value.

Coinsurance–Building Materials Only

The coinsurance can be 80%, 90%, 100%, or any other percentage entered. Coinsurance can also be waived.

Vacant Building Limitation

One of the three options in this section must be checked.

Optional Coverages and Endorsements

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7054–BUILDERS' RISK COVERAGE–REHABILITATION AND RENOVATION FORM ANALYSIS

This coverage form is identical to IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Comprehensive Form analyzed earlier except for ten sections. This analysis addresses only the ten sections that are different.

PROPERTY COVERED

IM 7054 describes property covered completely differently than IM 7050 because the nature of the work insured is that of rehabilitating and renovating existing buildings or structures instead of new construction.

1. Coverage

Coverage applies to direct physical loss or damage caused by or that results from a covered peril to building materials and existing buildings but only those that are part of the named insured's renovation or rehabilitation project.

2. Coverage Limitation

Coverage applies to existing buildings only when there is a limit for Existing Buildings on the schedule of coverages. Building materials are covered if they are intended to be a permanent part of an existing building. In order for coverage to apply, the property must be at a jobsite listed on the schedule of coverages.

3. Vacant Building Limitation

This limitation applies when existing building coverage is provided. When buildings are vacant, coverage applies for not more than 60 days following the policy inception date. This does not apply if building permits have been obtained and the renovation or rehabilitation work has begun.

Note: This limitation can be waived by checking the appropriate box on the schedule of coverages.

4. We Do Not Pay

This section is identical in both forms.

Note: Scaffolding, Fencing and Temporary Structures coverage in IM 7050 is not in IM 7054.

PROPERTY NOT COVERED

One item is added.

3. Excavations, Grading, Filling, Pipes, Flues, and Drains is added as property not covered.

Three items are changed.

6. Standing Building Or Structure states that covered existing buildings are an exception.

7. Trees, Shrubs, And Plants does not provide the Supplemental Coverage exception because this coverage form does not have such a Supplemental Coverage.

8. Waterborne Property does not provide the Coverage Extension exception because this coverage form does not have such a Coverage Extension.

COVERAGE EXTENSIONS

The Coverage Extensions for Emergency Removal, Emergency Removal Expenses, Fraud and Deceit, and Waterborne Property in IM 7050 are not in IM 7054.

SUPPLEMENTAL COVERAGES

PERILS EXCLUDED

IM 7054 has five additional exclusions and eight that are changed compared to IM 7050.

The new exclusions are all part of item 2. Exclusions:

Coverage does not apply to loss or damage caused by or that results from collapse, other than as provided under Other Coverages–Collapse. However, if the collapse results in a covered peril occurring, coverage applies to the loss to damage caused by the covered peril. This exclusion does not apply to property in transit.

Loss or damage caused when water, other liquids, powder, or molten material leak from plumbing, heating, or air conditioning systems or appliances freeze is excluded. This does not apply to fire protective systems. It also does not apply if the named insured either maintains heat in the building or drains the equipment and turns off the supply when heat is not maintained.

If faulty, inadequate, or defective materials or workmanship causes loss or damage, such loss or damage is excluded. However, loss that results from a covered peril is covered.

Loss or damage to property in the open that is not part of the permanent existing building caused by or that results from rain, snow, ice, or sleet is excluded. There is an exception for property in the custody of carriers for hire.

Loss or damage caused by or that results from any of these with respect to pavements, foundations, walls, ceilings, glass, or roofs is excluded. Loss that results from a covered peril is covered.

The following exclusions are changed:

OTHER COVERAGES–COLLAPSE

This coverage in IM 7054 is not in IM 7050.

1. Coverage

Coverage applies to direct physical loss or damage caused by or that results from collapse of an existing building being renovated or rehabilitated. This includes any part of an existing building or building materials inside it.

2. Covered Perils

The only collapse losses covered are those caused by specified perils this coverage form insures, hidden decay, insect or vermin damage (unless the named insured knew about them before the collapse took place), weight of people or personal property, rain that collects on a roof, or use of defective materials.

3. Collapse Means

This is sudden or unexpected falling down or caving in of part or all of an existing building being renovated or rehabilitated to the extent that these activities cannot continue or be completed as planned.

4. Collapse Does Not Mean

These buildings or structures are not treated as in a state of collapse:

5. Limited Fungus Coverage Does Not Increase/Decrease Coverage

Nothing in the Limited Fungus Coverage Extension increases or decreases this coverage.

VALUATION

The replacement cost valuation provision in IM 7050 is removed and replaced by the following valuation items.

1. Existing Building

Existing buildings are valued on one of two bases on the schedule of coverages. One or the other must be selected.

a. Stated Value

The valuation is very simple. The limit on the schedule of coverages for the existing building that sustains direct physical loss or damage is its value.

b. Actual Cash Value

The actual cash value at the time of the loss will be used to as the valuation.

Note: Actual cash value is commonly defined as replacement cost new less depreciation.

2. Building Materials

a. Actual Cash Value

Building materials are valued based on their actual cash value when the loss occurs.

b. Actual Cash Value Means

Building materials valued on an actual cash value basis means:

Note: Under this valuation, only the first item is subject to depreciation.

HOW MUCH WE PAY

Two items in this section are changed.

4. Limits

This item replaces item 4. Catastrophe Limit in IM 7050.

a. Building Materials Limit

The Building Materials Limit entered on the schedule of coverages is the most paid in any one occurrence for loss or damage to building materials.

b. Existing Building Limit

The Existing Building Limit entered on the schedule of coverages is the most paid in any one occurrence for loss or damage to an existing building.

c. Catastrophe Limit

The Catastrophe Limit entered on the schedule of coverages is the most paid for loss or damage in a single occurrence.

5. Coinsurance

Coinsurance applies only to building materials. As a result, that term replaces building or structure in IM 7050 throughout this provision. In addition, the only coinsurance option in IM 7050 is 100%. Because IM 7054 has other options, an additional step is added to the coinsurance calculation. Before starting the calculation, the value must be multiplied by the selected coinsurance percentage. That value then can be used in Step 2.

ADDITIONAL COVERAGE LIMITATIONS

1. Occupancy and Use

This section substitutes "an existing building" in IM 7054 for "covered building or structure" in IM 7050. This means the existing building cannot be occupied or used without permission.

2. When Coverage Ceases

This section substitutes "renovation or rehabilitation project" in IM 7054 for "covered building or structure" in
IM 7050. There is also an important change in the number of days. IM 7050 has 90 days of coverage following completion. IM 7054 has only 45 days of coverage following completion.

DEFINITIONS

The definition of buildings or structures in IM 7050 is not in IM 7054.

IM 7054 has three definitions:

Building materials

These are materials, supplies, attachments, and fixtures intended to become a permanent part of the existing building being renovated.

Existing building

This is the building or structure that existed before this coverage form's inception date. It is to be renovated or rehabilitated. Only the parts intended to be a permanent part of it during and after renovation or rehabilitation are included. Foundations, attachments, permanent fencing, and other permanent fixtures are all considered existing building.

Renovation or rehabilitation project

This is the project listed on the schedule of coverages that must involve construction, renovation, or rehabilitation of a structure or building.

Jobsite in IM 7054 substitutes "renovating or rehabilitating" for "constructing, erecting or fabricating" in IM 7050.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the various Builders' Risk coverage forms.

IM 7060–Delay in Completion Coverage Part–Green Building Form (07 09 addition)

IM 7061–Delay in Completion Coverage Part (09 08 change)

IM 7062–Delay in Completion Schedule (09 08 change)

IM 7063–Permission to Occupy Endorsement (09 08 change)

This endorsement extends coverage by permitting occupancy of the finished part of the building or structure before construction of the entire project is complete.

IM 7064–Reporting Conditions Endorsement (09 08 change)

When attached to a builders' risk coverage form, this endorsement puts it on a reporting basis. IM 7066–Reporting Conditions Schedule–Builders' Risk must also be attached.

IM 7066–Reporting Conditions Schedule–Builders Risk (09 08 change)

This schedule is used with IM 7064–Reporting Conditions Endorsement. It has spaces to enter the reporting and adjustment periods and the premium adjustment basis, along with the rates that apply and the premium for the coverage involved.

IM 7068–Trees, Shrubs and Plants Endorsement (09 08 change)

This endorsement covers direct physical loss or damage to trees, shrubs, plants, and lawns on a per-occurrence basis at designated jobsites or construction projects caused by or that results from six designated perils.


IM 7069–Sewer Backup Coverage (09 08 addition)

(Use with IM 7051 and IM 7054) This endorsement covers direct physical loss or damage to covered property caused by water or waterborne material that back up through a sewer, drain, sump, or septic tank, or that is below ground level and exerts pressure on (or flows, seeps, or leaks through or into) covered property.

IM 7070–Rehabilitation and Renovation Endorsement (09 08 change)

This endorsement covers existing buildings or structures for direct physical loss or damage caused by or that results from a covered peril when the building or structure is being rehabilitated or renovated.

IM 7071–Business Personal Property Endorsement (09 08 change)

This endorsement covers business personal property inside a building or structure under construction that is not intended to become a permanent part of the building or structure.

IM 7072–Ordinance or Law Coverage (09 08 change)

(Use with IM 7051 and IM 7054) This endorsement provides coverage for the additional loss that results when a government regulation is enforced that requires demolishing undamaged parts of the property or establishes use requirements and regulations that apply to the property. It is also used to cover increased costs of construction or reconstruction and any costs to demolish and clear debris from the location or jobsite because of such regulation.

IM 7073–Contract Penalty Endorsement (09/08 change)

This endorsement covers contractual penalties imposed on the named insured because of a delay in completing an insured construction project within the defined contract terms as a result of a covered loss.

IM 7075–Expediting Expenses Endorsement (09/08 change)

This endorsement covers costs or expenses incurred to expedite completing a construction project delayed by a covered loss. Costs included are additional labor, overtime labor, transportation, equipment rental, and storage.

IM 7076–Testing Endorsement (09/08 change)

This endorsement covers direct physical loss or damage to a covered building or structure caused by testing. Testing is defined as that which evaluates and measures the performance, stress, pressure, and overload abilities of materials, supplies, machinery, fixtures, and equipment intended to be a permanent part of a covered building or structure under construction.

IM 7077–Fraud and Deceit Coverage (09/08 change)

This endorsement covers losses when the named insured or others are convinced to part with covered property based on false information.

IM 7078–Green Building Schedule (09 08 addition)

IM 7079–Delay in Completion Coverage Part–Includes Rental Income and Income Coverage (09 08 change)

IM 7080–Delay in Completion Schedule–Includes Rental Income and Income Coverage (09 08 change)

IM 7081–Historic Preservation Tax Credit Schedule (01 10 addition)

This schedule is used with IM 7961–Historic Preservation Tax Credit Coverage. It lists the coverages and limits, coverage extensions, and Waiver of Certification Requirement (if applicable) that apply.

IM 7082–Freezing Exclusion (09 08 change)

This endorsement excludes the peril of freezing unless the named insured makes arrangements to prevent such losses.

IM 7083–Equipment Breakdown and Testing Coverage (09 08 change)

This endorsement provides coverage for loss or damage to covered property due to equipment breakdown and testing. It can be extended to apply to delay in completion coverage. IM 7095–Equipment Breakdown and Testing Schedule must be attached to provide the coverage and limits.

IM 7084–Mortgageholders Endorsement (09 08 change)

This endorsement includes mortgage provisions for mortgagees listed on the coverage form. It also includes details on the notice periods for policy cancellation or non-renewal and information on premium payments and loss payments.

IM 7085–Earthquake and Flood Coverage Endorsement (09 08 change)

This endorsement covers the perils of earthquake and flood.

IM 7086–Earthquake and Flood Schedule (09 08 change)

This schedule is used with IM 7086–Earthquake And Flood Endorsement to state the coverages, limits, and deductibles that apply.

IM 7087–Additional Builders' Risk Schedule (09 08 change)

This schedule is used to list additional covered locations when there is not enough space on the schedule of coverages.

IM 7088–Windstorm Deductible (09 08 change)

This endorsement provides separate deductibles for the perils of Windstorm and Hail. The deductible can be expressed as either a flat amount or as a percentage, using percentages of 1%, 2% or 5%.


IM 7090–Additional Scheduled Jobsite Locations (09 08 change)

(Use with IM 7054) This schedule is used to list and describe additional buildings being rehabilitated or renovated.

IM 7091–Green Building Coverage (09 08 addition)

IM 7092–Standing Building or Structure Exclusion (09 08 addition)

(Use with IM 7052 and IM 7053) This endorsement excludes coverage for a building or structure partially or completely constructed before the coverage inception date.

IM 7093–Standing Building or Structure Coverage (09 08 addition)

(Use with IM 7050 and IM 7051) This endorsement extends coverage to include buildings or structures at the named insured's jobsite being constructed when coverage form starts.

IM 7094–When Coverage Ceases Endorsement (09 08 addition)

This endorsement is used to change the number of days that must elapse before coverage ends.

Note: Caution is suggested when using this endorsement. Even though it increases the number of days, coverage ends on the coverage form's expiration date.

IM 7095–Equipment Breakdown and Testing Schedule (09 08 addition)

This schedule is used with IM 7083–Equipment Breakdown and Testing Coverage to list the coverages, limits, deductible, and waiting period that apply.

IM 7096–Additional Delay In Completion Schedule (09 08 addition)

This schedule is used with IM 7060–Delay In Completion Coverage Part–Green Building Form, IM 7061–Delay In Completion Coverage Part, and IM 7079–Delay In Completion Coverage Part–Includes Rental Income And Income Coverage to list jobsite locations, coverages, and limits.

IM 7097–Vacant Building Limitation Endorsement (09/08 addition)

(Use with IM 7054) This endorsement replaces the Vacant Building Limitation under Property Covered and changes the number of consecutive days an existing building can be vacant.

IM 7098–Alternate Coinsurance Percentage (02/09 addition)

(Use with IM 7050, IM 7051, and IM 7054) This endorsement is used to change the 100% coinsurance percentage to a different percentage.

IM 7099–Delay in Completion Schedule–Green Building Form (07/09 addition)

IM 7961–Historic Preservation Tax Credit Coverage (01 10 addition)

(Use with IM 7054) IM 7081–Historic Preservation Tax Credit Schedule must be attached when this endorsement is used. It provides coverage for the delay in receiving the tax credit the federal government offers as an incentive to support rehabilitating historic and older buildings. It also covers the loss of the tax credit. The loss must be caused by occurrence of a covered loss caused by a covered peril.

IM 7962–Testing Endorsement–Builders' Risk and Installation Floater Form (01 10 addition)

(Use with IM 7053) This endorsement covers direct physical loss or damage to a covered building or structure caused by testing. Testing is defined as that which evaluates and measures the performance, stress, pressure, and overload abilities of materials, supplies, machinery, fixtures, and equipment intended to be a permanent part of a covered building or structure under construction.

IM 7963–Replacement Cost Endorsement–Building Materials (08 10 addition)

(Use with IM 7054) This endorsement changes the valuation provision for building materials from actual cash value to replacement cost as the endorsement defines it.

IM 7964–Blueprints and Construction Documents Coverage (08 10addition)

This endorsement covers plans, blueprints, drawings, and models.

IM 7965–Claim Preparation Expense Coverage (08 10 addition)

This endorsement covers the costs to prepare a claim due to a covered loss.

IM 7966–Interior Water Damage Limitation (08 10 addition)

This endorsement provides limited coverage for loss or damage to the interior of covered building caused by or that results from rain, snow, sleet, or ice that enters the interior of the building.

UNDERWRITING CONSIDERATIONS

Builders' risk and installation coverage forms both cover building materials and supplies at the construction site, in transit to the site, and similar property intended for the construction project at other locations as necessary or because of lack of storage space at the construction site. The principal exposures and causes of loss are fire, theft, vandalism, windstorm, collapse, and transit. The underwriting process involves evaluating the location and transit exposures and the protective services and arrangements incorporated at the project to eliminate or reduce the possibility of loss.


The most important element in underwriting builders' risk insurance is the type of contractor involved. The contractor should have experience in building the type of structure being considered. A residential contractor may be very successful building one and two family homes but that does not mean it will be similarly successful building a six-family condominium building or some other kind of commercial property. Similarly, a commercial building contractor may not be aware of all of the aspects and pitfalls involved in residential construction. Simply being a contractor is not sufficient. A good contractor is aware of all aspects and hazards of a particular job and takes the appropriate steps to address them all, both in advance planning and as they come up during the course of the construction project.

Another major issue is job site supervision. Some contractors are "paper contractors." These contractors bring together the various subcontractors to handle the job but do not regularly have any of their own employees on the job site. In situations like these, relationships are extremely important. A good "paper contractor" (to the extent possible) uses the same subcontractors on as many jobs as possible. This makes it more likely that the different crews will work well together. The contractor should have a detailed checklist and an established timetable for checking the work. The general contractor is usually responsible for all functional aspects at the job site and should be aware of all elements of job site safety and the normal arrangements that should apply.

The number of jobs being worked on at the same time is also important. If there are multiple job sites, the contractor should have regular sufficient supervision at all sites. Job sites not visited regularly by the contractor that has authority can quickly become disorderly and fall behind schedule. Inferior workmanship in plumbing, electrical, and framing is quickly covered up and hidden if it not observed regularly and frequently.

If the building being constructed is in areas subject to high winds, the walls should be properly shored up and braced before the roof is added to reduce or eliminate the chance of wind losses. Any other similar atmospheric or geographic issues that can affect construction must be evaluated and adequate protection or needed safeguards implemented to reduce loss potential.

Written contracts and agreements are as important in the construction field as they are anywhere else. Contracts should be in place to establish ownership and responsibility and to reduce the chances of ambiguity and disagreement if a loss occurs. Ownership of building materials must be established, since the contractor in many cases simply installs the goods and does not actually own them during the construction or installation process.

The nature and details of the transit exposure should be analyzed and understood by all affected parties. “Paper contractors” usually have little or no exposure in this area. Workers’ tools, scaffolding, and related equipment are frequently overlooked but are subject to transit exposures and losses as much as building materials. Some of these items should be insured under contractors' equipment coverage and others under builders' risk coverage. It is important to review all of the above in order to set the appropriate transit limit for the values exposed.

The type of construction is a major factor in both underwriting and rating. Construction methods vary greatly, as do wind and fire exposures. Frame construction is the most common type of construction and is also most subject to wind and fire losses. Brick veneer construction has little impact on loss potential, since it is simply a layer of masonry veneer attached to the wood frame and the basic construction is still frame. Solid brick or masonry bearing walls construction stand up better to wind and fire but require longer construction time and damage can be more expensive to repair. Metal buildings are similar to frame with respect to the wind exposure. Metal building construction is vulnerable to a number of issues until the roof is securely attached but fire is not ordinarily one of them. Masonry-non-combustible and fire-resistive are the best types of construction but using these materials takes more time and is considerably more expensive.

Any type of construction has its own issues that relate to job site security against vandalism and theft. The more involved, elaborate, and expensive types of construction require using a variety of heavier equipment and this element affects the job site security issue more than anything else. As a result, these job sites require more security measures than those of lesser quality and that have less equipment on the site, whether occupied and operating or not.

It is important to understand the financial interests of all the parties in the property under construction and any contractual obligations they have to one another. The worse case scenario is where each party believes the other is responsible for purchasing the builders’ risk coverage and nobody purchases it at all. If more than one policy is purchased, the only damage done is the amount of extra premium paid. If nobody arranges for coverage, it means the entire project is unprotected.

The coverage form to be used must be considered, since reporting forms are available in addition to scheduled and non-reporting forms. Each approach has advantages, disadvantages, and responsibilities that must be understood. Reporting forms are flexible and lead to a greater feeling of security but improper or inadequate reporting can diminish those advantages and spell disaster in the event of a loss.


Editor's Note: The coverages IM 7050–Builders' Risk Coverage–Scheduled Jobsite Form–Comprehensive Form provides are included in IM 8000–Contractor's Combination Form–Scheduled Coverage. It combines the coverages provided by four separate coverage forms into a single combination coverage form. The other three forms are IM 7000–Contractors' Equipment Coverage, IM 7203–Business Computer Coverage and IM 7100–Installation Floater Coverage.

IM 8000 is not analyzed because the coverages provided are analyzed under the other coverage forms indicated in addition to the analysis of IM 7050.

IM 7060–DELAY IN COMPLETION COVERAGE PART–GREEN BUILDING FORM

INTRODUCTION

The American Association of Insurance Services (AAIS) IM 7060–Delay In Completion Coverage Part–Green Building Form provides delay in completion coverages for Additional Construction Expenses, Additional Soft Costs, Rental Income, Income Coverage, and Energy Generating Income. It identifies the components of and provides a Green Coverage Extension for each of these. These extensions cover the additional expenses, costs, and loss of income when the delay is extended because of additional processes and procedures required to meet the level of the green certification incorporated into the building design before the loss occurred. It is written in conjunction with any of the AAIS Builders' Risk Coverage Forms.

IM 7099–Delay In Completion Schedule–Green Building Form must be attached when IM 7060 is used. It identifies the coverages that apply, their limits, optional coverage, coverage extensions, supplemental coverages, and the waiting period, if any.

IM 7099–DELAY IN COMPLETION SCHEDULE–GREEN BUILDING FORM

Jobsite

Covered jobsites must be entered in the space provided.

Note: IM 7096–Additional Delay In Completion Schedule is used if the number of jobsites to be covered cannot fit into the space provided on this schedule.

Coverages

Five coverages are available. A box must be checked and a limit entered for each coverage desired. Additional Soft Costs has spaces for a 30-Day Limit and an Occurrence Limit. Each includes the Green Coverage Extension.

These are limited to Advertising, Design Fees, Financing, Lease Administration, Permit Fees, and Professional Fees as described in IM 7060.

These are limited to Insurance Premiums, Interest Payments, Lease Expenses, and Realty Taxes as described in IM 7060.

Optional Coverage

Sewer Backup Coverage is the only optional coverage available. If coverage is desired, the box must be checked and a limit entered in the space provided.

Coverage Extensions

There are four coverage extensions.

Coverage is provided. There are no other entries.

Coverage is provided. There are no other entries.

If more than the two weeks provided in the coverage form is needed, the total number of weeks needed (not just the additional number of weeks) must be entered in the space provided.

If more than the 30 days provided in the coverage form is needed, the total number of days needed (not just the additional number of days) must be entered in the space provided.

Supplemental Coverage

General Administration Expenses (including the Green Coverage Extension) is the only supplemental coverage available. If a limit higher than the $50,000 limit included in the coverage form is needed, it must be entered in the space provided.

Waiting Period

The number of days waiting period must be entered in the space provided if a waiting period is desired and the box checked. The waiting period may be waived by checking the box for waiting period does not apply.

Alternate Certification Company

A space is provided to list and describe an Alternate Certification Company, Organization or Association, if applicable.

IM 7060–DELAY IN COMPLETION COVERAGE PART–GREEN BUILDING FORM–COVERAGE FORM ANALYSIS

Note: This analysis is of the 07 09 edition.

INTRODUCTION

This coverage form opens by stating that the coverage provided is subject to the terms and conditions in the applicable coverage form and then lists the specific sections. These are Agreement, Property Not Covered, Perils Covered, Perils Excluded, What Must Be Done In Case Of Loss, How Much We Pay, Loss Payment, Other Conditions, Additional Coverage Limitations, and Definitions. A separate note states that the references to "rehabilitation and renovation project" replace "building or structure" if this coverage form is added to IM 7054–Builders' Risk Coverage–Rehabilitation And Renovation Form.

ADDITIONAL DEFINITIONS

Seven definitions are added.

1. Business

This means the expected business or occupancy in the covered building or structure when construction is completed.

2. Delay

This is an interruption caused by a covered peril in constructing, fabricating, or erecting a building or structure. It does not include interruptions due to change orders, design changes, or other actions unrelated to direct physical loss or damage caused by or resulting from a covered peril.

3. Delay period

This is the amount of time construction, fabrication, or erection is delayed due to direct physical loss or damage from a covered peril. The coverage's expiration date does not affect this period.

It does not mean:

4. Expenses and losses

These are the expenses and costs entered under Additional Construction Expenses, Additional Soft Costs, loss of income under Rental Income, Income Coverage, and Energy Generating Income. They apply only to the definition of expenses and losses if coverage for any or all of these is entered on IM 7099.


5. Green Certification

This is a building's certification based on an environmental rating system established by Leadership in Energy and Environmental Design (LEED) or Green Globes. These systems evaluate the building's performance and sustainability through positive environmental design, operation, and management.

If there is an entry for Alternative Certification Company on IM 7099, a building's certification as green is based on the environmental rating system that determines the performance and sustainability of the building through positive environmental design, operation, and management that the company established.

6. Renewable Energy Generating Equipment

This means equipment that generates electricity by using renewable resources, such as solar, wind, geothermal energy, low impact hydro, bio-mass, or bio-gas systems.

7. Water Conservation System

This is a water reclamation and conservation system. It usually includes the plumbing system, underground pipes and pumps, reservoirs, holding tanks, and structures to collect rainwater and/or groundwater. To be considered part of the system, they must be at or within 500 feet of a covered building or structure and be designed to circulate gray water, ground water, or rainwater to a building's non-potable water supply, an onsite water treatment facility, or an outdoor irrigation holding facility. It does not mean equipment intended only for landscape irrigation unless it is part of the water reclamation and conservation system.

COVERAGES

There are five coverages.

1. Additional Construction Expenses

This coverage applies if there is a limit for it on IM 7099.

a. Coverage

The insurance company pays additional construction expenses incurred during the delay period.

b. Coverage Limitation

Coverage applies only if the additional construction expenses are due to a delay to a building or structure at a jobsite listed on IM 7099.

c. Green Coverage Extension

Additional construction expenses incurred during the delay needed to return the building to the level of green certification that was incorporated into the building or structure's design are covered.

Note: There is no additional time if the named insured wants to achieve a higher level of certification.

d. Additional Construction Expenses

These are the reasonable and necessary expenses that relate to the construction project over and above those incurred if there was no delay period. They are limited to:

e. Limit

The most paid in any one occurrence is the limit entered on IM 7099.

 

Example: A fire damaged the office building that Environmentally Friendly Construction (EFC) was building. EFC will occupy part of when it was completed. The rest of it will be leased to others. The needed repairs pushed the proposed opening date back three months, requiring re-doing leases in place based on the original proposed opening date. This coverage applied to the lease administration expenses EFC incurred to do so. Fortunately, 100% of the leases were re-done and none of the proposed tenants backed out of their previous commitments.

 

2. Additional Soft Costs

This coverage applies if there is a limit for it on IM 7099.

a. Coverage

The insurance company pays for soft costs incurred during the delay period.


b. Coverage Limitation

Coverage applies only if the soft costs are due to a delay to a building or structure at a jobsite listed on IM 7099.

c. Green Coverage Extension

Additional soft costs incurred during the delay needed to return the building to the level of green certification that was incorporated into the building or structure's design are covered.

Note: There is no additional time if the named insured wants to achieve a higher level of certification.

d. Soft Costs

These are the reasonable and necessary expenses that relate to the construction project over and above those incurred if there was no delay period. They are limited to additional:

e. Limits

 

Example: Continuing the example above, Environmentally Friendly Construction (EFC) was forced to extend its Builders' Risk Coverage and the lease on the crane it rented for this specific project an additional three months because of the delay. This coverage responded to the additional premium to extend the insurance and the additional rental charge for the crane.

 

3. Rental Income

This coverage applies if there is a limit for it on IM 7099.

a. Coverage

The insurance company pays for the actual loss of rental income incurred during the delay period.

b. Coverage Limitation

Coverage applies only when the loss of rental income is due to a delay to a building or structure at a jobsite listed on IM 7099.

c. Green Coverage Extension

Additional rental income loss incurred during the delay needed to return the building to the level of green certification that was incorporated into the building or structure's design is covered.

d. Deduction From Loss Of Rental Income

Unnecessary expenses that do not continue due to a delay are deducted from the loss of rental income.

e. Limits

4. Income Coverage

This coverage applies if there is a limit for it on IM 7099.

a. Coverage

The insurance company pays for the actual loss of net income incurred during the delay period.

Note: Net income is the net profit or loss before income taxes.

b. Coverage Limitation

Coverage applies to the actual loss of net income that the business would have earned and continuing expenses it would have incurred. This includes, but is not limited to, payroll expense. It also applies to loss of net income due to delays to the construction project listed on IM 7099.

c. Green Coverage Extension

The loss of net income incurred during the delay needed to return the building to the level of green certification that was incorporated into the building or structure's design is covered.

d. Limits


 

Example: Continuing the example above, and in conjunction with the renegotiation of the leases, Environmentally Friendly Construction (EFC) would not receive three months of rental income from the proposed tenants because of the loss and the subsequent delay in opening. This coverage responded to that fact and reimbursed EFC for the income it would not receive because of that delay.

 

5. Energy Generating Income

This coverage applies if there is a limit for it on IM 7099.

a. Coverage

The insurance company pays for the actual loss of surplus power income (including credits and rebates) incurred during the delay period that applies to renewable energy generating equipment when direct physical loss or damage from a covered peril occurs at the construction project listed on IM 7099 and delays such equipment becoming operational.

b. Coverage Limitation

Coverage applies only if the named insured had a documented plan to sell surplus power before the loss occurred.

Note: Hopes and dreams are not covered.

c. Surplus Power Means

This is income the named insured expected to earn for transferring surplus electricity from its renewable energy generating equipment to a public utility.

d. Limit

The most paid in any one occurrence is the Energy Generating Income Limit on IM 7099.

OPTIONAL COVERAGES

Provisions That Apply To Optional Coverage

There is one optional coverage. Its limit is separate from and not part of the limits that apply to the coverages indicated above. It is the only limit available and is not added to the limit for expenses and losses. It is not added to or combined with limits for any other coverage extension or supplemental coverage.

Sewer Backup

This coverage applies if there is a limit for it on IM 7099.

1. Coverage

Coverage under this coverage part extends to apply to include delays due to physical loss or damage to a covered building or structure from:

2. Coverage Limitations

Coverage does not apply if the loss or damage results from:

3. Limit

The most paid in any one occurrence is the Sewer Backup Limit on IM 7099.

COVERAGE EXTENSIONS

These four coverage extensions are part of, not in addition to, the limits that apply for the coverages indicated above.

1. Expenses To Reduce A Loss

The insurance company pays expenses the named insured incurs during the delay period that are necessary to expedite repairing or replacing the part of covered property that sustained direct physical loss or damage, but only to the extent that it reduces the amount of loss or damage otherwise payable.

 

Example: Continuing the example above, Environmentally Friendly Construction (EFC) learns it can reduce the delayed opening by taking advantage of its relationship with the supplier of some key fixtures that were destroyed in the loss. EFC can pay an extra $5,000 to have its order moved to the top of the fixture supplier's list. Doing so will reduce the delay to two months, resulting in the loss of lease income loss being reduced by $10,000. Since the expenditure is less than the benefit obtained, the insurance company pays the $5,000 and saves itself $5,000 by having the delay reduced to two months.

 

2. Ordinance Or Law

a. Coverage

This insurance extends for the increased time period of delay caused by enforcing any law regulating construction, use, or repair of covered buildings or structures or that requires their partial or total demolition if not damaged by a covered peril.

b. Coverage Limitations

This coverage does not extend to include delay caused by enforcing any law that was not in force when the loss occurred or that requires any action with respect to pollutants.

3. Interruption By Civil Authority

a. Coverage

This insurance extends to expenses and losses the named insured incurs when a civil authority issues an order that specifically denies access to a covered building or structure.

b. Coverage Limitations

The civil authority's order must be a result of direct physical loss or damage by a covered peril to property other than at the named insured's jobsite.

c. Time Limitation

This coverage extension is limited to two consecutive weeks from the date of the order. This time period can be increased by an entry on IM 7099.

4. Limited Fungus Coverage

a. Coverage

Expenses and losses the named insured incurs due to delays caused by or resulting from direct physical loss or damage to a covered building or structure caused by fungus are covered.

b. Coverage Limitations

Expenses and losses that result from fungus are covered only when the fungus results from a specified peril other than fire, lightning, or flood (if Flood Coverage is provided) and the named insured took all reasonable steps to protect the covered property from additional damage at and after the date of loss.

Note: This Coverage Extension does not apply if the damage is due to fire or lightning because the basic coverage form does not exclude fungus when due to fire or lightning.

c. Time Limitation

SUPPLEMENTAL COVERAGES

There is one supplemental coverage. Its limit is separate from the limits for the coverages indicated above, not part of them, and is the only limit available for it.

General Administration Expenses

1. Coverage

This supplemental coverage applies to the costs of general administrative and overhead expenses for additional clerical personnel, security costs, and other expenses incurred during the delay period.

2. Coverage Limitation

The only such expenses covered are those due to a delay in construction at a jobsite listed on IM 7099.

3. Green Coverage Extension

Coverage also applies to additional general administrative and overhead expenses incurred during the delay period when it is extended to accommodate the level of green certification incorporated into the building or structure's design before the loss occurred.

4. Expenses Means

These are the reasonable and necessary expenses that relate to construction activities on a covered building or structure over and above those that would have been incurred if there were no delay period.

5. Limit

The most paid for general administration expenses in any one occurrence is $50,000 unless there is a different limit on IM 7099.

 

Example: Environmentally Friendly Construction (EFC) is also stuck with the costs to have security on the site for two extra months and the overtime pay to its employees to re-do the leases, as well as the many "nuisance" expenses incurred in conjunction with them. EFC paid close attention to and kept meticulous records of every expense, no matter how small, and was able to recover them from the insurance company.

ADDITIONAL PERILS EXCLUDED

These excluded perils are in addition to those in the applicable Builders' Risk Coverage Form. The insurance company does not pay for any additional expenses, costs, or losses due to an increase in the delay period caused directly or indirectly by or resulting from one or more of them. This is regardless of any other causes or events that contribute to the delay period, either before, during, or after the excluded cause or event.

1. Additional Time

Coverage does not apply to the additional time required to repair or replace any part of a covered building or structure due to:

Note: These are all indirect, consequential losses that the named insured cannot estimate or control. Several track with corresponding exclusions in the Builders' Risk Coverage Forms.

2. Change Order

There is no coverage for changes, orders, actions, or decisions that result in delays in completing the covered project that are not associated with a covered loss under a Builders Risk Coverage Form.

3. Consequential Loss

These are indirect or time element-type losses that follow a direct loss and are excluded.

4. Customs Regulations

The insurance company does not pay expenses, costs, or losses due to any import, export, or customs regulations or restrictions.

5. Fire Extinguishment

Coverage does not apply to the costs or expenses to extinguish a fire.

6. Interruption Of Utility Service

There is no coverage for expenses, costs, or losses due to interruption of any utility service needed in order for a construction, erection, or fabrication project to proceed.

7. Lack Of Funds

This is simply the named insured's inability to secure the funds necessary for the construction, erection, or fabrication project and is excluded.

8. Leases, Licenses, Contracts Or Orders

The insurance company does not pay expenses, costs, or losses caused by or resulting from any of these being suspended, cancelled, or lapsing. However, it does cover such losses if they result directly from a covered delay.

9. Property Not Covered

Loss or damage to property not covered under the applicable Builders' Risk Coverage Form is excluded.

10. Strikes And Other Interference

There is no coverage when strikers or other persons interfere with repairing or replacing covered property or resuming construction activities at a covered project.

11. Unnecessary Expenses

There is no coverage for expenses, costs, or losses during construction of a covered building or structure that are not necessary or that are more than the amount by which they reduce a loss.

WHAT MUST BE DONE IN CASE OF LOSS

These terms are in addition to those that may apply in the applicable Builders' Risk Coverage Form.

1. Due Diligence To Rebuild Or Restore

Only expenses and losses that occur during the time required to rebuild or restore the damaged building or structure with similar materials are covered. The named insured must exercise due diligence and dispatch and take reasonable efforts to minimize the expenses and losses.


2. Intent To Start Or Continue Business

If the named insured plans to start or continue the business after a covered loss, it must begin or resume all or part of it as soon as possible.

3. Interference And Access

a. Minimize Interference

The named insured must minimize interfering with the construction schedule in order to avoid or reduce delays.

b. Allow Access

The named insured must let the insurance company have access to the covered building or structure to negotiate with any parties involved to:

VALUATION

The insurance company considers three general areas as it determines an income coverage loss:

HOW MUCH WE PAY

These terms are in addition to those that may apply in the applicable Builders' Risk Coverage Form.

1. Deductible

The deductible provisions in the applicable Builders' Risk Coverage Form include covered expenses as described under Coverages–Additional Construction Expenses and Supplemental Coverages–General Administration Expenses.

2. Waiting Period

If there is a waiting period, the insurance company does not pay additional soft costs, loss of rental income, loss of net income, or loss of energy generating income until the number of days entered on IM 7099 have passed.

ADDITIONAL CONDITIONS

This condition is in addition to other terms that may apply in the applicable Builders' Risk Coverage Form. The Appraisal For Delay In Completion condition applies in conjunction with this coverage part. If the named insured and the insurance company do not agree on the amount of loss or expenses, they are determined according to Other Conditions–Appraisal in the applicable Builders' Risk Coverage Form.

IM 7061–DELAY IN COMPLETION COVERAGE PART

INTRODUCTION

The American Association of Insurance Services (AAIS) IM 7061–Delay In Completion Coverage Part covers additional construction expenses, consisting of advertising expenses, design fees, additional financing costs, lease administration expenses, professional fees, and permit fees. It also covers the additional soft costs of interest payments, realty taxes, lease expenses and insurance premiums. It is written in conjunction with any of the AAIS Builders' Risk Coverage Forms.

Note: This was previously titled Soft Cost And Rental Income but the coverage provided is now broader and the new title reflects the change.

IM 7061 has one schedule that is used in conjunction with the schedule of coverages used with the applicable Builders' Risk Coverage Form. IM 7062–Delay In Completion Schedule is used to indicate the coverages that apply, their limits, optional coverages, coverage extensions, supplemental coverages, and the waiting period, if applicable.

IM 7062–DELAY IN COMPLETION SCHEDULE

Jobsite

Covered jobsites must be entered in the space provided.

Note: IM 7096–Additional Delay In Completion Schedule is used if the number of jobsites to be covered cannot fit into the space provided on this schedule.

Coverages

Two coverages are available. A limit must be entered for each coverage desired. Additional Soft Costs has spaces for a 30-Day Limit and an Occurrence Limit.

These are limited to Advertising, Design Fees, Financing, Lease Administration, Permit Fees, and Professional Fees as described in IM 7061.

These are limited to Insurance Premiums, Interest Payments, Lease Expenses, and Realty Taxes as described in IM 7061.

Optional Coverages

Sewer Backup Coverage is the only optional coverage available. If coverage is desired, the box must be checked and a limit entered in the space provided. The box for coverage not provided must be checked if coverage is not desired.

Coverage Extensions

There are four coverage extensions.

Coverage is provided. There are no other entries.

Coverage is provided. There are no other entries.

If more than the two weeks provided in the coverage form is needed, the number of weeks needed (not just the additional number of weeks) must be entered in the space provided.

If more than the 30 days provided in the coverage form is needed, the number of days needed (not just the additional number of days) must be entered in the space provided.

Supplemental Coverage

General Administration Expenses is the only supplemental coverage available. If a limit higher than the $50,000 limit included in the coverage form is needed, it must be entered in the space provided.

Waiting Period

The number of days waiting period must be entered in the space provided if a waiting period is desired and the box checked. The waiting period may be waived by checking the box indicating that a waiting period does not apply.

IM 7061–DELAY IN COMPLETION COVERAGE PART COVERAGE FORM ANALYSIS

Note: This analysis is of the 07 09 edition.


INTRODUCTION

This coverage part opens by stating that the coverage provided is subject to the terms and conditions in the applicable coverage form. These are Agreement, Property Not Covered, Perils Covered, Perils Excluded, What Must Be Done In Case Of Loss, How Much We Pay, Loss Payment, Other Conditions, Additional Coverage Limitations, and Definitions. A separate note states that the references to "rehabilitation and renovation project" replace "building or structure" if this coverage form is added to IM 7054–Builders' Risk Coverage–Rehabilitation And Renovation Form.

ADDITIONAL DEFINITIONS

Three definitions are added.

1. Delay

This is an interruption caused by a covered peril in constructing, fabricating, or erecting a building or structure. It does not include interruptions due to change orders, design changes, or other actions unrelated to direct physical loss or damage caused by or resulting from a covered peril.

2. Delay period

This is the amount of time construction, fabrication, or erection is delayed due to direct physical loss or damage from a covered peril. The coverage's expiration date does not affect this period.

It does not mean:

3. Expenses and losses

These are the expenses and costs entered under Additional Construction Expenses, Additional Soft Costs, loss of income under Rental Income, Income Coverage, and Energy Generating Income. They apply only to the definition of expenses and losses if coverage for any or all of these is entered on IM 7062.

COVERAGES

There are two coverages.

1. Additional Construction Expenses

This coverage applies if there is a limit on IM 7062.

a. Coverage

Additional construction expenses incurred during the delay period are covered.

b. Coverage Limitation

Coverage applies only if the additional construction expenses are due to a delay to a building or structure at a jobsite listed on IM 7062.

c. Additional Construction Expenses

The following are the reasonable and necessary expenses that are considered under this coverage. They must relate to the construction project and be over and above those that would have been incurred if there were no delay period:

d. Limit

The most paid in any one occurrence is the limit entered on IM 7062.


 

Example: Dave's Delinquent Dwellings (DDD) constructs single-family homes and small apartment buildings. When a fire damaged one of its apartment buildings under construction, it delayed its being ready for the tenants who had already signed leases by three months. The repairs that had to be done would take three months and require re-doing the leases based on the original proposed opening date. This coverage applied to the lease administration expenses DDD incurred to do so. Fortunately, every lease was re-done and none of the proposed tenants backed out of their previous commitments.

 

2. Additional Soft Costs

This coverage applies if there is a limit for it on IM 7062.

a. Coverage

The insurance company pays for soft costs incurred during the delay period.

b. Coverage Limitation

Coverage applies only if the soft costs are due to a building or structure at a jobsite listed on IM 7062.

c. Soft Costs

These are the reasonable and necessary expenses that relate to the construction project over and above those incurred if there was no delay period. They are limited to additional:

d. Limits

 

Example: Continuing the example above, Dave's Delinquent Dwellings (DDD) had to extend its Builder's Risk Coverage an additional three months because of the delay, as well as the lease on the compressors and lifts it rented for this specific project. This coverage responded to the additional premium to extend the insurance and the additional rental charge for the equipment.

OPTIONAL COVERAGE

Provisions That Apply To Optional Coverage

There is one optional coverage. Its limit is separate from and not part of the limits that apply to the coverages indicated above. It is the only limit available and is not added to the limit for expenses and losses. It is not added to or combined with limits for any other coverage extension or supplemental coverage.

Sewer Backup

This coverage applies if there is a limit for it on IM 7062.

1. Coverage

Coverage under this coverage part extends to apply to include delays due to physical loss or damage to a covered building or structure from:

2. Coverage Limitations

Coverage does not apply if the loss or damage results from:

3. Limit

The most paid in any one occurrence is the Sewer Backup Limit on IM 7062.


COVERAGE EXTENSIONS

These four coverage extensions are part of, not in addition to, the limits that apply for the coverages indicated above.

1. Expenses To Reduce A Loss

The insurance company pays expenses the named insured incurs during the delay period that are necessary to expedite repairing or replacing the part of covered property that sustained direct physical loss or damage, but only to the extent that it reduces the amount of loss or damage otherwise payable.

 

Example: Continuing the example above, Dave's Delinquent Dwellings (DDD) took advantage of its relationship with its fixture supplier and moved to the top of the supplier's list by paying a $5,000 fee to immediately replace the fixtures destroyed in the fire. Doing so got DDD the replacement fixtures 30 days sooner, reduced the delay to two months, and the lost income loss was reduced by $10,000. Since the fee was less than the benefit obtained, the insurance company paid the $5,000 and saved itself $5,000 by having the delay reduced to two months. This also reduced DDD's Builders' Risk premium and leased equipment charges.

 

2. Ordinance Or Law

a. Coverage

This insurance extends for the increased time period of delay caused by enforcing any law regulating construction, use, or repair of covered buildings or structures or that requires their partial or total demolition if not damaged by a covered peril.

b. Coverage Limitations

This coverage does not extend to include delay caused by enforcing any law that was not in force when the loss occurred or that requires any action with respect to pollutants.

3. Interruption By Civil Authority

a. Coverage

This insurance extends to expenses and losses the named insured incurs when a civil authority issues an order that specifically denies access to a covered building or structure.

b. Coverage Limitations

The civil authority's order must be a result of direct physical loss or damage by a covered peril to property other than at the named insured's jobsite.

c. Time Limitation

This coverage extension is limited to two consecutive weeks from the date of the order. This time period can be increased by an entry on IM 7099.

4. Limited Fungus Coverage

a. Coverage

Expenses and losses the named insured incurs due to delays caused by or resulting from direct physical loss or damage to a covered building or structure caused by fungus are covered.

b. Coverage Limitations

Expenses and losses that result from fungus are covered only when the fungus results from a specified peril other than fire, lightning, or flood (if Flood Coverage is provided) and the named insured took all reasonable steps to protect the covered property from additional damage at and after the date of loss.

Note: This Coverage Extension does not apply if the damage is due to fire or lightning because the basic coverage form does not exclude fungus when due to fire or lightning.

c. Time Limitation


SUPPLEMENTAL COVERAGES

There is one supplemental coverage. Its limit is separate from the limits for the coverages indicated above, not part of them, and is the only limit available for it.

General Administration Expenses

a. Coverage

This supplemental coverage applies to the costs of general administrative and overhead expenses for additional clerical personnel, security costs, and other expenses incurred during the delay period.

b. Coverage Limitation

The only such expenses covered are those due to a delay in construction at a jobsite listed on IM 7062.

c. Expenses

These are the reasonable and necessary expenses that relate to construction activities on a covered building or structure over and above those that would have been incurred if there were no delay period.

d. Limit

The most paid for general administration expenses in any one occurrence is $50,000 unless there is a different limit on IM 7062.

 

Example: Dave's Delinquent Dwellings (DDD) also had to pay the costs to have security on the site for two extra months and the overtime pay to its employees to re-do the leases. DDD paid close attention to and kept meticulous records of every expense, no matter how small, and recovered them from the insurance company.

ADDITIONAL PERILS EXCLUDED

These excluded perils are in addition to those in the applicable Builders' Risk Coverage Form. The insurance company does not pay for any additional expenses, costs, or losses due to an increase in the delay period caused directly or indirectly by or resulting from one or more of them. This is regardless of any other causes or events that contribute to the delay period, either before, during, or after the excluded cause or event.

1. Additional Time

Coverage does not apply to the additional time required to repair or replace any part of a covered building or structure due to:

Note: These are all indirect, consequential losses that the named insured cannot estimate or control. Several track with corresponding exclusions in the Builders' Risk Coverage Forms.

2. Change Order

There is no coverage for changes, orders, actions, or decisions that result in delays in completing the covered project that are not associated with a covered loss under a Builders Risk Coverage Form.

3. Consequential Loss

These are indirect or time element-type losses that follow a direct loss and are excluded.

4. Customs Regulations

The insurance company does not pay expenses, costs, or losses due to any import, export, or customs regulations or restrictions.

5. Fire Extinguishment

Coverage does not apply to the costs or expenses to extinguish a fire.

6. Interruption Of Utility Service

There is no coverage for expenses, costs, or losses due to interruption of any utility service needed in order for a construction, erection, or fabrication project to proceed.

7. Lack Of Funds

This is simply the named insured's inability to secure the funds necessary for the construction, erection, or fabrication project and is excluded.

8. Leases, Licenses, Contracts Or Orders

The insurance company does not pay expenses, costs, or losses caused by or resulting from any of these being suspended, cancelled, or lapsing. However, it does cover such losses if they result directly from a covered delay.


9. Property Not Covered

Loss or damage to property not covered under the applicable Builders' Risk Coverage Form is excluded.

10. Strikes And Other Interference

There is no coverage when strikers or other persons interfere with repairing or replacing covered property or resuming construction activities at a covered project.

11. Unnecessary Expenses

There is no coverage for expenses, costs, or losses during construction of a covered building or structure that are not necessary or that are more than the amount by which they reduce a loss.

WHAT MUST BE DONE IN CASE OF LOSS

These terms are in addition to those that may apply in the applicable Builders' Risk Coverage Form.

1. Due Diligence To Rebuild Or Restore

Only expenses and losses that occur during the time required to rebuild or restore the damaged building or structure with similar materials are covered. The named insured must exercise due diligence and dispatch and take reasonable efforts to minimize the expenses and losses.

2. Interference And Access

a. Minimize Interference

The named insured must minimize interfering with the construction schedule in order to avoid or reduce delays.

b. Allow Access

The named insured must let the insurance company have access to the covered building or structure to negotiate with any parties involved to:

HOW MUCH WE PAY

These terms are in addition to those that may apply in the applicable Builders' Risk Coverage Form.

1. Deductible

The deductible provisions in the applicable Builders' Risk Coverage Form include covered expenses as described under Coverages–Additional Construction Expenses and Supplemental Coverages–General Administration Expenses.

2. Waiting Period

If there is a waiting period, the insurance company does not pay additional soft costs until the number of days entered on IM 7062 has passed.

ADDITIONAL CONDITIONS

This condition is in addition to other terms that may apply in the applicable Builders' Risk Coverage Form. The Appraisal For Delay In Completion condition applies in conjunction with this coverage part. If the named insured and the insurance company do not agree on the amount of loss or expenses, they are determined according to Other Conditions–Appraisal in the applicable Builders' Risk Coverage Form.

IM 7079–DELAY IN COMPLETION COVERAGE PART–INCLUDES RENTAL INCOME AND INCOME COVERAGE

INTRODUCTION

The American Association of Insurance Services (AAIS) IM 7079–Delay In Completion Coverage Part–Includes Rental Income And Income Coverage provides delay in completion coverages for Additional Construction Expenses, consisting of advertising expenses, design fees, additional financing costs, lease administration expenses, professional fees, and permit fees. It includes Additional Soft Costs of interest payments, realty taxes, lease expenses, and insurance premiums. It also includes Rental Income and Income Coverage. It is written in conjunction with any of the AAIS Builders' Risk Coverage Forms.

Note: This was previously the Soft Cost, Extra Expense And Rental Income Endorsement but the coverage provided is broader and its title was changed.

IM 7079 has one schedule used in conjunction with the schedule of coverages used with the applicable Builders' Risk Coverage Form. IM 7080–Delay In Completion Schedule–Includes Rental Income And Income Coverage states the coverages that apply, their limits, optional coverages, coverage extensions, supplemental coverages, and the waiting period, if any.

IM 7080–DELAY IN COMPLETION SCHEDULE–INCLUDES RENTAL INCOME AND INCOME COVERAGE

Note: The entries required to complete this schedule can be entered on this form or on the schedule of coverages.

Jobsite

Covered jobsites must be entered in the space provided.

Note: IM 7096–Additional Delay In Completion Schedule is used if the number of jobsites to be covered cannot fit into the space provided on this schedule.

Coverages

Four coverages are available. A limit of insurance must be entered for each coverage desired. The limit for Additional Construction Expenses is the most paid in any one occurrence. Additional Soft Costs, Rental Income, and Income Coverage have spaces for a 30-Day Limit and an Occurrence Limit.

These are limited to Advertising, Design Fees, Financing, Lease Administration, Permit Fees, and Professional Fees as described in IM 7079.

These are limited to Insurance Premiums, Interest Payments, Lease Expenses, and Realty Taxes as described in IM 7079.

Optional Coverage

Sewer Backup Coverage is the only optional coverage available. If coverage is desired, the box must be checked and a limit entered in the space provided. The box for coverage not provided must be checked if coverage is not desired.

Coverage Extensions

There are four coverage extensions.

Coverage is provided. There are no other entries.

Coverage is provided. There are no other entries.

If more than the two weeks provided in the coverage form is needed, the total number of weeks needed (not just the additional number of weeks) must be entered in the space provided.

If more than the 30 days provided in the coverage form is needed, the total number of days needed (not just the additional number of days) must be entered in the space provided.

Supplemental Coverage

General Administration Expenses is the only supplemental coverage available. If coverage is desired for more than the $50,000 limit included in the coverage form, it must be entered in the space provided.

Waiting Period

The number of days waiting period must be entered in the space provided if a waiting period is desired and the box checked. The waiting period may be waived by checking the box for waiting period does not apply.

IM 7079–DELAY IN COMPLETION COVERAGE PART–INCLUDES RENTAL INCOME AND INCOME COVERAGE–COVERAGE FORM ANALYSIS

Note: This analysis is of the 07 09 edition.

INTRODUCTION

This coverage form opens by stating that the coverage provided is subject to the terms and conditions in the applicable coverage form. These are Agreement, Property Not Covered, Perils Covered, Perils Excluded, What Must Be Done In Case Of Loss, How Much We Pay, Loss Payment, Other Conditions, Additional Coverage Limitations, and Definitions. A separate note states that the references to "rehabilitation and renovation project" replace "building or structure" if this coverage part is added to IM 7054–Builders' Risk Coverage–Rehabilitation And Renovation Form.

ADDITIONAL DEFINITIONS

Four definitions are added.

1. Business

This means the expected business or occupancy in the covered building or structure when construction is completed.

2. Delay

This is an interruption caused by a covered peril in constructing, fabricating, or erecting a building or structure. It does not include interruptions due to change orders, design changes, or other actions unrelated to direct physical loss or damage caused by or resulting from a covered peril.

3. Delay period

This is the amount of time construction, fabrication, or erection is delayed due to direct physical loss or damage from a covered peril. The coverage's expiration date does not affect this period.

It does not mean:

4. Expenses and losses

These are the expenses and costs entered under Additional Construction Expenses, Additional Soft Costs, loss of income under Rental Income, and Income Coverage. They apply only to the definition of expenses and losses if coverage for any or all of these is entered on IM 7080.

COVERAGES

There are four coverages.

1. Additional Construction Expenses

This coverage applies if there is a limit for it on IM 7080.

a. Coverage

Additional construction expenses incurred during the delay period are covered.

b. Coverage Limitation

Coverage applies only if the additional construction expenses are due to a delay to a building or structure at a jobsite listed on IM 7080.

c. Additional Construction Expenses

These are the reasonable and necessary expenses that relate to the construction project over and above those incurred if there was no delay period. They are limited to:

d. Limit

The most paid in any one occurrence is the limit entered on IM 7080.

 

Example: A sudden, violent windstorm seriously damaged the strip shopping center that Keystone Konstruction & Kontracting (KK&K) was building. KK&K also planned to occupy the end unit for its office operations and contractor's yard on the land adjoining it when construction was completed. The repairs and replacements needed pushed the project back six months. KK&K had to re-do the leases for some of the spaces that had been done previously. This coverage applied to the lease administration expenses KK&K incurred to do so. KK&K was extremely pleased when none of the prospective tenants changed their minds, despite the additional six-month wait.

 

2. Additional Soft Costs

This coverage applies if there is a limit for it on IM 7080.

a. Coverage

Soft costs incurred during the delay period are covered.

b. Coverage Limitation

Coverage applies only if the soft costs arise out of a delay to a building or structure at a jobsite listed on IM 7080.

c. Soft Costs

These are the reasonable and necessary expenses relating to the construction project over and above those incurred if there was no delay period. They are limited to additional:

d. Limits

 

Example: Continuing the example above, Keystone Konstruction & Kontracting (KK&K) reluctantly extended its Builders' Risk Coverage for six months because of the delay, as well as the leases on the equipment it rented for this project. Fortunately for KK&K, this coverage responded to the additional premium to extend the insurance and the additional rental charges for the leased equipment.

 

3. Rental Income

This coverage applies if there is a limit for it on IM 7080.

a. Coverage

The insurance company pays for the actual loss of rental income incurred during the delay period.

b. Coverage Limitation

Coverage applies only when the loss of rental income is due to a delay to a building or structure at a jobsite listed on IM 7080.

c. Deduction From Loss Of Rental Income

Unnecessary expenses that do not continue due to a delay are deducted from the loss of rental income.

d. Limits

4. Income Coverage

This coverage applies if there is a limit for it on IM 7080.

a. Coverage

The insurance company pays for the actual loss of net income incurred during the delay period.

Note: Net income is the net profit or loss before income taxes.

b. Coverage Limitation

Coverage applies to the actual loss of net income that the business would have earned and continuing expenses it would have incurred. This includes, but is not limited to, payroll expense. It also applies to loss of net income arising out of delays to the construction project listed on IM 7080.


c. Limits

 

Example: Continuing the example above, Keystone Konstruction & Kontracting (KK&K) was also out six months of rental income from the proposed tenants because of the loss and the subsequent delay in opening. This coverage responded to that fact and reimbursed KK&K for the income it would not receive because of that delay.

OPTIONAL COVERAGES

Provisions That Apply To Optional Coverage

There is one optional coverage. Its limit is separate from and not part of the limits that apply to the coverages indicated above. It is the only limit available and is not added to the limit for expenses and losses. It is not added to or combined with limits for any other coverage extension or supplemental coverage.

Sewer Backup

This coverage applies if there is a limit on IM 7080.

1. Coverage

Coverage under this coverage part extends to apply to include delays due to physical loss or damage to a covered building or structure from:

2. Coverage Limitations

Coverage does not apply if the loss or damage results from:

3. Limit

The most paid in any one occurrence is the Sewer Backup Limit on IM 7099.

COVERAGE EXTENSIONS

The four coverage extensions indicated below are part of, not in addition to, the limits that apply for the coverages indicated above.

1. Expenses To Reduce A Loss

The insurance company pays expenses the named insured incurs during the delay period that are necessary to expedite repairing or replacing the part of covered property that sustained direct physical loss or damage, but only to the extent that it reduces the amount of loss or damage otherwise payable.

 

Example: Continuing the example above, Keystone Konstruction & Kontracting (KK&K) encountered a timely opportunity it could not refuse. A building supplies dealer who was a close personal friend of KK&K's owner told him that he was swamped with orders but offered to fill KK&K's order within 30 days instead of the normal 60 days if he would pay $10,000 for the privilege. This helped the supplier get over a short-term cash-flow problem but also helped KK&K because it meant a savings of over $20,000 to get the project done in five months instead of six. Since the expenditure was far less than the benefit obtained, the insurance company paid $10,000 and saved itself $10,000 by having the delay reduced by a complete month.

 

2. Ordinance Or Law

a. Coverage

This insurance extends for the increased time period of delay caused by enforcing any law regulating construction, use, or repair of covered buildings or structures or that requires their partial or total demolition if not damaged by a covered peril.

b. Coverage Limitations

This coverage does not extend to include delay caused by enforcing any law that was not in force when the loss occurred or that requires any action with respect to pollutants.


3. Interruption By Civil Authority

a. Coverage

This insurance extends to expenses and losses the named insured incurs when a civil authority issues an order that specifically denies access to a covered building or structure.

b. Coverage Limitations

The civil authority's order must be a result of direct physical loss or damage by a covered peril to property other than at the named insured's jobsite.

c. Time Limitation

This coverage extension is limited to two consecutive weeks from the date of the order. This time period can be increased by an entry on IM 7080.

4. Limited Fungus Coverage

a. Coverage

This insurance extends to expenses and losses the named insured incurs due to delays caused by or resulting from direct physical loss or damage to a covered building or structure caused by fungus.

b. Coverage Limitations

Expenses and losses resulting from fungus are covered only when the fungus results from a specified peril other than fire, lightning or flood (if Flood Coverage is provided) and the named insured took all reasonable steps to protect the covered property from additional damage at and after the date of loss.

c. Time Limitation

SUPPLEMENTAL COVERAGES

There is one supplemental coverage. Its limit is separate from the limits for the coverages indicated above, not part of them, and is the only limit available for it.

General Administration Expenses

1. Coverage

This supplemental coverage applies to the costs of general administrative and overhead expenses for additional clerical personnel, security costs, and other expenses incurred during the delay period.

2. Coverage Limitation

The only such expenses covered are those that arise out of a delay in construction at a jobsite listed on IM 7080.

4. Expenses Means

These are the reasonable and necessary expenses that relate to construction activities on a covered building or structure over and above those that would have been incurred if there were no delay period.

5. Limit

The most paid for general administration expenses in any one occurrence is $50,000 unless there is a different limit on IM 7080.

 

Example: Keystone Konstruction & Kontracting (KK&K) realized it would have to maintain security on the jobsite for an extra five months and pay its employees overtime wages to re-do the leases and deal with all the little related nuisances that also cost money. KK&K paid close attention to and kept meticulous records of every expense, regardless of the amount, and recovered every dollar it had coming from the insurance company.

ADDITIONAL PERILS EXCLUDED

These excluded perils are in addition to those in the applicable Builders' Risk Coverage Form. The insurance company does not pay for any additional expenses, costs, or losses due to an increase in the delay period caused directly or indirectly by or resulting from one or more of them. This is regardless of any other causes or events that contribute to the delay period, either before, during or after the excluded cause or event.


1. Additional Time

Coverage does not apply to the additional time required to repair or replace any part of a covered building or structure due to:

Note: These are all indirect, consequential losses that the named insured cannot estimate or control. Several track with corresponding exclusions in the Builders' Risk Coverage Form.

2. Change Order

There is no coverage for changes, orders, actions, or decisions that result in delays in completing the covered project that are not associated with a covered loss under a Builders Risk Coverage Form.

3. Consequential Loss

These are indirect or time element type losses that follow a direct loss and are excluded.

4. Customs Regulations

The insurance company does not pay expenses, costs, or losses due to any import, export, or customs regulations or restrictions.

5. Fire Extinguishment

Coverage does not apply to the costs or expenses to extinguish a fire.

6. Interruption Of Utility Service

There is no coverage for expenses, costs, or losses due to interruption of any utility service needed in order for a construction, erection, or fabrication project to proceed.

7. Lack Of Funds

This is simply the named insured's inability to secure the funds necessary for the construction, erection, or fabrication project and is not covered.

8. Leases, Licenses, Contracts Or Orders

The insurance company does not pay expenses, costs, or losses caused by or resulting from any of these being suspended, cancelled, or lapsing. However, it does cover such losses if they result directly from a covered delay.

9. Property Not Covered

Loss or damage to property not covered under the applicable Builders' Risk Coverage Form is excluded.

10. Strikes And Other Interference

There is no coverage when strikers or other persons interfere with repairing or replacing covered property or resuming construction activities at a covered project.

11. Unnecessary Expenses

There is no coverage for expenses, costs, or losses during construction of a covered building or structure that are not necessary or that are more than the amount by which they reduce a loss.

WHAT MUST BE DONE IN CASE OF LOSS

These terms are in addition to those that may apply in the applicable Builders' Risk Coverage Form.

1. Due Diligence To Rebuild Or Restore

Only expenses and losses that occur during the time required to rebuild or restore the damaged building or structure with similar materials are covered. The named insured must exercise due diligence and dispatch and take reasonable efforts to minimize the expenses and losses.

2. Intent To Start Or Continue Business

If the named insured plans to start or continue the business, it must begin or resume all or part of it as soon as possible after a covered loss.

3. Interference And Access

a. Minimize Interference

The named insured must minimize interfering with the construction schedule in order to avoid or reduce delays.


b. Allow Access

The named insured must let the insurance company have access to the covered building or structure to negotiate with any parties involved to:

VALUATION

The insurance company considers three general areas as it determines an income coverage loss:

HOW MUCH WE PAY

These terms are in addition to those that may apply in the applicable Builders' Risk Coverage Form.

1. Deductible

The deductible provisions in the applicable Builders' Risk Coverage Form include covered expenses as described under Coverages–Additional Construction Expenses and Supplemental Coverages–General Administration Expenses.

2. Waiting Period

If there is a waiting period, the insurance company does not pay additional soft costs, loss of rental income, loss of net income, or loss of energy generating income until the number of days entered on IM 7080 have passed.

ADDITIONAL CONDITIONS

This condition is in addition to other terms that may apply in the applicable Builders' Risk Coverage Form. The Appraisal For Delay In Completion condition applies in conjunction with this coverage part. If the named insured and the insurance company do not agree on the amount of loss or expenses, they are determined according to Other Conditions–Appraisal in the applicable Builders' Risk Coverage Form.


AAIS FINE ARTS COVERAGE FORMS

 

Introduction

Eligibility

Policy Construction

Schedules of Coverages

IM 7355–Schedule of Coverages–Fine Arts Dealers Coverage

IM 7350–Fine Arts Dealers Coverage Form Analysis (04 04 edition)

   Agreement

   Definitions

   Property Covered

   Property Not Covered

   Coverage Extensions

   Supplemental Coverages

   Perils Covered

   Perils Excluded

   What Must Be Done In Case Of Loss

   Valuation

   How Much We Pay

   Loss Payment

   Other Conditions

IM 7356–Schedule of Coverages–Fine Arts Dealers–Blanket Coverage Form

IM 7351–Fine Arts Dealers–Blanket Coverage Form Analysis (06 04 edition)

IM 7405–Schedule of Coverages–Fine Arts Floater

IM 7400–Fine Arts Floater Analysis (04 04 edition)

IM 7407–Schedule of Coverages–Fine Arts Coverage–Collectors' Form

IM 7401–Fine Arts Coverage–Collectors' Form Analysis (04 04 edition)

Endorsements and Schedules

Underwriting Considerations

INTRODUCTION

Fine arts are considered covered property in all property coverage forms but only for their utilitarian value, not their intrinsic value. This means that a Picasso painting is valued based on the canvas, frame, and paints, not on the artist. As a result, the most important element of this coverage is appropriately valuing the fine art object based on what it is instead of what it is made of.

Fine arts coverage is important to businesses and individuals who buy, sell, or collect such property. Policies written for those who sell such property are called dealers forms, because their emphasis is on the retail sales of such property. Policies written for those who buy or collect such property are called floaters and coverage is for objects of art as defined that are kept in business or residence premises.

The American Association of Insurance Services (AAIS) Fine Arts Dealers Coverage Forms apply to property consisting of various types of fine arts that dealers and galleries own. It is not to be used by individuals, commercial entities, or collectors who are not in the fine arts business. It covers both sold and unsold fine arts property consisting of (but not limited to) paintings, etchings, pictures, tapestries, rare or art glass, art glass windows, valuable rugs, statuary, sculptures, antique furniture, antique jewelry, bric-a-brac, porcelains, and similar property of rarity, historical value, or artistic merit. Coverage can also apply to works of art that belong to others in the named insured's care, custody, or control. The coverage form insures against risks of direct physical loss or damage, except as limited or excluded, at designated locations, unnamed locations, and in transit.

The AAIS Fine Arts Floater and Collectors' Coverage Forms cover a variety of objects of fine art owned by individuals and businesses that are not in the fine arts business that want broad coverage on the fine arts they own. It is not to be used by fine arts dealers, galleries, or museums whose primary business involves works of art. These forms usually cover items scheduled on a valued basis. This means the insurance company pays the limit for each scheduled item lost or damaged by a covered peril. Fine arts include, but are not limited to, the same types of property as outlined above. Coverage can also apply to works of art that belong to others in the named insured's care, custody, or control. Fine arts are not covered while at exhibitions at fair grounds or on the premises of any national or international exhibition. The form provides coverage for risks of direct physical loss or damage, except as limited or excluded, at designated locations and in transit.

AAIS has developed four fine arts coverage forms. Each has its own corresponding schedule of coverages. This analysis examines each of these coverage forms.

ELIGIBILITY

In general, Fine Arts Dealers coverage is available for any business enterprise that sells fine art. Fine Arts floaters are for individuals and commercial enterprises that own or collect fine arts.

POLICY CONSTRUCTION

AAIS Fine Arts coverage requires at least these four forms:

SCHEDULES OF COVERAGES

IM 7355–SCHEDULE OF COVERAGES–FINE ARTS DEALERS COVERAGE

This Schedule of Coverages is used with IM 7350–Fine Arts Dealers Coverage. IM 7355 contains the following information:

Covered Premises

All occupied and operated premises where coverage is desired must be listed.

Premises Limits

The limit of insurance at each covered premises is entered in the space provided. It is the most paid in any one occurrence for loss to fine arts.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Supplemental Coverages

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

Deductible

One deductible is entered that applies to all covered premises.


Coinsurance

One of the following coinsurance options must be selected:

Optional Coverages and Endorsements

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7350–FINE ARTS DEALERS COVERAGE FORM ANALYSIS

AGREEMENT

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

DEFINITIONS

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Thirteen terms are defined:

1. You and your

These are the parties identified on the declarations as the insured.

2. We, us and our

This is the insurance company that provides the coverage.

3. Antique

This is an object that has value because it is more than 100 years old and exhibits craftsmanship of a style or fashion from the past.

4. Earth movement

This is earthquake, landslide, mudflow, mudslide, mine subsidence, sinking, rising, or shifting of earth, or any other movement of the earth’s surface. It does not include sinkhole collapse.

5. Fine arts

This is property of rare, historical, or artistic merit. Some examples are paintings, etchings, pictures, tapestries, art glass, rare glass, art glass windows, valuable rugs, statuary, sculptures, antique furniture, antique jewelry, porcelains, and bric-a-brac.

6. Flood

This is flood, surface water, waves, tidal water, or overflow of bodies of water. It also includes spray resulting from these, whether driven by wind or not.

7. Limit

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

8. Pollutant

This is a broad and expansive term. It includes solids, liquids, thermal, or radioactive contaminants and irritants including, but not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste also includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants and are included.

9. Schedule of coverages

This is any page labeled as such that contains coverage information, including declarations or supplemental declarations.

10. Sinkhole collapse

This is the sudden settling or collapsing of the earth's surface into an underground opening created by water acting on limestone or some other rock formation. It does not include the value of the land or the cost to fill sinkholes.


11. Specified perils

These are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm.

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

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

12. Terms

These are all provisions, limitations, exclusions, conditions and definitions that apply to this coverage.

13. Volcanic action

This is airborne volcanic blast or shock waves, ash, dust, and particulate matter. It includes lava flow but does not include the cost to remove dust, ash, or particulate matter that does not directly damage covered property.

PROPERTY COVERED

The insurance company covers direct physical loss or damage from a covered peril to the named insured's stock in trade. Similar property of others in its care, custody, or control is also covered.

Coverage applies only when the stock in trade or property of others is fine arts and is at a location listed on the schedule of coverages. The named insured must both occupy and operate the location.

 

Example: The Ritzy Ditsy Art Gallery owns and operates an art gallery in a medium-size Midwestern city. It sells its own purchased art objects as well as art items that belong to others on a consignment basis. Since Ritzy also offers repair and renovation services, it has property of others on premises for such services. Ritzy takes great pride in its facility and the fact that it is the only operation of its kind in the greater metropolitan area. Because of this, many area artists turn to Ritzy Ditsy to display and sell their work, as this gallery is a destination and a magnet for patrons of the arts in its metropolitan area. This coverage form insures both owned property and property of others in Ritzy Ditsy's care, custody, or control.

PROPERTY NOT COVERED

Seven specific types of property are excluded:

1. Coins and Stamps

These are numismatic and philatelic objects and collections.

2. Contraband

These are goods that are illegal to possess, or that are legal but are in the course of illegal transportation.

3. Furs

This also includes garments trimmed with fur. This property is more correctly insured under furriers customers coverage forms.

4. Jewelry, Stones and Metals

Stones are precious and semi-precious stones. Metals are gold, silver, platinum, and other precious metals and alloys.

Note: No part of this exclusion applies to antique jewelry.


5. Money and Securities

This means a number of different types of property. It includes currency, food stamps, and lottery tickets not held for sale, in addition to money, notes, or securities.

Note: This property is more correctly insured under commercial crime coverage forms.

6. Vehicles

These are automobiles or any other type of self-propelled vehicle designed for use on public highways.

Note: This property is more correctly insured under commercial automobile coverage forms.

7. Waterborne Property

This property is excluded, except when in transit and in a carrier for hire's care, custody, or control.

COVERAGE EXTENSIONS

Provisions That Apply To Coverage Extensions

There are two coverage extensions. The limit for each is either the limit on the schedule of coverages or the default limit included in the coverage form. These limits are part of the applicable limit for covered property and not in addition to it, unless otherwise indicated. These limits are not added to or combined with limits for any other coverage extension or supplemental coverage and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Debris Removal

The insurance company pays costs incurred to remove debris caused by a covered peril occurring. The most paid is 25% of the amount paid for the actual direct physical loss or damage. The combined value of the direct loss or damage and the debris removal cannot exceed the limit of insurance for the covered property.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property. Debris removal expenses must be reported to the insurance company within 180 days of the loss date in order for this extension to apply.

Note: This coverage extension does not apply to any pollutant cleanup, extraction, removal, restoration, or replacement involving either land or water.

2. Emergency Removal

This covers direct physical loss or damage to covered property while it is being moved or stored elsewhere in order to avoid loss or damage caused by a covered peril at a scheduled location. Coverage applies for up to ten days after the property is first moved but does not extend past the policy expiration date. An entry can be made on the schedule of coverages to increase the number of days.

Note: Coverage does not extend past the expiration date. If the insured has property at an emergency location when coverage renews, the emergency location must be listed as a premises or coverage no longer applies.

 

Example: Ritzy Ditsy is painfully aware of the potential damage to some of its more delicate stock in trade by tomorrow's predicted tornados. As a result, Ritzy's owner packs up as much of it as will fit in a van, drives it to her home, and waits for the watches and warnings to expire. She is thankful that the tornado did not cause the anticipated damage. On her way back to the store she swerves to avoid a duck and the van flips into a culvert. All of the property is destroyed. Because of the Emergency Removal coverage, the full property coverage limits apply to this loss instead of the transit limit of insurance.

SUPPLEMENTAL COVERAGES

Provisions That Apply To Supplemental Coverages

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

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.


1. Pollutant Cleanup and Removal

a. The insurance company pays the named insured's expenses to extract pollutants from land or water if their release or discharge was caused in any way by a covered peril that occurred during the policy period.

b. The expenses to extract pollutants are paid only if reported to the insurance company within 180 days of the date of loss.

c. Costs related to testing, evaluating, observing, or recording pollutants are not covered but the costs of testing necessary to extract pollutants from land or water are covered.

d. The most paid is $5,000 for all such expenses caused by a covered peril that occurs during each separate 12-month policy period, unless there is a different limit on the schedule of coverages.

2. Transit

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

PERILS COVERED

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

PERILS EXCLUDED

1. The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

a. Civil Authority

There is no coverage for loss resulting from the order of any civil or government authority. This includes (but is not limited to) seizure, confiscation, destruction, or quarantine of property. Coverage does apply for loss or damage caused when a civil authority destroys property in order to prevent the spread of fire. However, that fire must be the result of a covered peril.

b. Earth Movement or Volcanic Eruption

Coverage does not apply to loss or damage caused by earth movement or eruption, explosion, or effusion of a volcano. Coverage does apply to direct loss or damage by fire, explosion, or volcanic action that results from any of these events. Coverage also applies for loss or damage caused by sinkhole collapse and to covered property in transit.

c. Flood

The insurance company does not pay for loss or damage caused by flood. It does cover direct loss or damage caused by fire, explosion, or sprinkler leakage that results from a flood occurrence. However, this exclusion does not apply to covered property in transit.

d. Nuclear Hazard

The insurance company does not insure against loss or damage caused by or resulting from any nuclear reaction, radiation, or contamination, whether the nuclear incident was controlled or not, or was caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke. However, coverage

e. Sewer Backup and Water below the Surface

Coverage does not apply to loss or damage caused by water backup from a sewer or drain or from water below the surface of the ground that exerts pressure on covered buildings or structures. However, fire, explosion, and theft losses that result from such backup or hydrostatic pressure are covered. This exclusion does not apply to covered property in transit.

f. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. This means undeclared and civil war or warlike action by a military force is not covered. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also not covered. Acts of insurrection, rebellion, revolution, or unlawful seizure of power are not covered and any action any government authority takes to prevent or defend against any such acts are also not covered. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.


2. The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or resulting from any of these events.

a. Breakage, Marring and Scratching

There is no coverage for loss or damage caused by or resulting from breakage, marring, or scratching of covered property. However, if any of these results in a specified peril, coverage applies to the loss or damage caused by that peril.

 

Example: While many of Ritzy Ditsy's objects of art are paintings, it does have a few porcelain vases and several glass objects. Ritzy displays these items in a locked plexiglass display case accessible by only the gallery director and his wife. They are the only ones allowed to clean and reposition these objects. This decision is influenced by the fact that Ritzy Ditsy is unable to find an insurance company willing to write coverage for these perils at a reasonable premium.

 

b. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This includes corrosion, decay, fungus, mildew, mold, rot, rust, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself.

c. Criminal, Fraudulent, Dishonest or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts, committed alone or in collusion with another, by any of the following:

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

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

d. Diminished Value

Renovation or repair of an item of fine arts may reduce its value. However, the insurance company does not pay for such reduction in value even it is the result of a repair following a covered loss.

 

Example: A windstorm blows out a window and water pours into Ritzy Ditsy’s gallery. Although many items were protected by the plexiglass cases, a 19th century bureau sustained significant water damage. While the insurance company paid for its renovation and repair, it could not restore the lost patina or natural aging. The lost patina reduced the value of the bureau by $10,000, an amount not covered by insurance.

 

e. Loss of Use

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

f. Missing Property

Unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to indicate what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. This exclusion does not apply to covered property in the custody of carriers for hire.

g. Pollutants

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

h. Processing and Work

Coverage does not apply when loss or damage results from work being performed on covered property. Examples are repair and/or restoration work.

 

Example: Ritzy Ditsy re-frames artwork as part of its operations. While working on a $25,000 painting, a tear developed in the canvas that ruined the value of the painting. There is no coverage for this loss.

 

i. Temperature/Humidity

Loss or damage to covered property caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded.

j. Theft from an Unattended Vehicle

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

k. Voluntary Parting

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

l. Wear and Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded. However, if any of these events results in a covered peril occurring, the loss or damage caused by or resulting from that peril is covered.

Note: Wear and tear is damage, diminishment in value, or erosion due to long or hard use or exposure, including breakdown over time and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified.

Note: The insurance company has the right to require that the notice be in writing.

2. You Must Protect Property

During and after a loss, all reasonable steps must be taken to protect covered property from further loss. The insurance company pays reasonable costs incurred to do so provided the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: Such costs incurred reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days of its request to do so. The information provided must include the time, place, and circumstances surrounding the loss and information on any other insurance coverage that may apply. It must also include the interest of the named insured and others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations on multiple occasions but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must maintain and produce any records related to the loss. The insurance company must be permitted to make copies and take extracts of them as often as it reasonably requests. Records include (but are not limited to) tax returns and bank microfilms of all related cancelled checks.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

If the named insured voluntarily makes any payments, assumes any obligations, pays or offers rewards, or incurs any other expenses without the insurance company's express approval, it does so at its own expense. The only exceptions are those costs incurred to protect property as outlined in item 2. of this section.

8. Abandonment

Abandoning damaged property to the insurance company without its written consent is prohibited.

9. Cooperation

The named insured must cooperate with the insurance company and perform all acts the coverage form requires.

VALUATION

1. Your Property

The value of the named insured's property is based on a combination of its Purchase Price plus any related Acquisition Expenses.

a. Purchase Price is defined as the named insured's actual cost to acquire the property.

b. Acquisition Expenses are defined as expenses above and beyond the purchase price that the named insured incurs to acquire the property and prepare it for sale.

c. Acquisition expenses are not open-ended. They cannot exceed 25% of the purchase price of the property. Shipping, mounting, and framing are considered acquisition expenses, as are costs to restore and refurbish.

 

Example: Ritzy Ditsy purchases a painting for $25,000. It needs restoration and the cost to do so is $10,000. After the restoration, the painting's value is $75,000. While being sent to an exhibition, the painting is destroyed in an accident before it arrives. Ritzy Ditsy receives $25,000, the purchase price, plus $6,250, the restoration amount, limited to 25% of the purchase price, for a total of $31,250 for the loss.

 

2. Property of Others

There are two ways to value property of others.

a. Consignment Amount is the preferred method and is the value of property of others as stated in writing in the consignment agreement between the property owner and the named insured. The written agreement must be in place prior to any loss.

b. Absence of Written Consignment Amount is used when there is no written agreement. In that case, the property value is based on its fair market value at the time of loss.

3. Property Sold

Property sold but not delivered is valued at the selling price of the property. This value is then reduced by:

·         Discounts that would have been provided to the buyer

·         Any expenses the named insured does not incur that it normally would have incurred for sold items

 

Example: If the painting in the example above was sold for its value of $75,000 and was in the process of being delivered when it was destroyed, the value would be $75,000, less discounts and unincurred expenses, instead of $31,250. A discount could have been a 10% payment in cash discount. The delivery expenses that were not incurred are an example of an unincurred expense.

 

4. Pair or Set

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

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

5. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

HOW MUCH WE PAY

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: Insurance is meant to restore a person’s pre-loss financial position, not to improve or enhance it.

2. Deductible

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

3. Loss Settlement Terms

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


4. Coinsurance

a. When coinsurance applies to a coverage provided, the insurance company pays only part of the loss if the limit is less than the percentage of the value of the covered property on the schedule of coverages.

b. The three steps to determine the amount of the loss to be paid are:

Step 1. Multiply the percentage on the schedule of coverages by the value of the covered property at the time of loss.

Step 2. Divide the limit for covered property by the result determined in step 1.

Note: There is no coinsurance penalty if the result is1.00 or higher.

Step 3. When step 2. is less than 1.00 a coinsurance applies. Subtract the deductible from the amount of  loss and then multiply the total amount of loss by the percentage determined in step 2 above.

The insurance company does not pay more than the amount determined in step 3) or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If there is more than one limit on the schedule of coverages, this procedure is applied separately to each limit.

d. If there is only one limit on the schedule of coverages, this procedure is applied to the total of all covered property insured under that limit.

e. This coinsurance provision does not apply unless there is a coinsurance percentage entered on the schedule of coverages.

5. Insurance under More Than One Coverage

If two or more coverages in the coverage form apply to the same loss, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

6. Insurance under More Than One Policy

a. Proportional Share

If the named insured has other coverage subject to the same terms as this coverage form, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance on all policies that cover on the same basis.

b. Excess Amount

If the named insured has other coverage that insures the loss other than as described above, this coverage form pays only the amount of covered loss that exceeds the amount due from that other coverage (whether collectible or not). Any payment is subject to the applicable limit of insurance.

LOSS PAYMENT

1. Loss Payment Options

a. Our Options

The insurance company has four loss payment options if a covered loss occurs.

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

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

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured, unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

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


3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

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

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

When the insurance company pays the property owner, it is not obligated to pay the named insured. In addition, if the property owner sues the named insured, the company has the option of defending the named insured in that suit.

OTHER CONDITIONS

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and supply the appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within 15 days, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

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

b. Policy Period Is Not Extended

This coverage does not extend past the policy expiration date.

5. Misrepresentation, Concealment or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. If it intentionally misrepresents or conceals a material fact or information, its rights of recovery may be voided. This means that the insurance is treated as simply having never existed versus a particular claim being denied.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Payment of the loss does not end the obligations of the insured and the insurance company toward one another. If the insurance company pays a loss and the lost or damaged property is subsequently recovered (or the parties responsible for the loss pay for it), additional provisions apply.

Either party that recovers property or payment must inform the other. Recovery expenses incurred by either party are reimbursed first. If the insured keeps the recovered property, it must refund the amount of the claim the insurance company paid (unless the company agrees to a different amount). If the claim paid is less than the agreed loss due to application of a deductible or other limitations, any recovery is prorated between the named insured and the insurance company, based on the company's respective interest in the loss.

8. Restoration of Limits

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


9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must assist the insurance company in securing those rights. If it hinders or impairs the company's rights of subrogation, the company is not obligated to pay the loss.

Note: The named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been met. Suits must be brought within two years after the insured first had knowledge of a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories and possessions, Canada, or Puerto Rico in order for coverage to apply.

12. Carriers for Hire

The named insured is permitted to accept shipping documents from transportation companies that limit the carrier’s liability to amounts that are less than the covered property’s replacement cost or actual cash value.

IM 7356–SCHEDULE OF COVERAGES–FINE ARTS DEALERS BLANKET COVERAGE FORM

This Schedule of Coverages is used with IM 7351–Fine Arts Dealers Blanket Coverage Form. IM 7356 contains the following information:

Covered Premises

All occupied and operated premises where coverage is desired must be listed.

Limits

The limits of insurance are entered in the space provided.

Note: This is not a per-premises limit. It is an occurrence limit that applies over the named insured's occupied and operated premises. This limit must be sufficiently high to cover all premises and to meet the coverage form's coinsurance requirements.

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. When an entry is not required, the full policy limit applies, subject to any limitations in the coverage extension.


Supplemental Coverages

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

Check the appropriate box for Coverage Provided or Coverage Not Provided. If coverage is provided:

Check the appropriate box for Coverage Provided or Coverage Not Provided. If coverage is provided:

Check the appropriate box for Coverage Provided or Coverage Not Provided. If coverage is provided:

Valuation

Valuation is based on one or the other of the following selections:

Deductible

Deductible amounts must be entered for All Covered Perils

Other deductibles can be entered for the following and supersede the entry for All Covered Perils:

Note: The deductible entered applies to all covered locations.

Note: Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage applies, a deductible that applies specifically to that selected coverage must be entered. That deductible applies instead of the deductible that applies to all covered locations.

Coinsurance

One of the following coinsurance options must be selected:

Optional Coverages and Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included when the policy is issued.

IM 7351 06 04–FINE ARTS DEALER–BLANKET COVERAGE FORM ANALYSIS

This coverage form is similar to IM 7350–Fine Art Dealers Coverage analyzed above except for seven sections. This analysis addresses only the seven sections that are different.

DEFINITIONS

The definition of suit is added. It is used only with property of others in the named insured’s care, custody, or control. It is a judicial proceeding designed to determine if the named insured is liable for loss or damage to such property and the damages owed. It also includes arbitration proceedings but only if the named insured is required to participate in them.

PROPERTY COVERED

Coverage is broadened to apply beyond the named insured’s premises. It includes owned property and property of others in the named insured's care, custody, or control at other than owned premises. Coverage is limited to property consisting of fine arts temporarily at other premises. These other premises may be exhibitions, at customers' premises awaiting approval. The other premises may also be one where work such as framing, renovating, packing, or appraising is performed on the property.

Note: This broader coverage applies only when there is a limit on the schedule of coverages.

COVERAGE EXTENSIONS

Four coverage extensions are added and one is changed.

The coverage extensions added are:

2. Defense Costs

a. When suits are brought against the named insured for loss or damage to covered property caused by a covered peril, the insurance company has the option to defend those suits. It can investigate and settle such claims or suits.

b. The company is not obligated to defend once it has paid the limit based on a judgment or written settlement.

c. The named insured is not permitted to interfere with the insurance company's actions or negotiations for a settlement. It also cannot admit liability for a loss, settle a claim, or incur any expense related to the claim unless the insurance company agrees in writing to permit it to do so.

d. The insurance company pays seven specific types of expenses but only if they relate to investigating or defending a suit. These expenses are not subject to a deductible.

3. Diminished Value

Diminished value covers the reduction in value of an item because it was damaged and repaired. It is based on the difference in value of an item before a covered loss and the value after it is repaired .An independent certified fine arts appraiser must determine the fair market value of the items after the loss. The diminished value is limited to 25% of the total value of the property as detailed in Valuation.

Note: This coverage extension does not increase the limit for covered property or the value of covered property as detailed in Valuation.

4. Emergency Removal Expenses

This coverage extension pays the named insured’s expenses to move covered property away from a covered location threatened by a covered peril. It also pays for storage fees incurred to keep it at a safe location up to ten days after the property is first moved. The most paid for such expenses in any one occurrence is $1,000. Coverage ends with the policy expires even if the items are still at the safe location.

Note: This is additional coverage. As a result, all such expenses paid are in addition to the limit of insurance for this property.

6. Fraud and Deceit

This coverage applies to theft of covered property when the named insured or its agents, consignees, or customers give the property away. This giving away occurs because person(s) falsely represented themselves as the proper persons to receive the property or because fraudulent bills of lading or other shipping receipts were presented. The most paid in any one occurrence is $1,000.

The coverage extension changed is Debris Removal. The limit is increased to $10,000.

SUPPLEMENTAL COVERAGES

Seven supplemental coverages are added and one is changed.

The items added are:

1. Breakage Coverage

This covers loss or damage to covered property caused by or resulting from breakage, marring, or scratching. The most paid in any one occurrence is $1,000.

2. Earthquake Coverage

The insurance company covers direct physical loss or damage to covered property caused by earthquake and volcanic eruption. Coverage applies only if the appropriate box is checked and a limit entered on the schedule of coverages. This is also subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. Since this could be confusing, if earthquake coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

3. Flood Coverage

The insurance company covers direct physical loss or damage to covered property caused by flood. Coverage applies only if the appropriate box is checked and a limit entered on the schedule of coverages. This is subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. Since this could be confusing, if flood coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

4. Newly Acquired Premises

Coverage applies to direct physical loss or damage by a covered peril to covered property at a location the named insured acquires during the policy period. The limit is $10,000 at each location (unless there is a different limit on the schedule of coverages). Coverage applies for up to 60 days from the acquisition date or until reported to the insurance company, whichever occurs first. Coverage does not extend past the expiration date. Additional premium for the coverage must be paid from the acquisition date.

6. Rewards

If a covered arson, theft, or vandalism loss occurs, this coverage provides a reward for information that leads to the conviction of the party or parties who caused the loss. Payment is limited to $1,000 and is based on the occurrence, not the number of persons providing information. The limit can be increased.

7. Sewer Backup Coverage

Coverage applies to direct physical loss or damage to covered property caused by water damage from the backup of a sewer or drain. Coverage also applies to loss from sub-surface water pressure on or leakage through or into a covered building or structure. Coverage does not apply unless the appropriate box is checked and a limit is entered on the schedule of coverages. This is subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. Since this could be confusing, if sewer backup coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

8. Storage Locations

Covered property in storage is insured at locations not listed on the schedule of coverages. Payment is limited to $10,000 or the limit entered on the schedule of coverages.

The item changed is Pollutant Cleanup and Removal. The limit is increased to $10,000.


PERILS EXCLUDED

Six perils are changed but only because of references to additional Coverage Extensions or Supplemental Coverages.

VALUATION

The option to replace Purchase Price Plus Acquisition Cost with Fair Market Value is added. If fair market value is checked on the schedule of coverages, it replaces purchase price plus acquisition cost as the valuation method. Fair market value is an estimate of what an interested purchaser is willing to pay an interested seller for certain types of property in a free market at the time of loss.

Note: This option can be a double-edged sword. Fine arts can appreciate or depreciate in value based on current taste, interest, and other whims of the market place. Regular appraisals are needed to keep the schedule current, since the fair market value is based on conditions at the time of loss. The possibility always exists that the named insured may have better coverage using the purchased price plus acquisition cost than the fair market value at a certain point in time.

HOW MUCH WE PAY

The Earthquake Period provision is added. It states that all earthquake and volcanic activity in a single 168-hour period is considered a single earthquake.

IM 7405–SCHEDULE OF COVERAGES–FINE ARTS FLOATER

This Schedule of Coverages is used with IM 7400–Fine Arts Floater. IM 7405 contains the following information:

Covered Premises

Described Premises–Refer To Fine Arts Schedule

Coverage Extensions

The limit on the Schedule of Coverages for the following coverage applies to all covered locations:

Emergency Removal

Note: Emergency Removal coverage is limited to 10 days. The number of days can be increased.

Supplemental Coverages

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

Deductible

Deductible Amount for All Covered Perils

Optional Coverages and Endorsements

This section of the schedule of coverages indicates coverage endorsements and forms included when the policy is issued.

IM 7400–FINE ARTS FLOATER ANALYSIS

This coverage form is similar to IM 7350–Fine Art Dealers Coverage analyzed above except for six sections. This analysis addresses only the differences in those six sections.

Note: This is a floater, not a Dealers Form. This means it is designed for collections.

PROPERTY COVERED

Property covered is much more restrictive. The only fine arts covered are those listed and described on IM 7406–Fine Arts Schedule–Fine Arts Floater at the premises on the schedule of coverages.

COVERAGE EXTENSIONS

This coverage form does not provide Debris Removal coverage. This means that Emergency Removal is the only coverage extension provided.

SUPPLEMENTAL COVERAGES

Three supplemental coverages are added, one is changed and one is eliminated.

The supplemental coverages added are:

1. Newly Purchased Property

The insurance company covers direct physical loss or damage from a covered peril to fine arts purchased during the policy period while at a premises on the schedule of coverages. The most paid in any one occurrence is $5,000. Coverage applies for up to 60 days after the fine arts are acquired or until reported to the insurance company, whichever occurs first. Coverage does not extend past the expiration date. Additional premium is due from the acquisition date.

2. Property on Exhibit

Coverage applies to direct physical loss or damage from a covered peril to covered property while exhibited at locations the named insured does not own or occupy. The exhibit must be temporary. The most paid in any one occurrence is $1,000.

3. Property off Premises for Framing, Renovating, Packing or Appraising

This is covered property temporarily at premises the named insured does not own or occupy. Coverage applies only if the property is being framed, renovated, packed, or appraised. Coverage applies to direct physical loss or damage from a covered peril. The most paid in any one occurrence is $1,000.

The supplemental coverage changed is Transit. The limit is reduced to $1,000.

The supplemental coverage eliminated is Pollutant Cleanup and Removal.

PERILS EXCLUDED

This section is identical in both coverage forms except that the reference to Supplemental Coverages–Pollutant Cleanup is eliminated.

VALUATION

Covered property is valued based on the limit entered for each covered item on IM 7406–Fine Arts Schedule–Fine Arts Floater. The Valuation terms Your Property, Property of Others, and Property Sold are all eliminated.

HOW MUCH WE PAY

The coinsurance condition is eliminated.

IM 7407–SCHEDULE OF COVERAGES–FINE ARTS COVERAGE–COLLECTORS' FORM

This Schedule of Coverages is used with IM 7401–Fine Arts Coverage–Collectors' Form. IM 7407 contains the following information:

Covered Premises

All covered premises must be listed.

Limits

Your Premises:

Other Premises:

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Note: Each of these extensions applies. If a limit is not entered, the full policy limit applies, subject to any limitations in the coverage extension.

Supplemental Coverages

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

Check the appropriate box for Coverage Provided or Coverage Not Provided. If coverage is provided:

Check the appropriate box for Coverage Provided or Coverage Not Provided. If coverage is provided:

Check the appropriate box for Coverage Provided or Coverage Not Provided. If coverage is provided:


Deductible

Deductible amounts must be entered for All Covered Perils

Other deductibles can be entered for the following and supersede the entry for All Covered Perils:

Note: The deductible entered applies to all covered locations.

Note: Under Supplemental Coverages, if earthquake, flood, and/or sewer backup coverage applies, a deductible that applies specifically to that selected coverage must be entered. That deductible applies instead of the deductible that applies to all covered locations.

Optional Coverages and Endorsements

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

IM 7401–FINE ARTS COVERAGE–COLLECTORS' FORM ANALYSIS

This coverage form is similar to IM 7350–Fine Art Dealers Coverage analyzed above except for six sections. This analysis addresses only the differences in those six sections.

PROPERTY COVERED

Property covered is much more restrictive. The only fine arts covered are those listed and described on IM 7408–Fine Arts Schedule–Fine Arts Coverage–Collectors' Form at a premises on the schedule of coverages.

Coverage also applies at other locations the named insured does not own or operate. However, property is only covered when they are at these locations to be exhibited or to be framed, renovated, packed, or appraised. The off premises coverage applies only when there is a limit for it on the schedule of coverages.

Note: Coverage does not apply to stock in trade or property of others.

COVERAGE EXTENSIONS

Three coverage extensions are added and one is changed.

The three coverage extensions added are:

1. Diminished Value

Diminished value covers the reduction in value of an item because it was damaged and repaired. It is based on the difference in value of an item before a covered loss and its value after it is repaired .An independent certified fine arts appraiser must determine the fair market value of the items after the loss. The diminished value is limited to 25% of the total value of the property as detailed in Valuation.

Note: This coverage extension does not increase the limit for covered property or the value of covered property as detailed in Valuation.

3. Emergency Removal Expenses

This coverage extension pays the named insured’s expenses to move covered property away from a covered location threatened by a covered peril. It also pays for storage fees incurred to keep it at a safe location up to ten days after the property is first moved. The most paid for such expenses in any one occurrence is $1,000. Coverage ends with the policy expires even if the items are still at the safe location.

Note: This is additional coverage. As a result, all such expenses paid are in addition to the limit of insurance for this property.

4. Fraud and Deceit

This coverage applies to theft of covered property when the named insured or its agents, consignees, or customers give the property away. This giving away occurs because person(s) falsely represented themselves as the proper persons to receive the property or because fraudulent bills of lading or other shipping receipts were presented. The most paid in any one occurrence is $1,000.

The coverage extension changed is Debris Removal. The limit is increased to $10,000.


SUPPLEMENTAL COVERAGES

Eight supplemental coverages are added and one is eliminated.

The eight supplemental coverages added are:

1. Breakage Coverage

This covers loss or damage to covered property caused by or resulting from breakage, marring, or scratching. The most paid in any one occurrence is $1,000.

2. Earthquake Coverage

The insurance company covers direct physical loss or damage to covered property caused by earthquake and volcanic eruption. Coverage applies only if the appropriate box is checked and a limit entered on the schedule of coverages. This is also subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. Since this could be confusing, if earthquake coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

3. Flood Coverage

The insurance company covers direct physical loss or damage to covered property caused by flood. Coverage applies only if the appropriate box is checked and a limit entered on the schedule of coverages. This is also subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. Since this could be confusing, if flood coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

4. Newly Acquired Premises

Coverage applies to direct physical loss or damage by a covered peril to covered property at a location the named insured acquires during the policy period. The limit is $5,000 at each location, unless there is a different limit on the schedule of coverages. Coverage applies for up to 60 days from the acquisition date or until reported to the insurance company, whichever occurs first. Coverage does not extend past the expiration date. Additional premium for the coverage must be paid from the acquisition date.

5. Newly Purchased Property

This covers direct physical loss or damage from a covered peril to fine arts the named insured purchases during the policy period. The most paid in any one occurrence is $5,000. Coverage applies for up to 60 days after the fine arts are acquired or until reported to the insurance company, whichever occurs first. Coverage does not extend past the expiration date. Additional premium is due from the acquisition date.

6. Rewards

If a covered arson, theft, or vandalism loss occurs, this coverage provides a reward for information that leads to the conviction of the party or parties who caused the loss. Payment is limited to $1,000 and is based on the occurrence, not the number of persons providing information. The limit can be increased.

7. Sewer Backup Coverage

Coverage applies to direct physical loss or damage to covered property caused by water damage from the backup of a sewer or drain. Coverage also applies to loss from sub-surface water pressure on or leakage through or into a covered building or structure. Coverage does not apply unless the appropriate box is checked and a limit is entered on the schedule of coverages. This is subject to a separate deductible.

Note: This coverage does not have a default limit. As a result, coverage applies only if there is a limit on the schedule of coverages. Since this could be confusing, if sewer backup coverage is not provided, the word "none" should be entered in the limits space on the schedule of coverages.

8. Storage Locations

Covered property in storage is insured at locations not listed on the schedule of coverages. Payment is limited to $10,000 or the limit entered on the schedule of coverages.

The supplemental coverage eliminated is Pollutant Cleanup and Removal.


PERILS EXCLUDED

While the same exclusions apply in both coverage forms, IM 7401 offers limited coverage for six of them, as follows:

VALUATION

Covered property is valued based on the limit entered on the schedule of coverages for each item. There are no provisions for Property of Others or Property Sold.

HOW MUCH WE PAY

The Earthquake Period provision is added. It states that all earthquake and volcanic activity in a single 168-hour period is considered a single earthquake.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedule forms for use with the various coverage forms:

IM 7360–Breakage Endorsement

This endorsement is used to cover breakage, marring, or scratching of covered property. It is used with coverage forms that do not provide this coverage.

IM 7361–Off-Site Location Endorsement

This endorsement is used to cover insured property at other locations, such as storage facilities, exhibitions, and places that do framing, renovating, packing, or appraisal work on such property. It is used with coverage forms that do not provide this coverage.

IM 7406–Fine Arts Schedule–Fine Arts Floater

(Use with IM 7400) This schedule lists, describes, and provides a limit on each item of fine arts at described premises.

IM 7408–Fine Arts Schedule–Fine Arts Coverage–Collectors' Form

(Use with IM 7401) This schedule lists, describes, and provides a limit on each item of fine arts at described premises.

Note: Additional company specific endorsements may be available. Each should be examined to determine how it affects coverage. Forms frequently add requirements for safeguards, such as theft systems and alarms or climate control. Additional requirements may include use of glass cases to display property or restrict the amount of time articles may be away from owned and listed locations. Forms that broaden coverage may include broadened territory, processing operations for dealers, and different valuation techniques for unique items or unusual situations.

UNDERWRITING CONSIDERATIONS

Fine arts dealers and galleries usually occupy fixed or permanent locations and are exposed to the common causes of loss that affect them. This is important to keep in mind because most types of fine art are highly susceptible to damage by fire, smoke, and water. They also present unique and unusual transit underwriting considerations and other important loss issues that must be addressed include breakage, theft, vandalism, and mysterious disappearance. Because of the number of potential perils and the unique nature of the covered property, the management of fine arts dealers and galleries must be underwritten closely and carefully but the same underwriting concerns to varying degrees apply to fine arts floater and collectors' coverage forms.

Objects of fine art should always have an independent appraisal to determine the appropriate value. Purchase price is important but may not have an actual bearing on the true value or market price of an item of fine art. Appraisals should be updated periodically since changes, such as the death of an artist, may increase or appreciate values of fine arts. On the other hand, a flood of similar items on the market may diminish or depreciate the value.

Fire, smoke, and theft are the major loss cause concerns and fire and theft systems and alarms should be in place when substantial values are involved. Sensitive environmental or atmospheric systems and alarms should be considered in cases where art is susceptible to damage from temperature or humidity changes. Water damage from the discharge of sprinkler systems is another important loss concern. Any object of art especially susceptible to damage by water should be located away from sprinkler systems and their discharge and protected by other means.

The degree of care in packing and unpacking objects of art determines how well they fare in transit. Specialized moving and packing operations should be employed when handling and transporting valuable items.

Art located off premises should be documented and recorded and security at those premises should be adequate for the nature of the item and the value involved. Fraudulent acts and trickery can occur and safeguards should be in place to prevent the unintended delivery of art objects to criminals. Security at off-site exhibits must be evaluated and appropriate guarantees obtained prior to consenting to exhibit. If an item of fine art is given to another party on consignment, a signed consignment agreement should be required to eliminate any questions about its ownership and the legal responsibility of the party holding the object.

Fine arts should be kept at or above ground floor level, since damage from humidity and water occurs more frequently below grade. Lower levels of a building may be appropriate for other storage or for processing and refurbishing. It is important to keep activities that involve heat, including the use of flammable liquids, at a distance from the main inventory. Flammables should be kept in proper containers in a well-ventilated area to prevent build-up of fumes, and away from combustible materials that can increase the chance of spontaneous combustion and fire.

AAIS RENEWABLE ENERGY GENERATING EQUIPMENT COVERAGE

 

Introduction

Eligibility

Policy Construction

IM 8065–Schedule of Coverages–Renewable Energy Generating Equipment

IM 8060–Renewable Energy Generating Equipment Coverage Form Analysis (11 10 edition)

   Agreement

   Property Covered

   Property Not Covered

   Optional Coverages

   Coverage Extensions

   Supplemental Coverages

   Perils Covered

   Perils Excluded

   What Must Be Done In Case Of Loss

   Valuation

   How Much We Pay

   Loss Payment

   Other Conditions

   Additional Coverage Limitations

   Definitions

Endorsements and Schedules

Underwriting Considerations


INTRODUCTION

The American Association of Insurance Services (AAIS) Renewal Energy Generating Equipment Coverage Form covers renewable energy generating equipment such as wind turbines and solar panels. It is designed to cover equipment that is part of or connected to buildings or building complexes that supplies power to them. Such equipment is (or may be) part of the building's sustainable or "green" design. Excess capacity that such equipment generates may be sold to electric utilities. However, this coverage form is not intended to cover wind farms or large array solar panel farms.

In addition to physical damage coverage for the generating equipment, the basic coverage form includes built-in optional coverages for loss of energy generation income (if the named insured sells excess power to a utility) and for costs to buy replacement electricity.

AAIS has developed one Renewable Energy Generating Equipment Coverage Form and its own corresponding schedule of coverages. This analysis examines the 11 10 edition of this coverage form.

ELIGIBILITY

Any individual or commercial operation that owns and/or operates renewable energy generating equipment such as wind turbines and solar panels is eligible.

POLICY CONSTRUCTION

AAIS Renewable Energy Generating Equipment Coverage requires at least these four forms:

IM 8065–SCHEDULE OF COVERAGES–RENEWABLE ENERGY GENERATING EQUIPMENT

This Schedule of Coverages is used with IM 8060–Renewable Energy Generating Equipment Coverage. IM 8065 contains the following information:

Covered Property

This section has spaces to list and describe the location, the covered equipment at that location, and the limit.
IM 8070–Additional Renewable Energy Generating Equipment Schedule is used to schedule additional locations and equipment.

Catastrophe Limit

This limit is entered in the space provided. It is the most paid in a single occurrence at all locations and for all equipment.

Optional Coverages

There are two optional coverages. A box must be checked to select coverage and a limit entered in the space provided. The two optional coverages are:

Coverage Extensions

The limits on the Schedule of Coverages for the following coverages apply to all covered locations:

Additional Debris Removal Expenses: The limit is $5,000 unless a different limit is entered.


Supplemental Coverages

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

Valuation

There are two valuation options. A box must be checked to select the one desired. The two options are:

Deductible

The deductible that applies is entered in the space provided.

Waiting Period

A waiting period must be checked if Optional Coverage–Energy Generating Income is selected. The two options are:

Coinsurance

One of the following coinsurance options must be selected:

Additional Information

This section of the schedule of coverages provides additional information or may list endorsements and forms included when the policy is issued.

IM 8060–RENEWABLE ENERGY GENERATING EQUIPMENT COVERAGE FORM ANALYSIS

INTRODUCTION

The lead-in language states that the terms you and your mean the persons or parties named on the declarations as the insured. We, us, and our means the insurance company that provides coverage. It also refers to the Definitions section at the end of the coverage form.

AGREEMENT

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

PROPERTY COVERED

Coverage applies to the renewable energy generating equipment described below, subject to any exclusions or limitations that apply.


1. Coverage

Coverage applies to direct physical loss or damage from a covered peril to the named insured's renewable energy generating equipment and similar property of others in the named insured's care, custody, or control.

 

Example: Magnificent Magnetic Metalworks consumes a great deal of power in its sophisticated metal fabricating processes. Mike, the sole proprietor, decides to invest some of his profits into his one wind turbine as a hedge against future rate increases, to reduce his electric bill, and to possibly generate excess energy to sell back to the utility during his periodic slack periods. Mike is right on all counts and sees his profits increase even more, even after allowing for the cost to purchase and install the wind turbine.

 

2. Coverage Limitations

The only property covered is renewable energy generating equipment listed and described on the schedule of coverages. The property must be within 1,000 feet of, attached to, or mounted on a location listed and described on the schedule of coverages.

PROPERTY NOT COVERED

Six specific types of property are excluded:

1. Aircraft or Watercraft

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

2. Buildings and Land

This is any building or land where the covered property is located.

3. Contraband

These are goods that are illegal to possess or that are legal but in the course of illegal transportation.

4. Stock for Sale

These are goods or merchandise the named insured has available for sale but only when they are part of its business.

5. Vehicles

This is automobiles or self-propelled vehicles intended for use on highways.

Note: This property is more correctly insured under commercial automobile coverage forms.

6. Waterborne Property

This property is excluded. There are no exceptions

Note: This exposure is unlikely to happen frequently, if at all. In the unlikely event that an item of renewable energy generating equipment is on a barge or ferry, coverage on it should be arranged through the barge or ferry operator.

OPTIONAL COVERAGES

Two optional coverages are available. Coverage applies only if selected on the schedule of coverages.

1. Energy Generating Income

a. Coverage

This coverage applies to the actual loss of surplus power income incurred during the interruption period that applies to the renewable energy generating equipment. This loss of income includes loss of credits or rebates. This interruption must be caused by or result from direct physical loss or damage to renewable energy generating equipment by a covered peril that causes the interruption. It must occur at a location listed on the schedule of coverages.


b. Coverage Limitation

The loss of surplus power income is limited to the documented amount of the surplus power it generated and sold before the date of loss. This coverage does not insure the named insured's costs to purchase power for resale or to meet contractual obligations.

c. Surplus Power Income Means

This is income the named insured earned from a public utility. It did so by transferring surplus electricity its renewable energy generating equipment produced to the utility's power grid.

d. Expenses to Reduce a Loss

This coverage also applies to expenses the named insured necessarily incurs during the interruption period in order to expedite repairing or replacing the part(s) of the renewable energy generating equipment that was damaged. However, payment is only for such expenses to the extent that they reduce the amount of loss or damage otherwise payable.

e. Ordinance or Law

This coverage also applies to the increased time of interruption caused by enforcing any law, ordinance, or decree that:

·         Regulates construction, use, or repair of covered renewable energy generating equipment

·         Requires demolishing any part of it not damaged by a covered peril

The coverage extended does not include interruption caused by enforcing any law, ordinance, or decree that:

f. Limit

The most paid for this optional coverage is the limit on the schedule of coverages. It also applies to expenses incurred to reduce a loss and to losses related to ordinance or law.

2. Electricity Replacement

a. Coverage

This coverage pays the named insured's costs to purchase replacement electricity from a public utility when its renewable energy generating equipment sustains loss or damage by a covered peril.

b. Coverage Limitation

This coverage applies only if the named insured's renewable energy generating equipment would have produced electricity if there was no direct physical loss or damage to it.

c. Time Limitation

This coverage applies only until the renewable energy generating equipment is repaired or replaced and operates according to its manufacturer's specifications. However, coverage does not extend past the policy expiration date.

Note: It is very unusual for extra expense type coverage to end with the policy expiration date. Most continue until other policy conditions (such as the limits) are exhausted.

d. Limit

The most paid for this optional coverage is the limit on the schedule of coverages.

 

Example: Mike at Magnificent Magnetic Metalworks is so taken with the success of his wind turbine that he decides to make a similar investment. He does so for the same reasons as for the wind turbine and faces the pleasant task of making an entry in his accounting records for the significant amount of additional income he earns from selling the excess energy to the utility instead of having to purchase replacement electricity from it.

COVERAGE EXTENSIONS

Provisions That Apply To Coverage Extensions

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

Debris Removal

The insurance company pays costs incurred to remove debris caused by a covered peril occurring. The most paid is 25% of the amount paid for the actual direct physical loss or damage. The combined value of the direct loss or damage and the debris removal cannot exceed the limit of insurance for the covered property.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property. Debris removal expenses must be reported to the insurance company within 180 days of the loss date in order for this extension to apply.

Note: This coverage extension does not apply to any pollutant cleanup, extraction, removal, restoration, or replacement that involves either land or water.

SUPPLEMENTAL COVERAGES

Provisions That Apply To Supplemental Coverages

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

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension and are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Newly Acquired Property

a. Coverage

The insurance company covers direct physical loss or damage caused by a covered peril to additional renewable energy generating equipment that the named insured acquires during the policy period.

b. Limit

The most the insurance company pays in a single occurrence for covered loss or damage to such newly acquired equipment is $15,000. This limit can be increased.

c. Time Limitation

This supplemental coverage applies for up to 60 days and ends when the policy expires, 60 days after the additional equipment is acquired, or when the named insured reports the newly acquired property to the insurance company, whichever occurs first.

d. Additional Premium

Additional premium is due from the date the additional renewable energy generating equipment is acquired.

2. Pollutant Cleanup and Removal

a. Coverage

The insurance company pays the named insured's expenses to extract pollutants from land or water if the pollutant release or discharge was caused in any way by a covered peril that occurred during the policy period.

b. Time Limitation

The expenses to extract pollutants are paid only if reported to the insurance company within 180 days of the date of loss.

c. We

Do Not Cover

Costs related to testing, evaluating, observing, or recording pollutants are not covered but the costs of testing that are a necessary part of extracting pollutants from land or water are covered.


d. Limit

The most paid is $25,000 at each location for all such expenses caused by a covered peril that occurs during each separate 12-month policy period. The limit can be changed.

PERILS COVERED

Coverage applies to risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril.

PERILS EXCLUDED

1. The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or resulting from any of these events.

a. Civil Authority

There is no coverage for loss resulting from the order of any civil or government authority. This includes (but is not limited to) seizure, confiscation, destruction, or quarantine of property. Coverage does apply for loss or damage caused when a civil authority destroys property in order to prevent the spread of fire. However, that fire must be the result of a covered peril.

b. Earth Movement

Coverage does not apply to loss or damage caused by any earth movement. However, if eruption, explosion, or effusion of a volcano results in volcanic action, the insurance company pays for the loss or damage caused. If earth movement results in fire, the insurance company pays for its resulting loss or damage. If earth movement other than eruption, explosion, or effusion of a volcano results in an explosion, the insurance company pays for its resulting damage.

c. Flood

The insurance company does not pay for loss or damage caused by flood (or waterborne material carried or moved by flood), whether driven by wind or not. This includes storm surge or material carried or moved by mudslide or mudflow. However, coverage does apply to loss or damage caused by or that results from fire, explosion, or sprinkler leakage that flood causes.

d. Nuclear Hazard

The insurance company does not insure against loss or damage caused by or resulting from any nuclear reaction, radiation, or contamination, whether controlled or not, or caused by any means. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke. However, coverage applies to direct loss or damage caused by fire that results from the nuclear hazard.

e. Ordinance or Law

There is no coverage for any loss or increased construction costs because of enforcing any government regulation that controls the use, construction, or repair of any property. This includes demolishing that property and removing its debris. This exclusion also applies to enforcement that occurs even if the property has not been damaged and to increased costs incurred as a result of complying with the regulation. This includes any construction, demolition, or debris removal activities.

Note: Limited income-related coverage is available under Optional Coverages–Energy Generating Income.

f. Sewer, Septic Tank, Sump, or Drain Backup and Water Below The Surface

Coverage does not apply to loss or damage to covered property when water or waterborne material backs up, overflows, or discharges in any way through a sewer, drain, sump, septic tank, eaves trough, or downspout. Loss or damage when water or waterborne material below the surface that exerts pressure on (or that flows, seeps, or leaks through or into) buildings, sidewalks, driveways, foundations, swimming pools or other structures (whether it occurs naturally or artificially) is also excluded. However, if any of these results in fire, explosion, or sprinkler leakage, the insurance company pays for the loss or damage they cause. This exclusion does not apply to loss or damage to covered property in transit.


g. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. This means undeclared and civil war or warlike action by a military force is not covered. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also not covered. Acts of insurrection, rebellion, revolution, or unlawful seizure of power are not covered and any action any government authority takes to prevent or defend against any such acts are also not covered. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

2. The second group of exclusions applies to loss or damage caused by or resulting from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or resulting from any of these events.

a. Animals

There is no coverage for loss or damage caused by or that results from animals. Animals include (but are not limited to) rodents, vermin, and insects. However, if any of these results in a specified peril occurring, coverage applies to the loss or damage that specified peril causes.

Note: Other examples are mice, rats, cockroaches, squirrels, beavers, spiders, ants, centipedes, and ticks. Each is characterized by destructive habits that cause damage, such as gnawing and nibbling.

b. Contamination or Deterioration

Loss or damage caused by contamination or deterioration is excluded. This includes corrosion, decay, fungus, mildew, mold, rot, rust, or any quality, fault, or weakness in covered property that causes it to damage or destroy itself.

c. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts, committed alone or in collusion with another, by any of the following:

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

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

d. Electrical Currents

Loss or damage caused by or that results from any artificially generated electricity that damages electrical wiring or devices inside covered property is excluded. If any of these events results in a fire or explosion occurring, the resulting loss or damage is covered.

Note: This exclusion applies only to property that artificially generates the current.

e. Loss of Use and Consequential Loss

There is no coverage for loss caused by or resulting from delay, loss of use, or loss of market.

f. Mechanical Breakdown

Loss or damage caused by or that results from mechanical breakdown, structural, or electrical breakdown or malfunction is excluded. This includes breakdowns or malfunctions that result from structural, mechanical, or reconditioning processes. If such breakdowns or malfunctions result in a covered peril occurring, coverage applies to the resulting loss or damage the covered peril causes.

g. Missing Property

Unexplained or mysterious disappearance of covered property is excluded when there is no physical evidence to indicate what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. h. h. Pollutants

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

i. Processing or Work

Loss or damage due to processing or other work on the property is excluded. If processing or other work on the property results in a specified peril occurring, coverage applies to the loss or damage caused by or resulting from that specified peril.

j. Steam Boiler Explosion

The insurance company does not pay for loss or damage caused by or that results from explosions of steam boilers, pipes, turbines, or engines. However, if one of these explosions results in a fire or combustion explosion, coverage applies to the loss or damage caused. Coverage also applies to loss or damage caused by or that results from explosion of gas or fuel in a firebox, flue, or combustion chamber.

k. Temperature/Humidity

Loss or damage to covered property caused by dryness, dampness, humidity, changes in, or extremes of temperature is excluded. If any of these results in a covered peril occurring, the loss or damage caused by or that results from that covered peril is covered.

l. Voluntary Parting

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

m. Wear And Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded. If any of these results in a covered peril occurring, the loss or damage caused by or resulting from that covered peril is covered.

Note: Wear and tear is damage, diminishment in value, or erosion due to long or hard use or exposure, including breakdown over time, and eventually becoming unusable because of previous use. This includes the tendency of property to pull apart or break down into pieces because of forces applied to it.

3. This group of exclusions applies only to Optional Coverage–Energy Generating Income Coverage (if provided).

The insurance company does not pay for any losses or additional expenses due to an interruption period that increases due to any one or more of the following events or causes of loss. This is regardless of any other event or cause that contributes to the interruption period, either concurrently or in any other sequence.

a. Additional Time

This is extra time needed to repair or replace any part of renewable energy generating equipment. It includes:

b. Consequential Loss

This is any loss that follows a direct loss.

c. Customs Regulations

These are customs regulations and/or restrictions on imports or exports.

d. Interruption of Utility Service

This is interruption of incoming electricity that renewable energy generating equipment needs to proceed with or resume operation.

e. Lack of Funds

This is total lack of funds or funds that are not available.

f. Leases, Licenses, Contracts, or Orders

This refers to cancellation, suspension, or lapse of any of these. However, coverage applies if a covered interruption loss caused the cancellation, suspension, or lapse.

g. Property Not Covered

This is loss or damage to property that this coverage form does not insure.

h. Strikes and Other Interference

This means strikers or other persons interfering with covered property being repaired or replaced or operations resuming.

i. Unnecessary Expenses

These are expenses that are not necessary for covered renewable energy generating equipment to operate or that are more than the amount of loss they reduce.

WHAT MUST BE DONE IN CASE OF LOSS

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified.

Note: The insurance company has the right to require that the notice be in writing.

2. You Must Protect Property

During and after a loss, all reasonable steps must be taken to protect covered property from further loss. The insurance company pays reasonable costs incurred to do so provided the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: Such costs incurred reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days of its request to do so. The information provided must include the time, place, and circumstances surrounding the loss and information on any other insurance coverage that may apply. It must also include the interest of the named insured and others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations on multiple occasions but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must maintain and produce any records related to the loss. The insurance company must be permitted to make copies and take extracts of them as often as it reasonably requests. Records include (but are not limited to) tax returns and bank microfilms of all related cancelled checks.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

If the named insured voluntarily makes any payments, assumes any obligations, pays or offers rewards, or incurs any other expenses without the insurance company's express approval, it does so at its own expense. The only exceptions are those costs incurred to protect property as outlined in item 2. of this section.

8. Abandonment

Abandoning damaged property to the insurance company without its written consent is prohibited.

9. Cooperation

The named insured must cooperate with the insurance company and perform all acts the coverage form requires.

10. Energy Generating Income

These conditions apply only to Optional Coverage–Energy Generating Income Coverage (if provided).

a. Due Diligence to Rebuild or Restore

The named insured must do everything it reasonably can to minimize a covered loss. The insurance company pays only loss during the period of time needed to restore or rebuild damaged renewable energy generating equipment. The equipment must be restored or rebuilt with similar materials and with due diligence and dispatch.

b. Intent to Start or Continue Generation

If the named insured intends to start or continue generating energy, it must commence or resume doing so as soon as possible.

c. Interference and Access

The named insured must minimize any interference with equipment being repaired or replaced in order to reduce, avoid, or keep any resulting interruption as short as possible. It must also grant the insurance company access to the covered property so it can negotiate with other parties involved in repairs or replacement. This includes manufacturers, suppliers, contractors, subcontractors, and similar or related parties in order to:


VALUATION

A valuation must be selected on the schedule of coverages based on item 1. or item 2., as follows:

1. Functional Replacement Cost

The value of covered lost or damaged property is based on the cost to replace it with functionally equivalent property. This valuation applies only if the property is actually replaced. If it is not replaced, its value is based on its actual cash value on the date of loss, including a deduction for depreciation.

2. Replacement Cost

The value of covered lost or damaged property is based on the cost to replace it without a deduction for depreciation. It is limited to the cost to repair it with similar property, on the same site, and for the same purpose but not for more than the named insured spends to repair or replace it.

This valuation does not apply until the named insured repairs or replaces the damaged or destroyed property. A claim can be made for actual cash value before the property is repaired or replaced and a later claim replacement cost valuation made if the named insured informs the insurance company of its intent to do so within 180 days after the date of loss.

Replacement cost does not apply to items 3., 4., and 5. below.

3. Pair or Set

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

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

4. Loss to Parts

The value of a lost or damaged part of property that consists of several parts is the cost to repair or replace only the lost or damaged part.

5. Determining an Income Coverage Loss

These conditions apply only to Optional Coverage–Energy Generating Income Coverage. The insurance company considers these three factors when it attempts to determine an Energy Generating Income Coverage loss:

HOW MUCH WE PAY

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

2. Deductible

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

3. Loss Settlement Terms

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

4. Catastrophe Limit

The most the insurance company pays in a single occurrence is the Catastrophe Limit on the schedule of coverages. This is regardless of the number of items of renewable energy generating equipment, locations, or combination of these, or coverages under Optional Coverages, Coverage Extensions, or Supplemental Coverages.


5. Coinsurance

a. When Coinsurance Applies

The insurance company pays only part of the loss if, at the time of the loss, the limit is less than 100% of the estimated completed value of the covered property.

b. How We Determine Our Part of The Loss

The three steps in determining the amount of the loss to be paid are:

Step 1. Determine the full 100% value of the property as if it had been completed and as if no loss had occurred.

Step 2. Divide the limit for covered property by the result determined in step 1.

Note: There is no coinsurance penalty if the result is1.00 or higher.

Step 3. When step 2. is less than 1.00 a coinsurance penalty applies. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in step 2.

The insurance company does not pay more than the amount determined in step 3. or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If There is More Than One Limit

If there is more than one limit on the schedule of coverages, this procedure applies separately to each limit.

d. If There is Only One Limit

If there is only one limit on the schedule of coverages, this procedure applies to the total of all covered property to which that limit applies.

e. When Coinsurance Does Not Apply

Coinsurance does not apply when coinsurance provisions are waived by an entry on the schedule of coverages.

6. Insurance under More Than One Coverage

If two or more coverages in the coverage form cover the same loss, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

7. Insurance under More Than One Policy

a. Proportional Share

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

b. Excess Amount

If there is other coverage available that would pay for the loss (other than as described in item 7.a.) this coverage form pays on an excess basis. This means that only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not, is paid. Any payment is subject to the policy limit of insurance.

8. Waiting Period

This condition applies to only Optional Coverage–Energy Generating Income Coverage when selected. When there is a waiting period on the schedule of coverages, the insurance company does not pay for loss of energy generating income until after the number of days in the waiting period have passed.

LOSS PAYMENT

1. Loss Payment Options

a. Our Options

The insurance company has four loss payment options if a covered loss occurs.

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

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


2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured, unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

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

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

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

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

When the insurance company pays the property owner, it is not obligated to pay the named insured. In addition, if the property owner sues the named insured, the company has the option of defending the named insured in that suit.

OTHER CONDITIONS

1. Appraisal

The insurance company and the insured may not always agree on the value of a covered claim. This condition provides one method to solve disputed claims.

Either party can request an appraisal to determine the value of a disputed claim. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and supply the appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within 15 days, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the value of the claim. Any differences are submitted to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the cost of the umpire and other expenses.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

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

b. Policy Period Is Not Extended

This coverage does not extend past the policy expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. If it intentionally misrepresents or conceals a material fact or information, its rights of recovery may be voided. This means that the insurance is treated as simply having never existed versus a particular claim being denied.

6. Policy Period

Only covered losses that occur during the policy period are paid.


7. Recoveries

Payment of the loss does not end the obligations of the insured and the insurance company toward one another. If the insurance company pays a loss and the lost or damaged property is subsequently recovered (or the parties responsible for the loss pay for it), additional provisions apply.

Either party that recovers property or payment must inform the other. Recovery expenses incurred by either party are reimbursed first. If the insured keeps the recovered property, it must refund the amount of the claim the insurance company paid (unless the company agrees to a different amount). If the claim paid is less than the agreed loss due to application of a deductible or other limitations, any recovery is prorated between the named insured and the insurance company, based on the company's respective interest in the loss.

8. Restoration of Limits

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

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must assist the insurance company in securing those rights. If it hinders or impairs the company's rights of subrogation, the company is not obligated to pay the loss.

Note: The named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form have been met. Suits must be brought within two years after the insured first had knowledge of a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories and possessions, Canada, or Puerto Rico in order for coverage to apply.

DEFINITIONS

Defined terms are used throughout the coverage form. Restricting their meaning to the definition in it is how all parties have a clearer understanding of the coverage intended. Twelve terms are defined:

1. Earth movement

Earth movement includes the following:

Note: Earth movement does not include sinkhole collapse.

2. Flood

This is water that overflows or inundates areas that are normally dry and not covered by water, whether caused naturally or artificially, by human or animal forces, or by acts of nature. It includes (but is not limited to):

3. Interruption

This means a break or stoppage in the operation of renewable energy generating equipment (including generation and transmission of energy) caused by a covered peril.

4. Interruption period

a. This is the time frame when renewable energy generating equipment operations are interrupted as a result of direct physical loss or damage to such equipment by a covered peril. It is not limited by the policy expiration date.

b. It is not the increased time the named insured needs to comply with enforcing any law, ordinance, or decree that regulates use or repair of any property or that in any way respond to or assess pollutants.

5. Limit

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

6. Pollutant

This is a broad and expansive term. It includes solids, liquids, thermal or radioactive contaminants and irritants including, but not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste also includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants and are included.

7. Renewable energy generating equipment

This is electrical generating equipment that uses wind, solar, or other renewable resources.

8. Schedule of coverages

This is any page labeled as such that contains coverage information, including declarations or supplemental declarations.

9. Sinkhole collapse

This is the sudden settling or collapsing of the earth's surface into an underground opening created by water that acts on limestone or some other rock formation. Sinkhole collapse does not include either the value of the land or the cost to fill sinkholes.

10. Specified perils

These are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow or ice and windstorm.

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

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

11. Terms

These are all policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

12. Volcanic action

This is airborne volcanic blast or shock waves, ash, dust, and particulate matter. It includes lava flow but does not include the cost to remove dust, ash, or particulate matter that does not directly damage covered property.

ENDORSEMENTS AND SCHEDULES

AAIS has developed the following endorsements and schedules for use with the Renewable Energy Generating Equipment Coverage Form.

IM 8070–Additional Renewable Energy Generating Equipment Schedule

This schedule is used to list and describe additional locations, covered equipment, and the limit that applies. It is used when the space on IM 8065–Schedule of Coverages–Renewable Energy Generating Equipment is insufficient.

IM 8071–Equipment Breakdown Schedule

This schedule is used with IM 8072–Equipment Breakdown Coverage to select coverages and to list the limits, deductibles, waiting periods, and any additional information that applies.

IM 8072–Equipment Breakdown Coverage

This endorsement adds equipment breakdown coverage. It provides property damage coverage for covered equipment caused by a mechanical breakdown accident. It can also provide Energy Generating Income and Electricity Replacement. Coverages are selected and other information entered on the IM 8072–Equipment Breakdown Schedule.

IM 8073–Ordinance or Law Coverage

This endorsement extends coverage to the increased cost to repair, reconstruct, or rebuild damaged and undamaged portions of renewable energy generating equipment. This must result from enforcing building, zoning, or land use ordinances, laws, or decrees.

UNDERWRITING CONSIDERATIONS

Each risk should be evaluated separately, paying attention to the degree of hazard that applies to its situation. Some of the factors that determine the degree of hazard include where it is located, the type of equipment, type of construction, size, condition, maintenance, damageability, and susceptibility to fire, wind, earthquake, flood, and other unique causes of loss that may affect it.

Underwriting also includes evaluating these physical factors and the extent of care provided to maintain and protect the equipment at the locations involved. Since the property is at fixed locations, it is subject to fixed location causes of loss. The main underwriting considerations are evaluating the locations where the equipment is situated and the protective measures implemented to reduce or eliminate loss. This includes reviewing contracts between the named insured and others that have an insurable interest in the equipment, such as landlords, customers, and leasing companies.

The named insured itself should be evaluated, from the standpoint of inspections, maintenance, and repair of covered property and its financial means to do so. It should have written maintenance records and a formal safety and inspection program in place. Previous losses should be reviewed to determine if any remedial action was taken afterwards to prevent it from recurring.

Adequate financial strength for enterprises in this class of business is essential. Regular preventive and other maintenance on equipment is needed. Lack of sufficient financial resources could mean deferred maintenance that leads to a catastrophic collapse or electrical failure of state-of-the-art equipment.

Wind has been a significant power source in Europe for decades and the technology has gradually spread worldwide. Wind generation technology has developed tremendously in recent years and solar energy is rapidly gaining as well. Both wind and solar energy are now established markets and each has a number of manufacturers and products on the market. They are also growth industries. Equipment continues to increase in size, technology, and complexity. With this come broadened opportunities and a complex and equally broadening profile of risks.

There is a long list of both usual and unusual and serious exposures associated with wind turbines and solar panels:

Other sources of renewable energy include hydropower, bioenergy, and geothermal.