CO
1004 AND CO 1005–COMMERCIAL OUTPUT PROGRAM SPOILAGE COVERAGE PARTS
(June 2025)
Each form is considered
complete only when attached to the CO 1000–Commercial Output Program–Property
Coverage Part, as there are multiple references to the property coverage part
within the Spoilage Coverage form.
A schedule of coverages
must be used with this coverage form.
There are two options:
·
If
the CO 1050–Schedule of Coverages is used with the COP, then the CO
1074–Spoilage Schedule should be attached.
·
If
CO 1051–Schedule of Coverages (Equipment Breakdown and Spoilage Coverage) is
used with the COP, then the Spoilage scheduled details should be entered on it.
Related
Article:
Commercial Output Program Declarations and Schedules of Coverages
Two Spoilage Coverage
Parts are available. CO 1004 is used when coverage is written on a scheduled
basis, and CO 1005 is used when coverage is written on a blanket basis. This
analysis is based on CO 1005 – Spoilage Coverage Part Blanket Coverage, and it
concludes with a brief description of the form differences.
This coverage part has
no additional definitions, but two definitions are very important to its understanding.
The definitions, taken from the CO 1000–Commercial Output Program Property
Coverage Part Analysis, are provided below for reference.
Personal property is maintained under controlled conditions because it
may be harmed if those conditions change.
NOTE: Commonly, perishable
stocks are those requiring refrigeration, but this term also includes property
susceptible to changes in humidity and light.
Damage caused to perishable stock by a change in its physical state. The
change must be detrimental to be considered spoilage. The following are
examples of such a change:
Related Article: CO
1000–Commercial Output Program Property Coverage Part Analysis
This coverage provided
is very specific. It applies to direct physical loss of perishable stock only
when the loss is due to spoilage caused by a peril described in this coverage
part. The perishable stock must be at a covered location when the loss occurs,
and the loss must occur during the policy period.
The insurance company
covers risks of direct physical loss or damage if they result from one or more
of the five listed perils and are not due to an excluded peril.
Loss caused by changes in temperature or
humidity due to an accident to covered equipment at a covered location is
eligible for coverage. A refrigeration system, as well as the machinery and
equipment that control it, are examples of covered equipment.
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Example: Morgan’s Mushroom Farm has a
humidification system attached to its boiler that maintains a constant humidity
level. The humidification system fails due to an accident involving related
equipment. When the location is checked a week later, the mushrooms that had
been growing dried out and had to be destroyed. The mushroom loss is covered. |
Perishable stock contaminated by
refrigerant release is covered only when the release results from an accident
involving covered equipment at a covered location. Refrigerants include, but
are not limited to, ammonia.
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Example: The pressure in the refrigeration unit builds up,
bursts refrigeration lines, and releases ammonia into a cold storage unit.
The Food and Drug Administration (FDA) orders all the food stored in the unit
to be destroyed. The loss of product in the storage unit is covered. |
Perishable stock contaminated by the
release of any refrigerant, including ammonia, is covered if caused by any
reason other than equipment breakdown as described in peril 2. above.
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Example: Refrigeration escapes and spoils
perishable stock stored in the refrigerated unit.
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Loss involving changes in temperature or
humidity is covered when due to any loss or fluctuation of electrical power or current
caused by an accident to covered equipment. The equipment must be owned by the
utility providing electrical power.
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Example: A mechanical breakdown occurs at
Citiplace Utility, which supplies electricity to Merry Metals. While the
breakdown does not force Merry to completely shut down its operations, the
fluctuating current causes Merry’s equipment to malfunction, and the high
temperatures required for its processes cannot be maintained. The molten
metal cools, solidifies, and must be destroyed. This loss is covered. |
Loss involving changes in temperature or
humidity is covered when due to any loss or fluctuation of electrical power or
current caused by any reason other than equipment breakdown as described in
peril 4. above. The condition causing the loss must have been outside of the
named insured’s control.
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Example: Patty’s Floral Shop has a contract
with its landlord. The landlord supplies all utilities to the building and
includes the cost in Patty’s monthly rental payments. Patty arrives at work
one morning to discover that the lights are not working, and the walk-in
floral refrigeration unit is also out of order. She tries to contact the
landlord but discovers he has left town. When Patty contacts the power company,
she is informed that the electric power was cut off because the landlord did
not pay the bill. Because this situation is beyond Patty’s control and the
peril is not excluded, the spoilage loss to the flowers in the refrigerator
is covered. NOTE: This is certainly a situation where
Patty’s insurer will likely subrogate against her landlord to recover
damages. |
Coverage applies to the
loss of earnings and extra expenses caused by one of the covered perils listed
above but only when CO 1001–Commercial Output Program–Income Coverage Part is also
part of this policy.
The Perils Excluded
section in the property coverage part is replaced by the following, but only as
regards Spoilage coverage.
The doctrine of
concurrent causation holds that coverage applies when a property loss can be
attributed to two causes, one excluded and one covered. Consequently, coverage
has been found for earth movement, flood, and other specifically excluded
incidents.
This set of exclusions
attempts to avoid concurrent causation by stating that the event is excluded,
regardless of any other causes that contribute to or aggravate the loss. With
this approach, there is no coverage, even if the contributing cause of loss is
normally covered.
Damage to covered property caused by earth movement, other than sinkhole
collapse, or caused by eruption, explosion, or effusion of a volcano is not
covered. Examples of earth movement include earthquakes, landslides, mudflows,
mudslides, mine subsidence, and the sinking, rising, or shifting of the
earth.
However, there are
exceptions. Direct loss by fire, explosion or volcanic action caused by and
resulting either from earth movement or the eruption, explosion or effusion of
a volcano is covered.
NOTE: This exclusion is identical to the CO
1000 exclusion except that the exception for computers, mobile equipment, and
supplemental coverages is removed.
Loss or damage caused
by the order of any civil authority is excluded. Seizure, confiscation, destruction,
and quarantine of any property are examples of excluded civil authority
actions. However, there is an exception. If the civil authority destroys the
named insured’s property as a means of preventing the spread of a fire, there
is coverage provided the fire itself is a covered peril.
NOTE: Again, this exclusion is identical to
the CO 1000 exclusion.
Loss caused by nuclear
reaction, nuclear radiation, or radioactive contamination is not covered. Any
loss that is caused by the nuclear hazard is not considered a loss caused by
fire, explosion, or smoke. However, there is an exception. If a direct loss by
fire results from the nuclear hazard, there is coverage.
Coverage for nuclear
risk is available only through nuclear coverage associations.
NOTE: Identical to the CO 1000 exclusion.
This is an expanded War
exclusion. There is no coverage for loss or damage caused by any of the
following:
If any action involves
nuclear reaction, nuclear radiation, or radioactive contamination, this
exclusion applies in place of the Nuclear Hazard exclusion. There are no
exceptions in this exclusion.
NOTE: Identical to the CO 1000 exclusion.
Coverage does not
include loss or damage from flood. It also excludes damage caused by sewer and
drain backups, as well as damage from groundwater pressure. Examples of
uncovered losses include water pressure damage or water flowing, seeping, or
leaking into buildings, sidewalks, driveways, pools, and similar covered
property. However, an exception exists: coverage applies if fire, explosion, or
sprinkler leakage occurs as a result of water.
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.
When a refrigeration
system is disconnected from its electrical or other power source by a switch or
other device being turned off, there is no coverage.
NOTE: There is no limitation
as to who or what causes the power to be disconnected or turned off. This means
a maintenance person or any other person may be the culprit, and coverage still
does not apply.
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Example: Orlando arrived at work on Monday
morning and found that the ice cream stored in his freezer had melted. Orlando
contacted the contractor who had worked in his store over the weekend and was
informed that he had not worked on or near the freezer. Orlando then called
the refrigeration contractor who had installed the freezer to arrange for
repairs. The contractor discovered that the only problem was that the freezer
had been disconnected from the electrical power source. There was no coverage under the
spoilage coverage part because the loss was due to a flipped switch. |
When permanently installed glass in the
refrigeration system is broken, there is no coverage for any resulting
spoilage.
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Example: A warehouse employee doesn’t notice
that he backed a forklift into and cracked a glass door on a refrigeration
unit. Another employee discovers the breakage almost five hours later and
reports it to management. The spoiled food must be destroyed. There is no
coverage because of this exclusion. |
When an electric utility or power provider cannot provide
sufficient power because of either a lack of fuel or an order by a government
entity, there is no coverage for any resulting spoilage. If a covered location
generates its own fuel and that fuel is insufficient to meet demand, there is
also no spoilage coverage.
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Example: Dave’s Creamery is a retail store
located on Dave’s farm. The farm receives all its power from windmills on the
farm. The windmills produce so much power that Dave sells the excess capacity
to the local co-operative. During an unusual extended calm period, the
windmills stop producing power and Dave is forced to make the decision to
provide power to the milking machines and not to the store. The resulting
spoilage loss at the store is excluded. |
Loss or damage due to the failure of the
named insured to use all reasonable means to save and preserve covered property
at the time of a covered loss and afterwards is not covered. Loss or damage due
to a named insured not taking reasonable steps to save and preserve property
endangered by a covered peril is also not covered.
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Example: John has a backup generator but does not use it
during a prolonged power outage. His claim for spoilage loss might be denied
due to John’s neglect. |
There is no coverage
for loss or damage caused by or resulting from wear and tear, marring or
scratching. These losses are excluded because they are usually normal costs of
doing business. However, the insurance company does cover resulting losses
caused by a specified peril, breakage of building glass or an accident to
covered equipment.
The valuation section of the property
coverage part applies except when the selling price is selected in the spoilage
section of the schedule of coverages. When the selling price is selected, the
value of the perishable stock is based on the selling price but with all
discounts and unincurred expenses removed.
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Example: The selling price for the stock of ice cream is
$100,000. It is sold subject to a 10% discount if the purchaser pays the
invoice amount within 30 days of the invoice date. Packing, shipping and
handling costs add another 1% to the selling price but are not yet incurred
when the ice cream spoils and must be destroyed. As a result, the loss
payment is $89,000, representing the value of the ice cream reduced by 10%
for the discount and 1% for packing, shipping, and handling. |
The provisions that
follow are added to the property coverage part How Much We Pay section.
There is a deductible
that applies only to spoilage losses. It is listed in the Spoilage section of
the Schedule of Coverages, and no payment for a spoilage loss is paid until the
loss exceeds the deductible amount. The deductible is applied per occurrence.
The insurance company
pays the lesser of the following:
The following condition
is added to the property coverage part, Other Conditions:
The Spoilage section of
the Schedule of Coverages lists Refrigeration Maintenance or Service Agreement
as an Additional Condition that can be selected. When it is selected, the named
insured agrees to have a maintenance or service agreement for its refrigeration
system. If the agreement is discontinued, terminated, suspended, or impaired,
the named insured must notify the insurance company as soon as it becomes aware
that the agreement is no longer in effect. If the notification is not provided in
a timely manner, any subsequent spoilage loss will not be covered.
However, this condition
does not apply if the spoilage is due to electrical problems occurring away
from the covered location.
The coverage provided
in this form is less encompassing than that provided in CO 1005 evaluated above.
The named insured selects the perils to insure and the locations at which
coverage applies. The differences between the two coverage parts are outlined
below.
The CO 1004 – Spoilage
Coverage Part – Scheduled Coverage and all the forms listed below must be
attached for coverage to be completed.
·
CO
1050 – Schedule of Coverages – Commercial Output Program
·
CO
1074 – Spoilage Schedule – Coverage applies only to
the perils selected.
·
CO
1075 – Scheduled Locations – Spoilage Coverage – Coverage applies only to the
locations listed.
OR
·
CO
1051 – Schedule of Coverages – Commercial Output Program (Equipment Breakdown
and Spoilage Coverage). Scheduled Spoilage Coverage must be selected; and,
·
CO
1075 – Scheduled Locations Spoilage Coverage must be attached.
In comparison, the CO
1005 – Spoilage Coverage Part – Blanket Coverage requires only one of the
following forms to be attached for coverage to be completed. No location
schedule is needed since this is blanket coverage.
·
CO
1051 – Schedules of Coverages – Commercial Output Program (Equipment Breakdown
and Spoilage Coverage) Blanket Spoilage Coverage must be selected; or,
·
CO
1074 – Spoilage Schedule – Blanket Spoilage Coverage must be selected. All
perils are automatically included.
In this form, perils 1
and 2 refer to the location or locations covered, as listed on the Location
Schedule, rather than referring to a covered location. The same reference is
not made for perils 3, 4 and 5, but coverage is still limited to the location
or locations listed on the Location Schedule because of the language used in
the Coverage section outlined above.
This section differs
only in that it states the limit of insurance is the limit entered on the
Spoilage Schedule and the Location Schedule – Spoilage Coverage.
For the CO 1004, this
schedule must be completed when the Scheduled Spoilage Coverage is selected on
CO 1051–Schedule of Coverages–Commercial Output Program or CO 1074–Spoilage
Schedule. The only entries required are the location number, the location address,
and the limit of coverage. All other information applying to coverage is found
on CO 1051 or CO 1074.