192.4-2

The policy wording admonishes the reader to read the entire policy because there are restrictions. Only by reading the policy can the policyholder be aware of its duties, rights, available coverage, and exclusions.

The coverage form does not use the phrase "named insured." Instead, it uses "you" and "your" consistently to refer to the insured or insureds listed on the declarations.

The phrase “insurance company” is also not used. Instead, the terms we, us, and our are used when referring to the insurance company providing coverage.

Under Section II – Liability, an important term to understand is “insured.” Section C – Who is an Insured – clarifies who qualifies as an insured.

Words and phrases with special meanings are defined. Section H. Property Definitions, located at the end of Section I–Property, and Section F. Liability and Medical Expenses Definitions, found at the end of Section II–Liability, list these terms and their definitions.

SECTION I–PROPERTY

A. COVERAGE

The insurance company covers direct physical loss or damage caused by a covered cause of loss to covered property at designated locations shown on the declarations.

NOTE: This excludes consequential or indirect losses. 5. Additional Coverages f. Business Income and g. Extra Expense include some indirect losses, but certain indirect losses remain uncovered.

Examples:

Scenario 1: Company A submits a claim for expenses related to a recalled product following a tampering scare – This is not eligible for coverage.

Scenario 2: Company B inquires with its agent about the eligibility of repair costs for recalled defective products. The insurance company responds that the loss is not covered.

1. Covered Property

Property covered includes buildings listed in a. Buildings, b. Business Personal Property, or both. This will depend on the Limit of Insurance specified on the Declarations. However, property listed in Section 2. Property Not Covered below is excluded.

Example: The declarations for the Businessowners Policy issued to Karen’s Krafthowse include the following:

Property: 2018 Luxury Sedan

Limit: $79,500

Coverage does not apply in this case because automobiles are not eligible for coverage.

a. Buildings

Buildings and structures at the locations listed in the declarations are covered.

NOTE: It is not necessary to list each building at a specific location, but providing a complete description of the covered premises is recommended. Street addresses might be enough, or a clear geographical reference could also be needed. The described premises means all land in the legal description of the premises on the declarations. This clarity helps ensure claims adjusters have no doubts about the existence of the risk. An inaccurate or vague description of the location or premises could result in coverage denial.

Structures typically include garages, sheds, outbuildings, and other real property not physically connected to main buildings.

Buildings also include the following:

· Completed additions are included, whether they are attached to buildings or structures. The value of completed additions must be added to the limit for the building or structure.

· Fixtures are covered. This includes outdoor fixtures. Examples include permanent fountains, street lighting, underground lawn sprinkler and irrigation systems, and similar property.

NOTE: Property in the open is not covered for loss or damage caused by rain, snow, ice, or sleet.

· Machinery and equipment are classified as building property when they are permanently installed as part of a building or structure. This includes examples such as non-portable heating and air-conditioning units, machinery requiring a specialized base, and equipment that cannot be removed without considerable modifications to the building.

· The personal property provided by the named insured as a landlord in apartments, rooms, or common areas is covered.

· Property owned and used by the named insured for maintaining or servicing a covered building, structure, or premises is covered.

Examples include the following:

o Fire-extinguishing equipment, which includes extinguishers and other portable fire-extinguishing devices

o Floor coverings

o Outdoor furniture, which includes lawn and garden tractors, snow removal equipment not subject to motor vehicle registration, and water hoses.

o Appliances used for refrigeration, ventilation, cooking, laundry, and dishwashing.

· The following are covered if they are not covered by other insurance:

o Building additions under construction

o Renovations or repairs to existing buildings or structures

o Materials, equipment, supplies, and temporary structures used for construction, renovation, or repair of existing buildings or structures (including additions) are covered, but only if they are on or within 1,000 feet of the described premises.

NOTE: In the 08 24 edition, the material's designated location on the scheduled premises has been broadened to 1,000 feet instead of 100 feet.

o In the 08 24 edition, this section has been added to include antennas, such as dish-shaped antennas, along with the lead-in wiring, masts, or towers attached to buildings.

NOTE: Most new construction is written using builders risk coverage forms or policies.

Related Articles:

CP 00 20–Builders Risk Coverage Form Analysis

AAIS Builders’ Risk Coverage Forms

ISO Builders Risk Coverage Form

NOTE: Building can encompass various property types, offering flexibility to cover exposures that might otherwise be missed. However, the insured must be aware of how this affects insurance-to-value requirements. The building limit should include the replacement cost of all property types to accurately determine the premium. If, at the time of a covered loss, the limit is at least 80% of the full replacement cost, replacement cost coverage is available up to that limit. If it is less, the loss is adjusted with an underinsurance penalty that could result in adjusting the loss on an actual cash value basis.

b. Business Personal Property

Covered business personal property can be located inside or on buildings at the described premises.

Example: Willie’s Eatateria is covered by an ISO BOP Policy. His food stock qualifies as Business Personal Property under the policy.

It is also covered when it is within 1,000 feet of the buildings or structures, or within 1,000 feet of the premises described on the declarations, whichever distance is greater, while in the open, or in or on a vehicle.

NOTE: The 08 24 edition broadens coverage for loss from 100 feet to 1,000 feet of the described premises.

Business personal property includes:

· Personal property owned and used in the insured's business includes stock, furniture, and other equipment. Stock may also consist of animals owned by the insured that are held for sale, but only while inside buildings. There is no coverage for personal property not used in the business.

Example: A fire damages Robert's Restaurant, destroying the kitchen, adjacent pantry, and storage area. It also damages a custom-built racing bicycle valued at $11,500. Robert (the owner) uses the bike for commuting and stores it in the storage area when not riding. The bicycle is not considered covered business personal property.

· Personal property of others in the named insured's care, custody, and control. Examples include a dry cleaner's bailment exposure or appliances belonging to others in the named insured's possession for repairs. Except as covered under Section E. Property Loss Conditions – 5. Loss Payment, d.(3)(b)

Related Article: Property of Others

· When the named insured is a tenant, coverage extends to improvements made to the buildings or structures they occupy but do not own. This coverage applies only if the improvements were made or purchased at the tenant's expense and are not legally removable when the tenant vacates. Improvements are limited to fixtures, alterations, installations, or additions.

NOTE: Improvements do not include personal property a tenant-insured takes when vacating, such as movable refrigeration units or non-fixed shelving. Improvements can be made to the occupied structure, garages, or outbuildings. Common examples include false ceilings, interior walls, lighting fixtures, upgraded electrical wiring, telephone switching systems, cooking appliances, HVAC systems, carpeting, built-in shelving, and major renovations like a new roof by a long-term tenant. Coverage does not apply to improvements paid for by the landlord, and removable improvements are covered under other business personal property provisions. Improvements are valued at replacement cost if actually replaced; otherwise, the loss is determined based on a formula that considers the insured's interest in the property, pro-rated according to the time since installation relative to the lease or any renewal option period.

Related Article: Improvements and Betterments

· Coverage applies to leased personal property the named insured must insure under the terms of a contract, unless other provisions apply. Common examples include computers, photocopiers, printing equipment, machine tools, and diagnostic equipment. However, leased mobile equipment or autos are not covered as business personal property. Lease is not defined, and the length of a lease can vary considerably.

· Exterior glass is covered as business personal property if building coverage is not provided. The named insured must either own the glass or be in their care, custody, or control.

· Stock is added with the 08 24 edition.

2. Property Not Covered

Coverage does not apply to the following property:

a. Aircraft, automobiles, motor trucks, and other vehicles regulated by motor vehicle registration laws.

b. Money and securities, unless G. Optional Coverages – 2. Money and Securities or 3. Employee Dishonesty cover them.

c. Contraband and any other illegal property, including legal property in the process of illegal transportation or trade.

d. Land, water, growing crops, and lawns. This also includes land where the property is located. However, coverage applies to lawns on vegetated roofs.

NOTE: Coverage applies to feed and grain stock stored inside the building. However, stock kept outside is not covered for physical loss or damage caused by sleet, hail, rain, or snow.

e. Outdoor fences, dish-shaped antennas including their lead-in wiring, masts, or towers not attached to buildings, and signs not attached to buildings, and trees, shrubs, or plants.

NOTE: The 08 24 edition removes references to radio, television, and satellite dishes and clarifies that lead-in wiring, masts, or towers not attached to buildings are excluded.

However, coverage applies to trees, shrubs, and other plants on vegetated roofs, and if coverage is provided under the Outdoor Property Coverage Extension or the Outdoor Signs Option Coverage.

f. Watercraft, along with its motors, equipment, and accessories, while it is afloat.

NOTE: Coverage for watercraft exposures and operations should be purchased from companies that write policies specifically for boat dealers and boat yards.

g. Accounts, bills, food stamps, other evidences of debt, accounts receivable, or valuable papers and records are excluded. However, 6. Coverage Extensions e. Valuable Papers and Records and f. Accounts Receivable provide some coverage.

h. Permanently installed computers in aircraft, watercraft, motor trucks, or other vehicles regulated by motor vehicle registration laws. This exclusion applies even if the computers are not yet installed but are intended for installation. However, computers held as stock are covered.

i. Electronic Data. However, this exclusion does not apply to the named insured’s stock of prepackaged software. Electronic data that is an integral part of the building heating, ventilating, air conditioning, elevator, lighting, or security systems are exceptions to this exclusion and are covered.

NOTE: 5. Additional Coverages p. Electronic Data provides some coverage.

j. Animals. However, there are two exceptions: animals owned by others the named insured boards are covered, and animals the named insured owns as stock are covered but only while inside the building.

NOTE: Coverage on the animal exception s is very limited. Refer to 4. Limitations b. (1).

3. Covered Causes of Loss

Coverage applies to direct physical loss. Although this general statement of coverage is modified, there is a related clause indicating that the loss could be excluded or limited elsewhere under Section I–Property.

This comprehensive strategy of offering coverage for all items except those specifically excluded or limited means the insurance company must clearly specify which items within the Property Section exclude or limit coverage when a claim is denied or restricted. Coverage exists unless the insurer can demonstrate otherwise. Direct physical loss refers solely to the actual physical damage and does not encompass loss of use or the perceived reduction in market value of goods following a covered cause of loss.

Example: The owner of Traktor Patch Lawn Supplies recently acquired the season’s inventory of lawn tractors. The brand of tractor received negative feedback from a consumer watchdog group due to fire risks. A fire erupted when a salesman attempted to start one, causing damage to the shop.

This incident became a local news story and highlighted the brand's quality concerns. Following the event, Traktor couldn't sell any tractors, despite offering significant discounts. The costs associated with the tractor fire were covered, but the resulting loss of income and the perceived reduction in value of the remaining tractors were not.

4. Limitations

a. The insurance company does not pay for loss of or damage to:

· Any internal conditions or events affecting steam boilers, pipes, engines, or turbine equipment. However, damage caused by or resulting from explosions caused by gases or fuel inside the boiler furnace, flues, passages, chimneys, or exhaust pipes where combustible gases flow is covered.

NOTE: Excluded events include breakdowns caused by seizing, explosions from centrifugal force, overheating due to fluid leaks, electrical short circuits, improper installation, maintenance, or calibration leading to breakdowns or electrical shorts. BP 00 03 provides limited coverage for these events under G. Optional Coverages 4. Equipment Breakdown Protection Coverage. Separate coverage for equipment breakdowns is also available.

Examples:

The following would be covered events:

A pilot light on a boiler goes out but gas keeps filling the chamber, sparks from the pilot trying to reignite itself cause the boiler to explode.
The boiler's adjustment is off, causing the fuel mixture to be too rich. This leads to unburned fuel building up in the chimney, causing an explosion.
The exhaust fan drive belt detaches, leading to the buildup of exhaust and fumes, which causes the boiler to explode. Damage from the belt falling off is excluded, but damage resulting from the explosion is covered.

· Hot water boilers or similar water heating systems when the loss or damage is caused by internal issues within the boilers or equipment. However, when loss or damage is caused by an explosion, the resulting damage from the explosion is covered.

NOTE: Equipment Breakdown coverage can be found under G. Optional Coverages – 4. Equipment Breakdown Protection Coverage. There is also a separate Equipment Breakdown Protection Coverage option available.

· Inventory shortage or missing property where there is no physical evidence to explain what happened to the item, apart from an inventory audit. This limitation does not apply to G. Optional Coverage – 2. Money and Securities.

Example: A company’s quarterly inventory shows 100 missing computer monitors. Verification of sales and deliveries confirms the accuracy of this figure. There is no sign of a break-in, theft, or forged sales documents. Despite thorough interviews, no employee admits to or is linked to the loss, even after a series of extensive interviews. This loss is excluded because there is no tangible or physical evidence to substantiate it.

· Property transferred to an individual or location outside the premises described without proper authorization.

Example: Felix has a purchase order for 250 cartons of cigarettes destined for Miller General Store. Although the signature is missing, Felix proceeds with the order amid a busy day without verifying it. The delivery is completed, signed for, and the invoice is sent back to purchasing. When payment is requested, Miller denies placing any order. Checking the signatures reveals that the signature on the receipt does not match anyone at Miller, so they refuse to pay the invoice. Consequently, Felix’s insurance company denies the claim.

· Coverage does not include damage to a building's interior or personal property caused by rain, snow, sleet, ice, sand, or dust. However, there are exceptions when either of the following apply:

o The building or structure's roof or walls are initially compromised by a covered cause of loss, permitting elements like rain, snow, sleet, ice, sand, or dust to penetrate the interior.

o The snow, sleet, or ice on the building or structure melts and then leads to a loss.

NOTE: Leaving doors and windows open may result in exclusion of coverage for any resulting loss.

Example: Millie and May, tenants of Pricey Woods Apartments, chose to move out. They removed all their furniture and cleaned the apartment thoroughly. To get rid of heavy fumes from cleaning products, they opened all the windows. Afterward, they handed their keys to the building manager and left.

A week passed before the maintenance team arrived to ready the apartment for a new tenant. During that time, heavy rain soaked the carpeting, leading to mildew growth and damage to the wallboard and windowsills. The expensive damage was not covered since the rain entered through open windows and the building’s exterior remained intact.

Example: One evening, Sam is lying in bed when a drop of water lands on his head. It gradually turns into a trickle and then a stream. He finds out the water is coming from the ceiling. His landlord examines the damage and notices that, although the ice pack on the roof remains thick, the building's heat has melted a small section of it. As a result, the water has nowhere to go and seeps through the ceiling. Since this problem results from snow and ice melting, coverage may apply for the ceiling damage.

· Lawns, trees, shrubs, and plants part of vegetated roof due to the following:

o Moisture levels, either damp or dry, in the atmosphere or in the soil that sustains the vegetation.

o Variations in temperature or significant temperature fluctuations.

o Disease

o Hail, frost, rain, snow, ice, or sleet

b. The following property is not covered unless the loss or damage is due to a “specified cause of loss” or if building glass breaks.

· Animals. A further restriction is that coverage is available only if the animal is either killed or destroyed.

· Breakage of fragile property like glassware, statuary, marble, chinaware, and porcelain.

o However, the following are not subject to this limitation:

§ glass that is part of the exterior or interior of a building or structure

§ glass containers of property held for sale

§ lenses of photographic or scientific instruments.

Example: A shelf in Sam's Sundries collapses under the weight of business personal property, causing several items to fall. Ceramic figurines valued at $700 and glass soft drink bottles worth $1,000 are broken. The coverage excludes the ceramic figurines because collapse isn't a specified cause of loss. However, the glass soft drink bottles are covered because collapse is a covered cause, and no special sub-limit applies to glass containers of property held for sale, aside from limits for other personal property.

· Theft coverage for the following types of property is subject to the default limits as listed. However, these limits can be increased:

o Furs, fur garments, and garments trimmed with fur are limited to $2,500.

o Jewelry, watches, watch movements, jewels, pearls, and other precious or semi-precious stones, bullion, gold, silver, platinum, and other precious alloys or metals are limited to $2,500. However, jewelry and watches valued at $100 or less each are exempt from this limitation.

Example: McCarty’s Department Store experienced a smash-and-grab theft. The thief broke a glass display case, stole several watches, and fled. The owners then reviewed their inventory records and documented the following losses:

· Five watches valued at $500 or more were taken, resulting in a total loss of $4,500.

· Ten watches, each valued at $75, were missing, totaling $750.

· Twelve watches, valued at $50 each, were also missing ($600).

Their insurance company reimbursed them $3,850 for a total loss of $5,850. The coverage included a $2,500 limit for the more valuable watches, along with full reimbursement of $1,350 for the remaining stolen watches, each valued at less than $100.

Related Article: ISO Jewelers Block Coverage Form

o Patterns, dies, molds, and forms are limited to $2,500.

5. Additional Coverages

a. Debris Removal

Following a loss involving physical loss or damage, debris must be cleared, and coverage for those removal costs is essential. Over time, this straightforward idea has become controversial within commercial property policies as insureds seek alternative pollution coverage sources. Debris removal coverage was never meant as environmental cleanup insurance. Nonetheless, the wording has been interpreted to include such losses due to its simplicity. Attempts to clarify this misconception have made this additional coverage more complex.

This coverage is explained as follows:

(1) Subject to paragraphs (2), (3) and (4) below, actual expenses to remove debris are paid if all of the following apply:

· The debris to be removed is covered property and any other debris is on the premises described.

· The debris resulted from a covered cause of loss.

· The loss occurs during the policy period.

· The expenses are reported within 180 days of the direct physical loss.

Example: A tornado damages Sara’s Shoppe, and the debris removal costs $5,000. Since Sara is responsible for the cleanup, this debris removal is covered because tornadoes are covered causes of loss, and the damage happened during the policy period. However, Sara must report the expense within 180 days of the loss date for the coverage to apply.

(2) This paragraph is needed since paragraph (1) is broadened to include debris of non-owned property. This paragraph establishes the boundaries for the broadened coverage.

Costs for removing the following items are not covered.

· Debris belonging to the named insured, either not insured or considered property not covered

· Landlord’s property when the named insured is a tenant. However, it is still covered if the named insured is contractually obligated to insure the property.

· Any property described in A.2. Property Not Covered. This also applies to property that has limited coverage under 6. Coverage Extensions – e. Outdoor Property.

NOTE: This means that trees, shrubs, plants, fences, debris, etc., are not covered.

· Any property owned by others that is not included as Covered Property under this coverage form.

· Mud or dirt deposited on the grounds and outside of buildings during a covered loss.

NOTE: In the 08 24 edition, the phrase 'outside of buildings' was added to this exclusion.

· Any pollutants from land or water

· Polluted land or waters. The expenses for restoring or replacing the polluted land or waters is also excluded.

Example: A tornado spilled paint and toxic chemicals into a pond on Sara’s property. Since this loss is ineligible, there is no coverage for cleaning the pond.

(3) This paragraph explains the coverage provided under the basic limits. They are subject to the exceptions outlined in Paragraph (4) and apply as follows:

(a) The insurance company will not pay more than the applicable Limit of Insurance for the total costs of either the direct physical loss or the damage and debris removal costs for the Covered Property that is damaged.

(b) Subject to (3)(a) above, the total amount paid for debris removal is the lesser of the following:

· The sum of the amount paid for the direct physical loss (plus any applicable deductible amount) multiplied by a factor of .25. The formula is:

(Paid Loss Amount + Deductible Amount) x .25 = Debris Removal Coverage Amount

· The actual debris removal expense

Example: Sara has a $50,000 limit, and the direct physical loss amounts to $50,000. Because the total paid for debris removal and direct loss is not greater than the limit of insurance, no additional debris removal protection applies.

If there is no direct physical damage to covered property, the most paid to remove the other property debris is $5,000 per location, subject to other items in this additional coverage.

(4) This paragraph provides an additional amount of insurance to remove debris if limitation (a) or (b) in paragraph (3) above applies. The additional amount of coverage is $25,000, subject to the following:

(a) The combined cost of debris removal and the insurance payout for physical loss or damage exceeds the Limit of Insurance for the Covered Property affected by the loss or damage.

Example: Sara has coverage for $50,000 and up to $25,000 for debris removal. This means Sara has up to $25,000 available for debris removal.

(b) The total payment for debris removal is the lesser of the following:

· The total of the amount paid for the direct physical loss plus any applicable deductible amount multiplied by a factor of .25 PLUS $25,000.

The formula is [(Paid loss amount + deductible amount) x .25] + $25,000 = Debris Removal Coverage Amount.

· The actual debris removal expense

Example: Because Sara’s debris removal expense recovery is limited by the actual debris removal expense, she receives only the $5,000 of incurred debris removal expense.

The final note regarding this coverage is that the maximum insurance for direct physical loss and debris removal cannot exceed the coverage limit plus an additional $25,000.

BP 00 03 provides two examples that clarify the coverage in detail, with particular emphasis on the deductible and the occurrence basis.

Related Article: Debris Removal Concerns

Related Court Case: Debris Removal Obligation Was Paid

b. Preservation of Property

Covered property threatened by a covered cause of loss may be removed from the covered location to any other location for up to 30 days.

If it becomes necessary to relocate covered property to prevent damage from a covered cause of loss, the insurance company will cover any direct loss or damage that occurs during the move. Additionally, coverage will extend for up to 30 days while the property is stored at the new location.

There are several important points to consider:

· The only property insured is covered property at a location listed on the declarations. Property eligible for coverage moved from a location not covered does not create coverage.

· The potential loss or damage to the covered property must be from a covered cause of loss.

· The property is insured against any cause of loss during its transportation to and from the safe location, as well as while it is stored at the safe location.

NOTE: The property that was removed must be returned to the covered location, or the temporary location must be added to the policy within 30 days from the date of the move. If not, all coverage will end after 30 days.

Example: A hurricane is approaching Ronnie's Retail Outlet. Ronnie prepares by loading trucks with merchandise and transferring them to a warehouse away from the storm’s route. During foggy conditions, a truck crashes and rolls over, damaging $100,000 in goods. The loss is covered by the policy.

Example: Ronnie's Retail Outlet suffers roof damage from a fire. To prevent damage from rain and weather, desks and furnishings are moved to a storage warehouse. Ten days later, an earthquake causes the warehouse to collapse, resulting in $30,000 worth of damage to the desks and furnishings. This loss is covered.

Example: A tornado damages all commercial buildings in town, including potential storage facilities. Ronnie relocates his salvageable items to a self-storage facility 50 miles away. A fire occurs there 45 days later. The loss is not covered because the temporary removal coverage is limited to 30 days after the covered property is moved.

c. Fire Department Service Charge

If a contract or agreement is in place before a loss or local law requires it, and the fire department is called to save or protect covered property from a covered loss, the policy will cover fire department service charges up to $2,500. This limit may be increased. The $2,500 is a premises limit that applies regardless of the number of responding departments or services provided.

NOTE: Higher limits should be recommended if an insured could incur more than $2,500 in charges. This could be due to the size of the building or type of contents.

Examples: According to a written contract between Ronnie and the city, the fire department is required to respond to any calls at his property. Each response costs $1,500. Ronnie calls the fire department to extinguish a large warehouse fire. The fire is so extensive that two additional fire departments are called to help. Since Ronnie's contract is only with the local fire department, he is now responsible for paying the other two fire departments $500 each, as mandated by the local ordinance.

Ronnie's policy will pay the full $2,500 in charges.

d. Collapse

The doctrine of concurrent causation states that an all-risk policy (special causes of loss) must cover a loss if it results from two causes, one excluded and one covered. This principle has led to coverage for events like earth movement, flood, and other specifically excluded perils. To prevent issues with concurrent causation, collapse is excluded as a covered cause of loss. However, coverage for collapse damage is then added back but only when collapse occurs as defined by this Additional Coverage.

This Additional Coverage applies only to abrupt collapse as described and limited in Paragraphs d. (1) through d. (7).

(1) An abrupt collapse refers to any sudden and unexpected falling down or caving in of a building or any part of a building. The collapse must render the building unusable for its intended purpose.

Example: Major decides to retire and sell his store after 55 years of ownership. A realtor appraises the business's value, but during inspection, the appraiser notices that the building is at risk of imminent collapse. He warns Major about the dangerous condition, but when Major contacts his insurance company, they deny coverage since the building hasn't officially collapsed.

(2) The insurance company covers the cost of direct physical loss or damage to covered property caused by abrupt collapse of a covered building or any part of it, caused by one or more of the following:

(a) Hidden building decay an insured was unaware of prior to the collapse

(b) Hidden vermin or insect damage an insured was aware of prior to the collapse

(c) Use of defective material or methods during renovation, remodeling, or construction activities, if the abrupt collapse occurs during such activities

(d) Use of defective material or methods during renovation, remodeling, or construction activities, if an abrupt collapse occurs after these activities are complete but only if the collapse is caused by:

· Items (2)(a) or (2)(b) above

· Specified causes of loss

· Building glass breakage

· The weight of people, personal belongings, or accumulated rainwater on a roof.

(3) This Additional Coverage does not apply to any of the following:

(a) When a building or any part of it is at risk of collapsing or falling down but has not yet actually done so.

(b) To the part of a building that remains standing, even if it has become detached from another part of the building

(c) To a standing building or part of it that can be demonstrated to be leaning, settling, shrinking, expanding, bulging, cracking, sagging, or bending.

(4) Awnings, gutters, downspouts, yard fixtures, outdoor swimming pools, piers, wharves, docks, retaining walls, walks, roadways, paved surfaces, and beach or diving platforms or appurtenances are covered for collapse only if the abrupt loss is due to a cause listed in (2)(b) through (2)(d) above. However, this coverage is provided only if the damage to the listed property is directly caused by a covered building abruptly collapsing.

Example: An awning collapses.

Scenario 1: Rain from a torrential rainstorm caused the collapse. There is no coverage.

Scenario 2: Rain from a torrential rainstorm causes a roof to collapse. The falling roof causes an awning to buckle and collapse. This loss is covered.

(5) The insurance company pays for loss or damage to covered property if personal property abruptly caves in or falls down and that collapse is not the result of an abrupt collapse of a covered building, but only if all of the following apply:

(a) The collapse of personal property was due to a cause of loss in (2)(a) through (2)(d) above

(b) The personal property that collapsed was inside a building

(c) The collapsed property was not among those listed in (4) above, whether classified as real or personal property

This coverage does not apply to personal property if the only damage from the collapse is marring and/or scratching.

Example: While Major considers the coverage denial in the example above, his cat unexpectedly jumps off a shelf, causing the shelf to collapse and destroying it along with everything on it. This claim is covered after any deductibles are applied because the wall decay caused the shelf to separate from the wall.

(6) There is no coverage if the personal property did not suddenly cave in or fall down even if it appeared to be leaning, settling, shrinking, expanding, bulging, cracking, sagging, or bending.

(7) The coverage provided by this Additional Coverage is part of the limit of insurance, not in addition to it.

(8) Covered Cause of Loss includes this Additional Coverage as described and limited within all preceding provisions.

e. Water Damage, Other Liquids, Powder, or Molten Material Damage

When a covered loss occurs involving water, liquid, powder, or molten material, coverage also applies to undamaged property that must be torn out to stop the flow of the substance causing the damage. However, it does not cover the expenses to repair the defect responsible for the loss or damage.

This coverage generally excludes repairs, but there is an exception. Costs for repairing or replacing defective fire extinguishing system parts are covered, provided that the property damage was directly caused by freezing or resulted from the discharge of substances in the automatic fire protection system.

Example: A water leak occurs on the second floor, seeping through the ceiling to the first floor and causing significant damage. The claim covers all damages, but the intact plaster on the second floor needs to be removed to locate, stop, and fix the leak. Finding the leak is challenging, requiring removal of much plaster to access the leaky pipe. Coverage includes property damage from the water, as well as the destruction and repair of the walls.

Scenario 1: The leak originates from a galvanized metal pipe that is 50 years old and needs to be removed and replaced. The cost of repairing and replacing the pipe is not covered.

Scenario 2: The leak originates from the water pipe supplying the automatic extinguishing system. The repair cost is covered.

f. Business Income

(1) Business Income

(a) A business income loss occurs if the named insured's operations at a covered location are interrupted due to a covered cause of loss that causes direct physical damage or loss to covered property. The insurance company covers the actual business income loss during the suspension period.

Payments are limited to the restoration period.

Regarding personal property in the open or in or on a vehicle, premises also includes the area within 1,000 feet of such premises. If the named insured only occupies a portion of the site housing the described premises, then premises refers to:

· That portion of the building occupied, rented, or leased by the named insured

· With respect to loss or damage to personal property in the open or in or on a vehicle, the area within either 1,000 feet of the building or 1,000 feet of the premises, whichever distance is greater.

NOTE: The 08 24 edition expands the area from 100 feet to 1,000 feet.

· Any portion of the building or the described premises utilized to access or provide services to the insured's area that is rented, leased, or occupied by the named insured.

Examples:

Scenario 1: Ohio Valley Dental is located on the floor above Van’s Drugstore. A door inside the drugstore leads to a staircase that goes up to Ohio Valley's office. Although a fire at Van’s damages the building, Ohio Valley Dental is unaffected; however, access is blocked due to damage to Van's and the staircase. The loss of income for Ohio Valley is covered because the staircase is regarded as part of its premises.

Scenario 2: Grumley’s Restaurant is located on the first floor of a five-story building. A fire starts in the basement and destroys the electrical controls. Grumley’s must suspend operations because it has no electricity even though it has not sustained any direct damage. Its loss of income is covered.

(b) The insurance company covers only the loss of business income incurred during the restoration period, up to a maximum of 12 consecutive months after the date of the covered loss or damage. However, ordinary payroll expenses are limited to 60 days after the loss date, but the number of days can be increased.

NOTE: The restoration period starts 72 hours after the physical loss or damage to the business property. This method defines a deductible based on time, not a specified dollar amount.

Example: A fire starts at Jones Hardware at 8:00 a.m., right after the first shift arrives. Work concludes at 8:15 a.m., but the fire continues burning for over eight hours, finally ending at 4:45 p.m. Under the suspension of operations provision, even though the fire causes ongoing damage, the interruption is considered to have started at 8:00 a.m., when the fire began, not at 4:45 p.m., when it was extinguished.

Example: The same interpretation of when a loss starts can also apply to causes of loss that develop over time, like floods, hurricanes, and earthquakes. In this context, the BP 10 03–Earthquake endorsement is included.

If an earthquake occurs on Tuesday at 8:00 a.m. but does not damage or disrupt the insured's business, there is no income loss, and the 72-hour waiting period does not apply. If, however, a tremor on Thursday at 8:00 a.m. causes the insured building to collapse, the business income loss waiting period begins at 8:00 a.m. on Thursday, not Tuesday at 8:00 a.m. This is because there was no physical damage from the earthquake on Tuesday. The operational interruption is linked to the physical damage on Thursday, not the initial earthquake itself.

NOTE: The business income deductible under this 72-hour waiting period arrangement may have a greater financial impact on the average business than other property deductibles.

Example: A business without seasonal fluctuations requires $500,000 in annual business income coverage. This equates to an average of $1,370 daily, with a total business income deductible of $4,110 over the 72-hour waiting period.

If a hardware store requiring the same coverage earns 60% of its annual income in the spring and incurs a loss during that period, its waiting period deductible is nearly $10,000. This is calculated as $500,000 x .60 ÷ 90 days = $3,333 per day.

NOTE: A business experiencing peak seasons with short-term events like spring break, local fairs, auto races, or the Triple Crown horse race could see significant revenue loss during the 72-hour waiting period. The Businessowners Coverage Form does not include a standard endorsement to shorten this waiting period.

(c) Business Income

Business Income is defined as the net income that would have been earned or incurred if no physical loss or damage had happened. It does not include net income that might have been earned from increased business volume due to favorable business conditions influenced by the impact of the covered cause of loss on its customers or other businesses. Additionally, it covers ongoing normal operating expenses and payroll costs.

Net income is the net profit or loss before income taxes.

Example: Lumberyard A was directly in the path of an oncoming tornado, while Lumberyard B was situated far from it. Following the tornado, Lumberyard B capitalized on the opportunity by raising prices and enjoying an exceptionally profitable season. Meanwhile, Lumberyard A remained closed during the sales season, missing the chance to supply materials for repairs needed by customers affected by the tornado damage.

Business income losses are adjusted based on future expectations. What would Lumberyard A's earnings have been if it had been operational during the restoration period? Assume there was no tornado; instead, Lumberyard A simply burned down.

The adjuster reviews its earnings history, considers the local and national economic conditions during the restoration period, and examines the company’s past peaks and valleys in the same timeframe. This assessment leads to an estimated income loss amount that the insurance company covers.

When examining the local economy, the adjuster overlooks the supply and demand-driven pricing used by Lumberyard B to achieve its significant profits.

Business income coverage is intended to restore a business to its pre-loss condition. With this approach, it overlooks the unusual economic twists that can occur during disasters.

(d) Ordinary payroll expense

This covers the payroll for all employees except officers, executives, department managers, contract workers, and any other exemptions specified on the declarations, such as particular job classifications or specific employees. It also includes employee benefits directly associated with payroll, FICA contributions and union dues paid by the named insured, and workers' compensation premiums.

NOTE: Remember, ordinary payroll expenses are limited to only 60 days unless a different number is shown on the declarations.

Benefits provided to employees not directly linked to payroll are classified as regular expenses and are not restricted to a 60-day period. These benefits are recognized as typical expenses unrelated to regular payroll costs. Therefore, the company can continue paying health insurance premiums for employees on the regular payroll beyond the 60-day benefit window. This is particularly relevant for companies with a large payroll, where layoffs of regular employees might otherwise lead to the cancellation or alteration of health insurance plans.

(2) Extended Business Income

(a) This coverage begins when the period of restoration ends.

It covers business income loss starting from the date the property is actually repaired, rebuilt, or replaced and operations resume

NOTE: Property does not include finished stock.

· Coverage terminates at the earlier of the following:

o The date at which operations reach or should reach the level necessary to generate the business income that would have been produced if no loss had occurred. The named insured must make reasonable efforts to restore their pre-loss level to qualify for this coverage.

o 60 days after the end of the period of restoration, even if pre-loss levels haven't been restored. The named insured has the option to purchase additional days.

Example: Smith Hardware, situated downtown, suffers a severe fire and relocates to a substitute site, reopening after two months. During this suspension, loyal customers shift their patronage to the larger box store on the outskirts of town. When Smith reopens, it faces reduced customer traffic and sales are below previous levels. The insurance company covers the business income gap, paying the difference between the typical covered income and the actual earnings during this period.

Extended Business Income does not apply to loss of income resulting from adverse business conditions caused by the covered cause of loss in the area where the covered premises is located.

Example:

Francine's Flowers is the sole florist in an Arizona town severely affected by monsoon rains. Less than two months after the disaster, Francine has resumed operations but sells only 50% of her previous flower volume. How much of this decline is directly caused by the rains? What economic factors should an adjuster evaluate when determining the demand for flowers?

The Businessowners Coverage Form states that if a common event causes economic loss locally, it doesn't carry special weight in adjusting the loss. This wording acknowledges that the affected business would have experienced the same economic loss regardless of the loss.

Focus again on our florist. However, eliminate the rain. Instead, the flower shop burns down. Meanwhile, hundreds of miles away, a hurricane destroys the season's flower crop, causing flower prices to soar. As a result, people in the community stop buying from the shop.

(b) Direct physical loss or damage by a covered cause of loss at the covered premises must cause the loss of business income.

(3) Under Business Income Additional Coverage, the term suspension does not require that all operations cease. Suspension can be either a partial slowdown or a complete shutdown. Suspension also happens if all or part of a described premises becomes unoccupiable by a tenant.

(4) This Additional Coverage is not subject to Section I–Property Limits of Insurance.

NOTE: The business income coverage is not capped by a dollar amount, as it is based on actual loss sustained. This is sometimes called unlimited or no-limit coverage, but these terms are incorrect. While there is no fixed dollar limit, coverage is restricted to what the business would have earned during the restoration period if the covered cause of loss had not occurred. Using terms like “unlimited” or “no-limit” can mislead the insured into thinking they have access to a virtually unlimited fund, similar to the problematic use of the term “all risk.”

g. Extra Expense

Often, a loss merely halts operations temporarily. Nevertheless, even a brief shutdown can cause substantial costs. Extra expenses are those incurred during the period of restoration as a result of a covered cause of loss that directly damages property at the described premises.

Extra Expense includes personal property located on the described premises or within 1,000 feet of that premises and either in the open or in or on a vehicle. It can involve costs incurred to avoid or minimize the suspension of business at either the described premises or at a replacement or temporary premises. These extra expenses include relocation costs to equip and operate the replacement or temporary location. Such costs are covered even if operations are not suspended.

NOTE: In the 08 24 edition, within 100 feet of the described premises has been expanded to 1,000 feet.

(1) The insurance company covers necessary additional expenses the named insured incurs during the restoration period that would not have arisen without a covered loss. The loss must involve a covered direct physical loss or damage to covered property at the described location. Additionally, a covered loss includes direct damage to personal property within 1,000 feet of the described premises, whether in the open or in or on a vehicle. All these locations are regarded as part of the described premises.

If the named insured occupies only part of the building, premises means:

· That portion of the building occupied, rented, or leased by the named insured

· With respect to loss or damage to personal property in the open or in or on a vehicle, the area within either 1,000 feet of the building or 1,000 feet of the premises, whichever is greater.

· Any area within the building or at the described premises used to access the insured's portion or to provide services to that premises

Example: B&G Auto Parts is destroyed by fire on a Sunday. By 9:00 a.m. on Monday, its parts supplier has arranged two semi-trailers filled with stock to be parked at B&G, ensuring no sales are lost. The cost of this expedited delivery is $10,000, plus an additional $100 per day for renting and powering the trailers.

B&G’s Insurance will cover the costs of expedited delivery and daily renting fees to keep the business operating.

(2) Extra Expense is defined as any of the following:

(a) additional expenses to minimize the closure and allow the business operations to continue at the described premises, at a temporary location, or at a permanent replacement location. If a new or temporary location is secured, the costs of moving the business and equipping the new or temporary location are also extra expenses.

(b) Reduce the duration of operation suspension.

(c) Repair or replace property. This also includes the cost of researching and duplicating damaged valuable papers or records. This item pays only the amount of expense incurred that actually reduces business income or extra expense loss covered under f. Business Income.

Examples:

Scenario 1: Patterson's Printing is destroyed by fire, halting operations since presses are essential. Although Patterson orders new presses, delivery takes six months. They require high-quality equipment and cannot use used presses that haven’t been overhauled, and no supplier can supply such used presses in less than six months. However, they can receive the presses in three months if they pay a $10,000 premium to expedite the order and $15,000 for airfreight. The insurance company agrees because each month of shutdown costs them $50,000. Cutting the suspension by three months saves them $150,000, minus the $25,000 for expedited shipping. Patterson gets paid for the first three months of closure and reopens three months earlier, helping to maintain customer relationships.

Scenario 2: Aardvark Abstracts and Title Search lost most of its records in a fire but quickly secured a new office within two days. Since much of its work involves reviewing deed and property records at the county office, operations continued smoothly. However, the fire destroyed 20 years of title record copies derived from county records. A computer tape containing customer records was stored off-site, while back title pages had been photocopied. Reproducing title pages costs $1 per page and demands extensive research hours. Due to the timing of the fire, coverage was minimal, as the period for claiming extra expenses starts only when the fire disrupts the business and ends when operations resume at the new location.

(3) Under this coverage, the term suspension does not require that all operations cease. Suspension can be either a partial slowing down or a complete shutdown. Suspension also occurs when a tenant can no longer occupy all or any part of a described premises.

(4) Similar to business income coverage, extra expenses must be incurred within the 12 consecutive months immediately following the date of direct physical loss or damage. There is no set limit of insurance for extra expenses, but any covered extra expense must be incurred during the period of restoration.

NOTE: The Businessowners Coverage Form's language gives the insurance company some say in how it interprets the restoration period.

Example: W&W Dry Cleaning sustains a lightning loss to its dry-cleaning machines. The business is temporarily closed for a week. Alternative facilities are available, but only for night-shift use, which the insured does not currently operate.

Coverage applies as follows:

· The loss of income incurred during the period of suspension.

· Rent is paid for the alternate facilities.

· Use of the machines and extra wages are paid for the workers to work the night shift.

o Both of these extra expenses are initially covered.

W&W can replace its machines with one of two identical models from two manufacturers. Model A can be installed in six weeks, and Model B requires eight weeks. W&W decides to order Model B.

The insurance company determines the restoration period to be the six weeks required to restore operations with the perfectly functional Model A. As a result, the extra expenses W&W incurs during the additional two weeks beyond the period of restoration by using Model B are not covered.

h. Pollutant Cleanup and Removal

The insurance company covers the named insured's costs to remove pollutants from land or water at the described premises if these pollutants are due to a covered cause of loss occurring during the policy period. The company will pay only if the named insured reports the loss within 180 days of the date the covered cause of loss occurs.

Coverage does not apply to costs to test for, monitor, or assess any aspect of pollutants. However, the company pays for testing conducted in conjunction with the extraction of pollutants from land or water.

This coverage is limited to $10,000 per location. It covers the total of all such losses at that location within each 12-month period, regardless of how many claims are made.

i. Civil Authority

If a covered cause of loss damages a premises other than the named insured's and because of that loss a civil authority restricts access to the insured premises, coverage applies for up to four consecutive weeks with business income coverage starting 72 hours after the restriction begins.

Extra expense is not subject to a waiting period and ends after four weeks or when the business income coverage under civil authority ends, whichever is later.

This additional coverage is subject to both of the following:

(1) The described premises must be not more than one mile from the damaged property.

(2) The reason for the restriction must be due to damage that results from a covered cause of loss or due to the civil authorities need to access the damaged property. This often involves a dangerous condition or allows authorities to access the property without obstruction.

NOTE: The one-mile limit likely originated from the 9/11/01 business income claims. While one mile may seem vast in a crowded urban area, it is quite small in less populated suburban and rural areas. This can significantly affect businesses in disaster zones where authorities might restrict access to maintain order, even if many properties remain undamaged. For instance, coastal communities after a hurricane or rural areas following a tornado might experience such closures. Some businesses or neighborhoods may avoid damage, yet authorities still restrict entry to control the broader, severely affected area.

This coverage is subject to the definitions in Business Income and Extra Expense. Similar to those coverages, it is not subject to a limit of insurance.

Example: A riot starts two blocks from the insured's location on Tuesday at 9:00 p.m. The next morning at 8:00 a.m., civil authorities block all access to the area, including the streets leading to the insured’s 24-hour convenience store. Looting persists, and the streets stay closed until Saturday at 6:00 a.m. During this period, the insured is unable to find appropriate inventory or a temporary location outside the riot zone.

The loss amount is calculated at $145.00 per hour. Although the riot started at 9:00 p.m. Tuesday, civil authority intervention did not commence until 8:00 a.m. Wednesday. The 72-hour waiting period begins at that time and lasts until 8:00 a.m. Friday.

The insured will receive payment only for the 22 hours of interrupted business from 8:00 a.m. on Friday to 6:00 a.m. on Saturday. The loss amount paid is $3,190, but the total incurred loss is $13,630.

j. Money Orders and Counterfeit Money

The insurance company pays for loss that is a direct result of the named insured accepting, in good faith, money orders issued by any post office, express company, or bank that are not paid when presented. It also covers such loss due to counterfeit money being accepted in exchange for merchandise, money, or services. The most paid in any one loss is $1,000.

Examples:

Scenario 1: The insured’s clerk accepts a counterfeit $50 bill that the bank discovers and destroys. The loss is less than the $500 deductible but otherwise is a covered cause of loss.

Scenario 2: Able Check Cashing, Inc. cashes a counterfeit United States Postal Service money order for $1,000. The insurance company pays $500 after subtracting the $500 deductible.

NOTE: The limit cannot be increased. Most standard ISO commercial property insurance policies don’t cover additional exposure from large amounts of counterfeit money, which primarily occurs during significant transactions such as those at banks, check-cashing locations, and casinos. These places typically train staff or use specialized equipment to detect counterfeits.

k. Forgery or Alteration

Coverage applies to loss due to forgery or alteration of checks, bills of exchange, drafts, promissory notes, or similar written payment promises issued by the named insured, their agent, or someone who poses as them. In addition, if the named insured is sued for refusing to honor these items due to suspicion of forgery or alteration, the insurance company pays reasonable legal costs for defense, provided the insured notifies the insurer and obtains written approval before defending.

The term check includes substitute checks that meet the definition in the Check Clearing for the 21st Century Act. The most paid for any one loss is $2,500, unless higher limits are shown on the Declarations.

NOTE: The legal expenses this coverage provides are included in the limit. They are not in addition to the limit. Also, coverage can be obtained using CR 00 21–Forgery or Alteration.

Related Article: Commercial Crime Coverage Analysis

l. Increased Cost of Construction

This coverage is especially advantageous for insureds affected by the Americans with Disabilities Act (ADA) and similar laws at local, state, or federal levels, but it also benefits any insured because it addresses governmental building codes grandfathered in until major renovations are necessary.

These regulations can significantly influence the extent of a loss. Designed with good intentions to assist many people, their costs are usually manageable when included in new construction. However, applying updates to existing structures following a partial loss can lead to considerable additional expenses during rebuilding, and these are not covered by the unendorsed Businessowners Coverage Form.

Example: Mainville Church was proud its building was over 100 years old and still in good condition, thanks to regular maintenance and repair. Unfortunately, a grease fire in the basement kitchen got out of hand and destroyed over a third of the building. Mainville was determined to rebuild but expected problems due to recent ordinances that required compliance.

(1) This Additional Coverage is only valid if the building is insured on a replacement cost basis. If the Declarations indicate "Yes" for the Actual Cash Value of Building Option, then this Additional Coverage does not apply.

(2) This paragraph explains the coverage. It responds to additional costs that must be incurred to bring the building up to the existing minimum standards of the ordinances or codes. Coverage is subject to modifications in paragraphs (3) through (9) of this additional coverage. This coverage applies when all of the following events occur:

· A covered cause of loss damages covered property.

· The insured incurs increased costs to repair, rebuild, or replace the damaged portions of covered property.

· The increased costs result from complying with an ordinance or law.

Example: The Mainville loss was due to lightning and windstorm. Over a third of the building was damaged, resulting in updated ordinances no longer being grandfathered and adding compliance costs to construction. The sanctuary was on the main floor and accessible via a handicapped ramp, but Sunday school classes in the basement lacked such access. Adding this access cost an additional $42,000 to the $210,000 direct damage loss.

(3) This paragraph states the law or code in (2) above must meet two requirements before increased costs are covered:

· It must regulate construction or repair of buildings or establish a zoning or land use requirement at the described premises.

· It must be in force at the time of loss.

Example: The village of Mainville had considered an additional ordinance at the time of the Mainville Church loss and enacted it just before it issued the building permit to the church. The new ordinance changed the grade of the handicapped ramp, resulting in the current Mainville ramp no longer meeting code requirements. The insurance company did not cover this additional cost because the ordinance became effective after the loss occurred.

(4) The insurance company does not pay for costs due to an ordinance or law the insured should have complied with before the loss occurred, but the insured failed to comply with.

Example: The village of Mainville and Mainville Church had longstanding disagreements over the building's gutters and rainwater drainage into the sewer system. While the church refused to comply with regulations and the village was unwilling to close the church over such a minor matter, the village now insists that the church change the gutters before issuing a building permit. This extra expense is not covered.

(5) The insurance company does not cover either of the following:

· Costs to enforce or comply with any law or regulation that mandates demolishing, repairing, replacing, reconstructing, remodeling, or remediating any property due to contamination by pollutants or the presence of fungi, wet rot, or dry rot.

· Costs associated with enforcing or complying with an ordinance or law requiring any insured or others to respond to in any way or assess the effects of pollutants, fungi, wet rot, or dry rot.

(6) The most the insurance company pays for one described and damaged building is $10,000. This is an additional amount of insurance and does not affect any other limits. If the limit of insurance is a blanket limit, the most paid for each damaged building is $10,000.

(7) The insurance company will not cover the increased construction costs until the property is repaired or replaced. Repairs or replacement should be completed as soon as reasonably possible, but no later than two years, unless the insurance company provides written approval for an extension.

The insurance company will cover no more than the cost to satisfy the increased construction costs at the existing premises, even if rebuilding occurs elsewhere. The only exception is if local regulations mandate relocating the building, in which case the increase due to the new location is covered.

Example: The Manville Church congregation was outgrowing its current space, so the trustees decided to establish a building fund and construct a new building at a different location rather than incur the costs of meeting local building codes. The insurance company covers only the loss amount and the additional construction costs for the damaged property. While the insured can relocate, any additional expenses for the new location are not reimbursed because the move was not required by local law.

(8) This paragraph clarifies that the Additional Coverage – Increased Cost of Construction is not affected by the Ordinance or Law Exclusion. This is to prevent confusion with that exclusion.

(9) This paragraph explains that costs covered under the Loss Payment Property Loss Condition in Section I – Property do not include additional expenses from enforcing or complying with ordinances or laws. However, the amount payable under this Additional Coverage – Increased Cost of Construction, as specified in Paragraph (6) above, is not limited by this restriction.

NOTE: This paragraph clarifies that no other coverage is considered for losses related to increased construction costs.

m. Business Income from Dependent Properties

Businesses do not operate in a vacuum. If a supplier or customer incurs a loss, the insured may also suffer a loss of income until the supplier or customer either resumes operations or the insured replaces it. This coverage responds to situations like this. The $5,000 limit can be increased. Coverage applies if the following events occur:

(1) The loss the dependent property or secondary dependent property sustains must be from a covered cause of loss. This Additional Coverage does not apply if the only loss at the dependent property or secondary dependent property is to electronic data. When both electronic data and other covered property at the dependent property or secondary dependent property is damaged, this coverage ends when the other property damage is restored, even though the electronic data has not been.

Example: Myrtle’s fabric shop receives most of its fabric from Berline Textiles. Berline sustains flood damage, ending Myrtle's fabric supply. Myrtle’s policy does not cover flood, but she submits a claim because of her loss due to the flood loss at Berline. The claim is denied because Myrtle's policy does not cover flood.

(2) The named insured must resume some or all operations by using other sources or outlets if it can do so.

(3) If operations are not resumed as quickly as possible, any loss payment is adjusted to the amount that reflects what it would have been if operations had resumed.

Example: Let's change the example above. Berline’s has a fire instead of a flood. In this case, coverage is available. Because Myrtle anticipates a downtime of three weeks, she plans a vacation. She then learns that Berline’s can resume shipments after just one week, but her plans are set. Myrtle is paid for only one week, not three.

(4) There are four types of dependent properties:

· Ones that provide services or material to the named insured, such as the exclusive supplier to a restaurant

NOTE: This does not include communication, water, power, or wastewater removal services suppliers.

· Ones that purchase the named insured’s services or products

NOTE: An example is a just-in-time supplier to an automobile manufacturing plant.

· Ones that manufacture products on the named insured’s behalf

NOTE: This might be a manufacturing plant that produces toys for a toy brand specifically for a major retail chain.

· Ones that help attract customers to the named insured

NOTE: This might be a major department store next to the named insured's novelty shop.

(5) This sub-paragraph states what secondary dependent property means. It is an entity that a dependent property does not own or operate. It has the following characteristics:

· It delivers materials or services to a dependent property that the dependent property then uses to provide materials or services to the named insured.

· It accepts materials or services from a dependent property that then accepts the named insured’s materials or services.

Secondary dependent properties do not include tunnels, bridges, roads, pipelines, airfields, waterways, or other similar facilities.

Secondary dependent properties do not include any of the following supply services:

· Water

· Communications

· Power

· Wastewater removal

(6) The coverage period begins 72 hours after the covered loss occurs and ends when the dependent property or secondary dependent property is or should be back in operation.

(7) The Business Income coverage period does not apply to any increased time period required due to enforcing or complying with ordinances that regulate construction, use, repair, or demolition of any property or that require that any insured or others respond in any way to or assess the effects of pollutants.

NOTE: The policy’s expiration date does not affect the Business Income coverage period.

(8) Business Income as defined in 5. Additional Coverage f. Business Income also applies to this Additional Coverage.

n. Glass Expenses

The insurance company pays expenses incurred to:

Temporarily board up openings or install temporary plates in case of a delay in repairing or replacing damaged glass.
Remove or replace obstructions in order to repair and/or replace building glass, except for removing or replacing window displays.

o. Fire Extinguisher Systems Recharge Expense

This coverage provides an additional $5,000 for each occurrence to pay the costs to recharge fire extinguishers and fire-extinguishing systems and for damage that occurs due to the system accidentally discharging. However, coverage does not apply if the discharge occurs during installation or testing.

Example: The manual discharge for the automatic extinguishing system is located next to the telephone at Angie's snack and grill. Angie is talking on the telephone to her boyfriend when she becomes distracted and inadvertently pulls the system's handle, setting off the automatic extinguishing system over the deep fryers. Coverage applies for the recharge and the cleanup necessary to return the system to normal.

p. Electronic Data (08 24 edition)

(1) The insurance company pays the costs to restore or replace destroyed or corrupted electronic data due to a covered cause of loss. Data that is not restored or replaced is valued at the cost to replace the media on which the data was stored with similar blank media.

NOTE: This Additional Coverage was added when coverage for electronic data under valuable papers and records coverage was deleted. As a result, any coverage for electronic data is limited to only this Additional Coverage.

(2) Computer virus is added to the other covered causes of loss. It includes harmful code or other instructions introduced into a computer or connected network with the intent to damage or destroy information or disrupt the computer's or network’s normal operations.

There is no coverage for either of the following:

· Any employee, whether temporary, leased, or a hired entity, manipulates the named insured’s computer system or electronic data, including those inspecting, designing, installing, modifying, maintaining, repairing, or replacing the computer system.

· Ransomware, which is any software that encrypts data on a computer system and demands payment to decrypt and recover it.

NOTE: In the 08 24 edition, Ransomware has been added as an exclusion for this coverage.

(3) The most the insurance company pays in any policy year is $10,000. This is regardless of the number of premises, locations, or computer systems involved or the number of occurrences of loss or damage. This annual aggregate limit can be increased. If a loss begins in one policy year and continues into another, all loss is treated as having occurred in the first year.

NOTE: The limit is not location-specific. It is the total annual aggregate limit, regardless of the number of locations or the number of computers.

(4) This Additional Coverage does not apply to the following:

· Electronic data that is an integral part of a building’s elevator, lighting, heating, ventilating, air conditioning, or security systems

· The named insured’s stock of pre-packaged software

The items above are excepted because they are also listed as exceptions to electronic data as property not covered. This removes the possibility of ambiguity of coverage provided in one area and then limited in another.

NOTE: This is extremely limited coverage. Larger computer exposures should be insured under electronic data processing coverage forms or policies.

Related Articles:

AAIS Electronic Data Processing Equipment and Business Computer Coverage Forms

ISO Computer Systems Coverage Form

q. Interruption of Computer Operations (08/24 edition)

(1) This Additional Coverage extends Business Income and Extra Expense insurance to apply to a suspension of operations. The suspension must be due to an interruption in computer operations caused by a covered cause of loss destroying or corrupting electronic data. The named insured has the option to except this extension which is subject to the other provisions of this Additional Coverage.

(2) Loss or damage must be caused by a Specified Causes of Loss or by Collapse. Any other covered causes of loss (such as earthquake or flood) endorsed to this coverage form do not apply to this Additional Coverage.

Computer virus is an additional covered cause of loss. The computer virus cause of loss includes harmful codes or other types of instruction introduced into the computer or connected network in order to damage or destroy information or to disrupt the computer or network’s normal operations. There is no coverage if an employee or an individual the named insured hires to work on the computer or network causes the damage. There is no coverage when malicious software is encrypted into a computer system and restricts access until a ransom payment is made.

(3) The most the insurance company pays in any policy year is $10,000. This is an annual aggregate limit that can be increased.

NOTE: The limit is not location specific. It is the total annual aggregate limit, regardless of the number of locations or the number of computers.

If a loss begins in one policy year and continues into another, all loss is treated as having occurred in the first year.

(4) This Additional Coverage does not apply to losses sustained or expenses incurred after the period of restoration.

(5) Business income loss due to damaged electronic data is covered only as described in (1), (2), (3), and (4) above.

(6) Extra Expense loss due to damaged electronic data is covered only as described in (1), (2), (3,) and (4) above.

(7) This Additional Coverage does not apply to the following:

· Electronic data that is an integral part of a building’s elevator, lighting, heating, ventilating, air conditioning, or security systems.

· The named insured’s stock of pre-packaged software.

NOTE: This is extremely limited coverage. Electronic data processing coverage forms or policies should be used to insure larger electronic data processing exposures.

Related Articles:

AAIS Electronic Data Processing Equipment and Business Computer Coverage Forms

ISO Computer Systems Coverage Form

r. Limited Coverage for Fungi, Wet Rot, or Dry Rot

(1) The coverage described in (2) and (6) below applies only if the fungi, wet rot, or dry rot results from specified causes of loss, excluding fire or lightning, that takes place during the policy period. In addition, all reasonable means must be used at the time of loss to protect the property from further damage.

NOTE: Fire and lightning are excluded because the fungi, wet rot, or dry rot exclusion does not apply to the fire and lightning causes of loss.

The terms of this Additional Coverage do not apply to trees, shrubs, plants, and lawns on vegetated roofs.

NOTE: This limitation for vegetated roofs is needed because trees, shrubs, plants, and lawns are considered covered property and insuring them against such common outdoor damage is unrealistic and costly.

(2) The insurance company pays for loss or damage due to fungi, wet rot, or dry rot. This means:

· Direct physical damage or loss that fungi, wet rot, or dry rot causes. This also includes the costs to remove them.

· The costs to tear out and replace any part of the property to the extent necessary to gain access to the fungi, wet rot, or dry rot. This includes the building.

· If it is reasonable to assume that fungi, wet rot, or dry rot is present, the cost of tests done after the damaged property is removed, repaired, replaced, or restored.

(3) The most the insurance company pays in any policy year for all covered loss or damage is $15,000, regardless of the number of claims. This is even if a specific loss remains active or present or recurs in a subsequent policy period.

NOTE: There is no coverage if an occurrence continues into the next 12-month period, because all damage from the occurrence is limited to the period when it was first discovered.

(4) The $15,000 limit is a sub-limit. It is not an additional amount of insurance. If there is a covered loss under this Additional Coverage and another coverage, the limit is not more than the covered property’s limit of insurance. If there is a partial loss involving covered property that this Additional Coverage also insures, the amount paid increases by no more than the $15,000 limit.

(5) This Additional Coverage does not increase or decrease 5. Additional Coverages d. Collapse and e. Water Damage, Other Liquids, Powder, or Molten Material Damage.

(6) If Business Income and/or Extra Expense coverage applies to the described premises and the operations suspended meet the terms and conditions of the applicable coverage, the following applies:

· If the loss that resulted in fungi, wet rot, or dry rot did not, by and of itself, require that operations be suspended, but the suspension was required because of the fungi, wet rot, or dry rot loss or damage to property, the insurance company's payment is limited to the amount of loss or damage sustained for up to 30 days.

NOTE: The days do not have to be consecutive.

· If the suspended operations were due to loss or damage other than by fungi, wet rot, or dry rot, but their remediation extends the period of restoration, the insurance company pays for loss and/or expense sustained any time during the restoration period for up to 30 days.

NOTE: The days do not have to be consecutive.

SPECIAL NOTE: Pay close attention to and carefully review 5. Additional Coverages p. Electronic Data, q. Interruption of Computer Operations, and r. Limited Coverage for Fungi, Wet Rot, or Dry Rot. They are very limiting and operate alongside certain exclusions that constitute restrictions of coverage.

6. Coverage Extensions (08 24 edition)

These coverages add to the limits of insurance in the declarations. They apply to property in or on the building described in the declarations, or within 1,000 feet of the described premises, whether in the open or in or on a vehicle.

a. Newly Acquired or Constructed Property

(1) Building coverage may be extended to apply to newly constructed buildings on the described premises while they are being built. It may also be extended to newly acquired buildings that are located off premises as long as they are used for the same or a similar purpose as other buildings listed on the declarations or as warehouses. The most paid for loss or damage to each such building is $250,000.

Example: Moe’s Sandwich Shop has the opportunity to purchase the dry-cleaning operation across the street. Although the businesses are quite different, Moe’s son convinces him that he can handle it. The purchase is handled as a contract sale. A few weeks after Moe secures the dry-cleaning operation, a fire breaks out. The loss is substantial. The previous owner (who is now acting as the cleaner’s manager) no longer has coverage, and Moe discovers that he doesn't have coverage either because the businesses are not similar.

(2) Business Personal Property

Business personal property coverage may be extended to apply to both newly acquired and existing business personal property at a newly acquired location or at a newly constructed or acquired building at a described premises. The most that may possibly be paid for loss or damage at each such building is $100,000.

Example: Sheila decides to totally renovate the interior of her newly acquired office building. The new personal property is purchased and delivered, but a tornado damages the building before they are installed. Because of this coverage, her new items are covered, as is any personal property acquired with the building.

NOTE: This coverage does not apply to personal property the named insured temporarily acquires while performing installation or other work on the property or its wholesale activities.

(3) Period of Coverage

These coverage extensions apply only until the policy expires, the named insured reports the values, or for 30 days, whichever is less. However, the named insured pays premium beginning on the date of acquisition or the date that construction begins.

NOTE: This is important "peace of mind" coverage even though additional premium must be paid. Businesspeople occasionally purchase property without immediately informing their insurance agent. This period of coverage provides sufficient time to report newly acquired property.

b. Personal Property off Premises (08 24 edition)

The named insured can extend insurance to covered property while in transit or at a location it does not own, operate, or lease. However, covered property does not include money, securities, valuable papers and records, or accounts receivable. The most paid for loss or damage to such property is $10,000, unless the declarations shows a higher amount.

NOTE: In transit can be between any owned, leased, or operated location. It can also be a location the named insured does not own, lease or operate. Transportation is not limited to only ground transportation. It can include air and water transportation. However, coverage is limited to the United States of America, its territories and possessions, Puerto Rico, and Canada, and while in transit between points in the coverage territory. Air or sea transit to Hawaii is covered.

For most small retailers, $10,000 may be an adequate limit of insurance.

Unless there is a value or limit declared for the shipped items, transportation companies may limit the amount recoverable after a covered loss. Even small retailers may have extraordinarily large shipments prior to their peak seasons. If a limit larger than $10,000 is required for goods that others transport, increased limits from the shipping company or an Inland Marine transportation policy should be purchased.

Related Article: ISO Motor Truck Cargo Carriers Coverage Form

c. Outdoor Property (08 24 edition)

The named insured can extend the coverage provided to its:

· outdoor fences

· antennas (including dish-shaped antennas and their lead-in wiring, masts, and towers that are not attached to buildings)

· detached signs

· signs not attached to buildings

· trees, shrubs, and plants (not part of a vegetated roof)

· debris removal expense

Coverage includes debris removal expense. However, coverage applies only to loss or damage caused by or that results from fire, lightning, riot, civil commotion, or aircraft. The most paid for loss or damage is $2,500 per described location, unless a higher limit is shown on the declarations. Owned trees, shrubs, and plants are limited to no more than $1,000 per tree, shrub, or plant. The $2,500 limit can be increased.

This Coverage Extension does not cover trees, shrubs, and plants that are part of vegetated roofs. This is because they have full coverage as business personal property, and coverage here would duplicate that coverage and be confusing.

This Coverage Extension includes the expense to remove the debris of trees, shrubs, and plants that belong to others from the described premises. There is an exception in cases where the named insured is a tenant and the landlord owns such property at the described premises. This provision is subject to the terms and limitations of coverage stated above.

NOTE: This coverage extension applies only to outdoor trees, shrubs, and plants. Trees, shrubs, and plants inside buildings that are not considered growing crops or lawns are covered against direct physical loss or damage and are included in the business personal property limits. This means that office buildings with large indoor landscaped atriums have full coverage, but an office building built around a large garden is subject to the outdoor property exclusion and this limited coverage.

d. Personal Effects

The named insured may extend Business Personal Property insurance to personal effects it owns or to those owned by its officers, partners, members, managers or employees (including leased or temporary employees). This Coverage Extension does not apply to tools or equipment used in the business and excludes loss or damage due to theft. The most paid for loss or damage to such property at each described premises is $2,500.

Example: Robert’s office was filled with his golf and sports memorabilia. A fire that seriously damaged the building also destroyed most of his memorabilia. Coverage applied, subject to the other insurance clause, his homeowners' policy, and the valuation clause in this coverage form. Robert’s available coverage depends on a number of factors including how the modest $2,500 is distributed among all of the employees, officers, partners, members, managers, and employees who also sustained a loss.

e. Valuable Papers and Records

(1) Business personal property coverage extends to direct physical loss or damage to valuable papers and records the named insured owns or that it has in its care, custody, or control. The damage must be caused by or result from a covered cause of loss. This coverage includes the cost to research lost information when there are no duplicates.

(2) Coverage does not apply to samples or for property already sold that is held for delivery or to property in storage at locations away from the covered premises.

(3) The most paid for loss or damage in any one occurrence at a covered location is $10,000. Higher limits are available. $5,000 is the most paid if a covered loss occurs at a location not covered or described on the declarations.

(4) Loss or damage is based on the cost to replace the damaged or lost information. However, loss settlement is based on the replacement cost of only the blank material if the content of the valuable papers is not restored.

(5) None of B. Exclusions apply to this Coverage Extension except for the following:

· 1. c. Governmental Action

· 1. d. Nuclear Hazard

· 1. f. War and Military Action

· 2. f. Dishonesty

· 2. g. False Pretense

· 2. m. Errors or Omissions (when copying or processing valuable papers)

· 3. a. Weather Conditions

· 3. b. Acts or Decisions

· 3. c. Negligent Work

f. Accounts Receivable

(1) Business personal property coverage may be extended to include accounts receivable. Coverage applies to any of the following situations but must involve direct physical loss or damage by a covered cause of loss to the named insured’s records of accounts receivable:

Amounts that customers owe to the named insured that cannot be collected
Interest on loans taken out to offset amounts that cannot be collected until this coverage pays
Any unusual collection expenses incurred because of the covered loss
Any other reasonable expenses or costs incurred while re-establishing records of accounts receivable after a covered loss

(2) The most paid in a single occurrence at a covered location is $10,000. Higher limits are available. $5,000 is the most paid if a loss occurs at a location not covered or described on the declarations.

(3) None of the exclusions in B. Exclusions apply to this Coverage Extension except for the following:

· 1. c. Governmental Action

· 1. d. Nuclear Hazard

· 1. f. War and Military Action

· 2. f. Dishonesty

· 2. g. False Pretense

· 3. a. Weather Conditions

· 3. b. Acts or Decisions

· 3. c. Negligent Work

· 6. Accounts Receivable Exclusion.

g. Business Personal Property Temporarily in Portable Storage Units (08 24 edition)

(1) Business personal property that is stored in a portable storage unit is covered. Storage units include detached trailers. The unit must be located either within 1,000 feet of the building or within 1,000 feet of the premises, whichever is greater.

NOTE: The 08 24 edition expands the area from 100 feet to 1,000 feet.

(2) The coverage limitation with respect to sand, dust, sleet, snow, ice, or rain within a structure applies to any property within the storage unit.

(3) This coverage extension ends 90 days after the business personal property is placed inside the storage unit. However, it can end earlier. Coverage ends after the storage unit has been on the premises for more than 90 days. This means that even if the business personal property has been in the storage unit for two days, if the storage unit has been there for 90 days, all coverage for the business property in the unit ends.

Example: Shelly’s Shoes receives an exceptional buy, but she has no room in her store for the extra merchandise. She rents a temporary storage unit for the shoes. She leases the unit for 90 days, and it is located on part of her store’s parking lot. She sells the shoes in the unit and comes across another exceptional buy. She extends the lease for another 90 days. The second batch of shoes arrives, and a fire occurs the next day. The new shoes are excluded because the storage unit was on the premises for more than 90 days.

NOTE: This loss would have been covered if the unit was removed for one day and returned the next day.

(4) This coverage is subject to a $10,000 sub-limit. It does not increase the amount of business personal property coverage. This sub-limit can be increased.

(5) Coverage also does not apply to loss or damage covered elsewhere in the coverage form. In addition, there is no coverage for the storage unit itself.

B. EXCLUSIONS

1. Primary Exclusions

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

To eliminate this problem, this paragraph makes three very specific statements:

The insurance company does not pay for loss or damage caused directly or indirectly by any of the listed causes of loss.
Loss or damage is excluded, regardless of any other cause, sequence, or events that contribute to the loss or damage.
Loss or damage is excluded even if a large area sustains widespread damage.

This language applies to these nine exclusions.

a. Ordinance or Law

Loss due to the enforcement of, or compliance with, any ordinance or law that regulates the construction, use, or repair of any property, or that requires the demolition of any property, is excluded. This exclusion also applies to the cost of removing debris resulting from such enforcement or compliance, regardless of whether the property has been damaged.

Example: Millie’s Fine Furniture has been in the heart of downtown for as long as anyone can remember. Its frame structure is quite noticeable and distinct from the concrete and brick buildings that surround it. During a night of looting, a Molotov cocktail thrown into the display window ignites both the building and the upholstered furniture in it. Because the fire department cannot respond quickly, the building is 60% damaged. Millie’s family wants to rebuild so the building appears the same as before, but a local ordinance requires that all buildings be of concrete or better construction. Because of this exclusion, the family collects only the amount of money needed to restore the building to the original frame construction. It must pay the additional cost of the construction upgrade from its own funds.

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

Related Article: CP 04 05–Ordinance or Law Coverage

b. Earth Movement

Five separate categories of earth movement events are excluded.

(1) Earthquake and any sinking, rising, or shifting of the earth that occurs with the earthquake. This also includes damage resulting from tremors and aftershocks.

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

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

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

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

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

Example: Natural gas lines run beneath Prairie Town's main street. A slight earthquake occurs and causes comparatively little damage to the primarily frame structures. Unfortunately, the gas lines are not built to withstand such an incident and they crack, resulting in an explosion followed by a fire. The fire destroys the local drugstore, florist, hardware store, and bank. The loss due to the ensuing fire and explosion is covered.

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

(a) Airborne volcanic blast or airborne shock waves

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

(c) Lava flow

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

The costs of removing ash, dust, or particulate matter are excluded unless the covered property sustains direct physical loss or damage.

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

All aspects of this exclusion apply regardless of whether the event is caused by nature or any other force.

Example: Mountaintop Shopping is a strip mall built on a mountainside to serve the resort community. Several unusual rain events cause the land beneath the strip mall to give way. The landslide eventually destroys two stores. Mountaintop Shopping claims that the loss is due to faulty construction and land preparation, not a landslide. This important clarifying language makes it explicit that this loss is excluded.

c. Governmental Action

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

Example: The Treetop Resort is nestled in a grove of trees near a national park. A fire begins in the park and heads towards town. To create a firebreak, the fire department clears a path that includes the Treetop property. This loss is covered because the fire and its threat are imminent and a civil authority takes the action.

d. Nuclear Hazard

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

e. Utility Services

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

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

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

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

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

f. War and Military Action

This exclusion lists three specific warlike activities.

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

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

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

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

g. Water

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

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

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

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

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

Example: Mavis’ business was located near a river that flooded. It ended up smashing an uprooted tree into her storage building. Because of this exclusion, the damage to the storage barn and the items inside it was ineligible for coverage.

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

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

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

Related Articles:

National Flood Insurance Program Standard Policy Coverage Analysis

AAIS Difference in Conditions Form–Property Coverage Part

ISO Difference in Conditions Coverage Form

h. Certain Computer-Related Losses

Under this exclusion, there is no coverage for the failure, malfunction, or inadequacy of any computer, computer application, computer operating system, computer network, microprocessor, or any other computerized part or any other product that depends on computers when caused by an inability to process dates or time. Coverage also does not apply to any action an insured takes to correct any of these problems. If a computer’s failure to accept time or date results in a loss due to a specified cause of loss, coverage is available for the resulting damage from that loss.

Example: The computer program that controls the sprinkler system at the Food Warehouse does not recognize the date 02/29. The system automatically activates on 02/29/22 due to the failsafe device inside the program. Because the activation took place at 12:01 a.m., the building’s contents are completely waterlogged when employees arrive for work. This loss is covered because loss or damage caused by or resulting from sprinkler leakage is covered.

i. Fungi, Wet Rot, or Dry Rot

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

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

Example: A tornado blows the roof off George’s Hardware Store. The top floor is destroyed, but damage to the first floor initially appears to be minimal. However, mold was discovered in the first-floor interior walls two weeks later. The mold damage is not covered because of this exclusion. Coverage is available under 5. Additional Coverage r. Limited Coverage for Fungi, Wet Rot, or Dry Rot, but limited to $15,000 per 12-month policy period.

j. Virus or Bacteria

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

Examples of excluded microorganisms are virus or bacterium, but they are only examples. This means it is a far-reaching exclusion, as microorganisms are everywhere.

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

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

2. Secondary Exclusions

The lead-in language for this group of exclusions is less restrictive than the lead-in language in 1. Primary Exclusions. For example, if the proximate cause of loss is a covered cause of loss, the subsequent and companion excluded causes of loss do not affect the claim. If fire causes a machine to break down, coverage applies because the proximate cause of loss is fire and the breakdown results from the fire damage. The same approach applies to rust that develops after an accidental sprinkler leakage incident.

The insurance company does not pay for loss or damage caused by or that results from the following:

a. Electrical Apparatus (08 24 edition)

There is no coverage for damage, disturbance, disruption, or any type of interference with any electrical or electronic wire, device, appliance, system, or network, with a device, appliance, system, or network that utilizes cellular or satellite technology caused by or that results from artificially generated energy.

There is a wide range of types of artificially generated energy. It can be electrical, magnetic, or electromagnetic. Examples of such energy are electrical currents (including arcing), magnetic or electromagnetic fields produced by electrical charge, electromagnetic energy pulses, or waves or microwaves from an electromagnet.

There are exceptions.

· Loss or damage due to a fire that results from the above excluded items is covered.

· Loss or damage to computers that is due to artificially generated energy is covered, but only if caused by either of the following:

o An occurrence that takes place within 1,000 feet of the described premises

o A blackout or brownout caused by an occurrence that takes place within 1,000 feet of the described premises.

NOTE: The 08 24 edition expands the area from 100 feet to 1,000 feet.

NOTE: EB 00 20-Equipment Breakdown Protection Coverage can be used to provide this coverage.

b. Consequential Losses

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

NOTE: These are indirect losses that follow direct loss or damage. Business income is an example of a consequential loss, but that is specifically covered elsewhere in the form. The other types are not covered, and there is no standard Businessowners Program endorsement available to provide it.

Related Court Case: Market Value and Loss of Market Distinguished

c. Smoke, Vapor, Gas

Loss or damage caused by, or resulting from, smoke, vapor, or gas from agricultural smudging or industrial operations is excluded.

NOTE: There is no standard Businessowners Program endorsement that provides this coverage. Industrial firms and incinerators frequently release harsh acids and chemicals into the air. These can bleach or chip paint or damage plastic and rubber products. Agricultural smudging operations used to control insects or keep crops from freezing can release greasy smoke that can discolor paint and cause other damage to nearby buildings.

d. Steam Apparatus

Explosions that involve steam boilers, steam pipes, steam turbines, or steam engines the named insured owns or leases or has under its control are excluded unless an explosion of gas or fuel in a firebox, combustion chamber, or flue causes the explosion.

When an excluded explosion in the steam boiler, steam pipe, steam turbine, or steam engine causes a fire or combustion explosion, coverage applies to the loss or damage that results from that fire and combustion explosion.

Examples:

A boiler explodes because an improper fuel mixture causes gas to accumulate beyond the boiler's ability to contain the combustion. This damage is covered.
A boiler cracks, overheats, explodes, and bursts into flames. Damage to the cracked boiler is excluded but damage the ensuing fire causes is covered.
A steam pipe bursts and ruins a large amount of inventory. This damage is excluded.
The boiler runs out of water, cracks, explodes, and damages the boiler room walls. This damage is excluded.

NOTE: G. Optional Coverages 4. Equipment Breakdown Protection Coverage insures most incidents of sudden and accidental breakdown of boilers and similar objects. Equipment breakdown coverage forms also cover boiler explosion.

e. Frozen Plumbing

Loss or damage from water, liquids, powders, and molten materials caused by frozen plumbing, heating, air conditioning, and other appliances is excluded. There are three exceptions.

Coverage for loss due to frozen plumbing applies if any of the following apply:

· The named insured maintains heat in a building or structure.

· The equipment is drained, and the supply of water, liquids, powders, or molten material is turned off.

· Fire protective systems

NOTE: There is no standard Businessowners Program endorsement that provides this coverage.

f. Dishonesty

Criminal or dishonest acts by any of the following persons are excluded:

· The named insured

· Others who have an interest in the insured property

· The named insured’s authorized representatives

· The named insured's partners, officers, managers, directors, or trustees

· The named insured’s employees

Dishonest or criminal acts are excluded, regardless of whether the person acts alone or colludes with others.

In addition, there is no coverage for acts of theft by any person entrusted with the property for any reason, whether that person acts alone or colludes with others.

This exclusion applies 24 hours a day. This means that acts committed during business hours are excluded, as well as acts committed after hours.

There are three exceptions.

· Loss or damage due to acts of destruction by the named insured’s employees or authorized representatives is covered. However, this exception does not apply to acts of theft.

Examples:

Mike's Machine Shop employs union workers. The machinists go on strike and several disgruntled strikers break windows at Mike's building. This loss is covered.
Two employees of Stamps-n-Stuf Collector’s Bin break in and remove money, securities, and other property from the safe. The damage caused by the break-in is covered but the theft of money, securities, and other property is not.

· Dishonest acts of carriers for hire are not excluded. However, this exception applies only to accounts receivable and valuable papers and records coverage.

· Coverage provided by G. Optional Coverages 3. Employee Dishonesty is not excluded.

g. False Pretense

Coverage does not apply when the named insured voluntarily parts with or gives away title to any property because of a fraudulent scheme, trick, or device. It also does not apply if someone the named insured entrusts with the property does so.

The ISO Crime Insuring Agreements includes one for Fraudulent Impersonation that could be purchased to coverage this gap.

Related Article: CR 04 17–Fraudulent Impersonation

h. Exposed Property

Damage to personal property in the open is not covered when the damage is caused by rain, snow, ice, or sleet.

NOTE: There is no standard Businessowners Program endorsement that provides this coverage, and few insurance companies write it.

i. Collapse

(1) Collapse is excluded.

The following property conditions are also excluded:

· Any type of sudden caving in or falling down.

· The building’s structural integrity is lost or compromised. The evidence of this could be parts of the property separating from the rest of the building or the building appearing to be in danger of caving in or simply falling down.

· Any condition of sagging, bulging, cracking, settling, leaning, expanding, or shrinking as it relates to any of the above.

However, if a collapse causes a covered cause of loss at the described premises, the resulting loss or damage from that cause is covered.

(2) This exclusion does not apply with respect to coverage under 5. Additional Coverages d. Collapse.

It also does not apply to collapse due to one or more of the following causes:

· Specified causes of loss

· Building glass breaking

· Weight of accumulated rain on a roof

· Weight of personal property or people

Refer to Additional Coverages 4., Collapse described earlier in this form that provides very specific Collapse coverage.

j. Pollution

Loss caused by or that results from any release of pollutants is excluded.

There are two exceptions:

· A specified cause of loss causes the release.

· When the pollution causes a specified cause of loss, the loss or damage from that specified cause of loss is covered.

Examples:

· A sprinkler opens over an acid tank, causes it to overflow, and results in damage to floors and equipment. The direct damage the sprinkler leakage caused is covered as well as the damage the pollutant caused.

· An oil spill causes a fire in the building. The damage the oil spill causes is excluded but coverage applies to the damage the subsequent fire causes.

NOTE: 5. Additional Coverages h. Pollutant Clean-up and Removal provides a $10,000 limit at each location during each separate 12-month policy period. It applies to costs incurred to extract pollutants from land or water at only the described premises and only if a covered cause of loss that occurs during the policy period causes the escape. There is no standard Businessowners Program endorsement that broadens or improves on this coverage.

k. Neglect

There is no coverage if an insured does not use all reasonable means available to it to keep property from further damage at the time of loss and afterwards.

NOTE: E. Property Loss Conditions 3. Duties in the Event of Loss or Damage states that the named insured must protect covered property from further loss. This exclusion reinforces that condition.

Example: Fred is home, watching Game 7 of the NBA Finals. A neighbor calls to tell him that he sees smoke coming from Fred’s furniture store next door to the neighbor's business. Fred ignores the situation and continues to watch the game. When the neighbor doesn’t see Fred or hear emergency vehicles, he calls the fire department to protect his own property. Fred hears the sirens, but the game is going down to the wire, and he can’t pull himself away from it. Since Fred doesn’t arrive with the keys, the fire department must break down the door to fight the fire. After the game ends, Fred goes to the store and notifies his insurance company of the loss. However, based on the information the company obtains from the fire marshal, the insurance company denies much of Fred's claim because he did not protect his property.

l. Other Types of Loss

Loss or damage from the following is excluded. However, if a specified cause of loss or glass breakage occurs, the ensuing loss or damage caused by that specified cause of loss or glass breakage is covered.

(1) Wear and tear.

This is a risk of doing business that insurance does not cover.

(2) Rust, corrosion, decay, deterioration, hidden or latent defect, or any other quality, fault, or weakness in covered property that causes it to damage or destroy itself.

Example: Paint in cans hardens over time, some goods fade when exposed to sunlight, and iron objects rust when exposed to moisture.

(3) Smog

This is fog that has become mixed with and polluted by smoke.

Example: Smog corrodes the building’s exterior. This is considered routine maintenance in areas where smog is a problem and is not a covered event.

(4) Loss or damage caused by or that results from settling, cracking, shrinking, or expanding.

(5) Animal, bird, insect, or rodent damage caused by or that results from their nesting or infestation, or by release or discharge of their secretions or waste products.

Example: A deer crashes through a glass window, damaging both the window and property inside. Coverage applies in this case. If the deer decides to reside in the building, the resulting damage from its doing so is excluded.

(6) Mechanical breakdown.

An example of mechanical breakdown is a rupture that centrifugal force causes, but this is not the only type of mechanical breakdown excluded.

The one exception is that this exclusion does not apply to computers that break down.

NOTE: G. Optional Coverages 4. Equipment Breakdown Protection Coverage covers the mechanical breakdown of boilers, similar objects, and production machinery. In addition, Equipment Protection Coverage Forms or policies provide broader coverage.

Examples: These losses are excluded:

· A punch press that requires 440 electrical current loses 25% of its electrical phase and releases the cycle prematurely on a customer’s die, damaging it and warping the punch press.

· Lack of lubrication causes an engine to seize up.

· The governor on a machine malfunctions, the engine over-revs, and the flywheel shatters. This damages both the machine and the surrounding walls and windows.

(7) With respect to personal property:

· Loss or damage caused by or that results from atmospheric dampness or dryness.

· Marring or scratching.

NOTE: There is no standard Businessowners Program endorsement that covers these losses. Normal activity that causes scratches to tables is excluded, but coverage would apply when a light fixture falls on a table and scratches it.

· Changes in or extremes of temperature that cause loss or damage.

NOTE: Coverage for certain spoilage losses can be added using BP 04 15–Spoilage Coverage.

Example: Coverage does not apply if all the milk and juice spoils after a grocery store employee accidentally shuts off the freezer electrical circuit.

If a loss excluded in (1)-(7) above is the proximate cause of a specified cause of loss or damage or building glass breaking, coverage will apply to the loss or damage from the resulting specified cause of loss or glass breakage.

m. Errors or Omissions

Coverage does not apply to errors or omissions in any computer operations. Errors and omissions in the storage, processing, or programming of data, as described in the definition of electronic data, are also excluded. There is also no coverage when errors or omissions occur while processing or copying valuable papers and records.

Coverage does apply to direct physical loss or damage due to any fire or explosion that results from any of the excluded errors or omissions. The only requirement is that the resulting fire and explosion be considered a covered fire or explosion under this policy.

n. Installation, Testing, Repair

There is no coverage for errors or deficiencies with respect to any aspect of the named insured’s computer system, including its electronic data.

Coverage does apply to direct physical loss or damage caused by any fire or explosion resulting from any excluded installation, testing, or repair. The only requirement is that the resulting fire and explosion be considered a covered fire or explosion under this policy.

o. Electrical Disturbance

Magnetic injury, electrical injury, disturbance, or erasure of electronic data is excluded.

There are two exceptions:

· Direct damage due to lightning is covered.

· The coverage provided under Additional Coverages p. Electronic Data.

p. Continuous or Repeated Seepage or Leakage of Water

Loss or damage due to repeated or continual seepage or leakage of water that takes place for 14 days or more is excluded. The presence of humidity, moisture, or vapor for 14 days or more is also excluded.

Example: A crack develops in a shower wall at General Testing. Water accumulates on the floor beneath the shower area that is located in the building’s 2^nd story. An investigation reveals that water had been accumulating for many weeks and was finally forced down through the ceiling. The repairs needed are not covered.

3. Other Exclusions

Loss or damage due to any of the following is excluded. However, if the excluded cause of loss triggers a loss that involves a covered cause of loss, the ensuing loss or damage is covered.

a. Weather Conditions

A weather condition may contribute to a cause of loss otherwise excluded under the following exclusions in B. Exclusions 1. Primary Exclusions:

· a. Ordinance or Law

· b. Earth Movement

· c. Governmental Action

· d. Nuclear Hazard

· e. Utility Services

· f. War and Military Action

· g. Water

· h. Certain Computer-related Losses

· i. Fungi, Wet Rot, or Dry Rot

· j. Virus or Bacteria

In that case, the damage caused by the weather condition is also excluded.

Weather is not defined, but in common usage it includes wind, rain, hail, snow, and temperature; it is not limited to these alone.

NOTE: The purpose of this exclusion is to eliminate coverage under concurrent causation. There is no standard Businessowners Program endorsement that provides this coverage.

Example: Heavy, late-winter rains start a flood that undermines the building’s foundation and causes a wall to bulge. The rain turns to ice, and the weight of the ice collapses the building. Flood damage is excluded, but damage caused by the weight of ice is covered. This is subject to the insurance company agreeing that the roof would have collapsed even if the flood had not weakened the walls.

b. Acts or Decisions

Acts or decisions by any person, group, organization, or governmental body are excluded. Failing to act and decide is also excluded.

Example: The Corps of Engineers urged the city council to designate several sections of the city’s border as “no building” areas. The council ignored the advice and embraced the opportunity to increase tax revenue from new building projects in those areas. A serious flood occurs there a few years later, and federal disaster relief is denied because of the council’s decision to ignore the Corps of Engineers’ recommendations.

c. Negligent Work

Loss caused by damage to property located on or off the described premises is excluded if caused by any of the following being faulty, inadequate, or defective:

· Development, zoning, planning, surveying, or siting

· Workmanship, grading, compaction, repair, specifications, remodeling, or repair

· Materials used to repair, construct, or remodel

· Maintenance

Examples: The following are excluded:

· Property mistakenly built on wetlands that must be torn down

· Inadequate roof supports that cause the roof to sag

· A weak weld in the conveyor system that cracks and sends 20 newly manufactured computers crashing to the floor

· A poorly built municipal dam that collapses and causes insured property to be damaged in a flood

4. Additional Exclusion

Loss or Damage to Products

There is no coverage for loss or damage to merchandise, goods, or other products caused by any of the following types of errors or omissions:

· Planning

· Testing

· Processing

· Packaging

· Installation

· Maintenance

· Repair

· Any other stage in production, use, or development

These are errors and omissions on the part of anyone. They are excluded even if a party to which the items have been outsourced performs them.

This exclusion applies to any compromise of the product in form, substance, or quality.

The one exception is if such an error or omission results in a covered cause of loss occurring. In that case, coverage applies only to loss or damage caused by the covered cause of loss.

NOTE: This exclusion applies only to merchandise, goods, or other products. It is added to exclude loss or damage to such property because of a production error or omission.

Example: Lindsey designs toys and contracts with a Nigerian manufacturer to produce toys based on her designs and manufacturing specifications. The first shipment that arrives is tested, and the results indicate an unacceptable amount of lead. Lindsey cannot sell the product in the United States, and the Nigerian manufacturer does not return telephone calls. Lindsey presents a claim to the insurance company because the items are useless. The claim is denied because of this and other exclusions.

5. Business Income and Extra Expense Exclusions

a. The insurance company does not pay for any increase in business income loss or extra expense caused by or that results from any of the following:

· Any delay in resuming operations or repairing, rebuilding, or replacing property because of strikers or other persons interfering at the affected location

Examples:

· Teamsters across the country strike and shut down deliveries of wood construction materials. This causes a three-week increase in the period of restoration. Coverage applies.

· Construction workers employed by the contractor the named insured hired to rebuild go on strike and picket the premises and delay rebuilding by four weeks. Coverage does not apply.

· The named insured's second-shift employees working in an undamaged portion of the building being repaired strike. Coverage does not apply.

· Licenses, leases, or contracts that lapse, are suspended, or are cancelled. However, if any of these are caused directly by operations that are suspended due to a covered cause of loss, the resulting loss that affects the named insured’s business income during the period of restoration is covered. This includes any extension of the restoration period according to the terms of Additional Coverages f. Business Income (2) Extended Business Income.

Examples:

· A supplier penalizes the named insured $300 a day for each day it goes beyond the deadline date to complete a contract. Coverage does not apply.

· The named insured’s liquor license is suspended until the building is rebuilt. The license cannot be used at any substitute location, and the named insured’s operations are completely suspended until the period of restoration ends. Coverage applies.

· The named insured’s favorable lease may be cancelled if it takes more than two months to rebuild the building. It finds a substitute location at $400 per month more than the favorable lease. Both this provision and the extra expense provision cover the additional $400 for the period of restoration. However, the period of restoration ends in six months and the favorable lease would have lasted another two years. The two years of an extra $400 per month in lease payments are not covered. CP 00 60–Leasehold Interest Coverage under the ISO Commercial Property Program (CPP) is used to arrange coverage for favorable leases.

Related Article: Time Element Coverage Forms Analysis

· Consequential losses other than business income or extra expense.

b. When used within this exclusion, the term suspension means either partially slowing down or completely stopping the named insured's business operations. The term also means that all or part of a building cannot be occupied by a tenant when business income coverage applies to leased property.

Example: The Golden Age Apartments building has six units. A fire that involves two units occurs and is confined to them because of firewalls. The four remaining units remain occupied. Business income coverage pays for the loss of income for the two damaged units even though the others remain occupied.

6. Accounts Receivable Exclusion

This additional exclusion applies to only Coverage Extensions f. Accounts Receivable. The insurance company does not pay for loss or damage:

That occurs because records are altered, falsified, concealed, or destroyed in order to conceal that money, securities, or other property was wrongfully given, taken, or withheld. This exclusion applies only to accounts receivable that are part of the wrongful behaviors.

Example: Mandy set a fire at her employer’s office to conceal her false entries. Coverage does not apply to accounts receivable that were entered in error, but other legitimate entries are covered.

That occurs because of errors or omissions in bookkeeping, accounting, or billing
That require an audit of records or an inventory calculation to prove that it occurred

C. LIMITS OF INSURANCE

The limits of insurance on the declarations do not stand alone. This section explains exactly how they and any special restrictions and extensions apply. The limits on the declarations may not necessarily be exactly what they seem. It is very important to review this section to understand exactly how the limits apply.

1. Occurrence

The limits of insurance for Section I–Property on the declarations are the most paid for loss or damage in a single occurrence.

NOTE: Occurrence is not defined. It usually means an event or a continuous and uninterrupted series of events that causes a loss.

2. Outdoor Signs

The most paid for loss or damage to outdoor signs attached to the building in a single occurrence is $1,000 per sign.

NOTE: Detached outdoor signs are excluded unless a limit of insurance is added for G. Optional Coverages

1. Outdoor Signs. This optional coverage can also be used to increase the $1,000 limit for outdoor attached signs. Indoor signs attached to the building are subject to the building limit. Indoor signs not attached to the building are subject to the business personal property limit.

3. Other Coverages

The insurance amounts in Coverage Extensions and Additional Coverages listed below are in addition to limits of insurance in Section I–Property Limits of Insurance. This means that the limit for any Additional Coverage that is not listed is part of and not in addition to those limits. The terms of the Coverage Extension and Additional Coverage must be examined when applying any limit.

The following Additional Coverages with Limits of Insurance are in addition to the Section I–Property Limits of Insurance:

Fire Department Service Charge
Pollutant Clean-up and Removal
Increased Cost of Construction
Business Income from Dependent Properties
Electronic Data
Interruption of Computer Operations

4. Building Limit–Automatic Increase (08 24 edition)

· The building limit is automatically increased by the percentage listed on the declarations. Applying the increase is subject to item b. below.

Related Article: ISO Businessowners Program Rating Considerations

· The amount of increase is determined by multiplying the current limit by the percentage of annual increase shown on the declarations and is expressed as a decimal. Multiply this number by the number of days since the date of the most recent building limit change, then divide by 365.

NOTE: The 08 24 edition changed the automatic increase from 8% to an amount shown on the declarations.

NOTE: This is how the increase is pro-rated over the course of the policy year.

Example: The insurance limit is $300,000; the automatic annual increase percentage is 4% and it is the 100th day of the policy year. The formula is: $300,000 x .04 x 100 divided by 365 = $3,287. The limit of insurance is $303,287 on the 100th day of the policy period.

5. Business Personal Property Limit–Seasonal Increase

a. Paragraph 5.b. The Business Personal Property Limit of Insurance is automatically increased by 25% unless a different percentage is specified in the declarations.

b. The increase described in 5.a. above is not automatic. It applies only if the Business Personal Property Limit of Insurance is at least 100% of the named insured's average monthly values during the 12 months immediately before the date of loss or damage. If the named insured has been in business for less than 12 months, the period is measured from the date of loss or damage.

NOTE: This benefit encourages insuring the property for its full value. Nearly every business experiences seasonal variations, and it is natural to assume that losses will occur when stock values are low. By offering this automatic peak-season increase, the named insured is encouraged to insure properly, knowing there is an additional limit for that peak period. The advantage that this seasonal increase coverage has over the peak season endorsement is that the peak season is not defined. As a result, if sales are higher than expected and additional inventory must be ordered after the traditional selling season, the additional inventory is covered. The flexibility of the seasonal increase is also a limitation, as the named insured triggers coverage only by maintaining adequate insurance.

Example: Perry’s Business Personal Property limit of insurance is $125,000. A fire loss of $130,000 occurs. A review of the values for the previous 12 months results in an average monthly value of $110,000. Because the average monthly value is less than the limit, Perry gets the 25% seasonal increase. His limit is calculated as $125,000 X 1.25 = $156,250. This means his $130,000 is totally covered after the deductible is applied.

NOTE: To be eligible for this additional coverage, the named insured may have to over-insure at the beginning of the year or increase coverage during the year to comply with this condition. Unfortunately, there is no personal property automatic increase endorsement available to eliminate this problem. The automatic increase provision should never be sold as a guarantee or as a way to reduce the amount of insurance simply because an additional 25% is available. This coverage cushion is available only to businesses properly insured to value.

D. DEDUCTIBLES (08 24 edition)

1. Application

Property insurance deductibles are simple. The named insured first pays a specified amount of the loss, and the insurance company pays the rest, up to the limit of insurance. There are three possible scenarios:

The amount of loss is less than the deductible. The named insured pays the entire amount, and the insurance company pays nothing.

Example: The limit is $50,000, the deductible is $1,000, and the loss is $250. The named insured pays $250. The insurance company does not pay anything.

The loss is more than the deductible but less than the limit of insurance. The named insured first pays the deductible that applies, and the insurance company pays the difference.

Example: The limit is $50,000, the deductible is $1,000, and the loss is $10,000. The named insured pays $1,000. The insurance company pays $9,000.

The loss exceeds the limit of insurance. The named insured is still responsible for the deductible, and the company pays the limit of insurance. The insured then pays the remaining loss that exceeds the limit of insurance.

Example: The limit is $50,000, the deductible is $1,000, and the loss is $55,000. The named insured pays the $1,000 deductible and $4,000, the amount underinsured. The insurance company pays $50,000.

Note: If loss or damage occurs at more than one insured location in one occurrence, the deductible will be applied separately to each damaged location. (08 24 edition)

2. Optional Coverages

The most deducted for any loss or damage in any one occurrence for each of the following Optional Coverages is the Optional Coverage Deductible on the declarations:

Money and Securities
Employee Dishonesty
Outdoor Signs
Forgery or Alteration

3. Additional Coverages

These Additional Coverages are not subject to a deductible:

Fire Department Service Charge
Business Income
Extra Expense
Civil Authority
Fire Extinguisher Systems Recharge Expense

E. PROPERTY LOSS CONDITIONS (08 24 edition)

1. Abandonment

The named insured cannot abandon damaged property to the insurance company without the insurance company's consent.

Example: The building burns down. The Environmental Protection Agency (EPA) investigates and the named insured just wants to get rid of the problem and headaches and attempts to sign the title to the insurance company. He is not pleased to discover that he does not have the option to simply give the property to the insurance company.

2. Appraisal

The appraisal process is one of several alternative dispute resolution methods and is fairly simple. If the named insured and the insurance company do not agree on the property’s value or the amount of a covered loss, either can make a written demand for an appraisal. Each then hires its own independent and competent appraiser. In turn, the two appraisers hire an umpire. The appraisers then determine the property's value and the amount of loss. If they cannot agree on the property’s value or the amount of loss within a reasonable time period, they submit their differences to the umpire. A decision agreed to by any two parties is binding. Each party pays its own appraiser. The named insured and the insurance company each pay half of the umpire’s expenses.

The insurance company reserves the right to deny the claim even after the appraisal process.

3. Duties in the Event of Loss or Damage

a. The named insured has several important duties to perform and obligations to meet in case of loss or damage:

· Notify the police if a law may have been broken and the insured is aware of it.

NOTE: An insured may not want to involve the police with minor neighborhood vandalism or similar problems, but notifying them is required if coverage for the loss or damage is desired. When Employee Dishonesty coverage is provided and a loss occurs, an employer may be reluctant to notify police if the employee is particularly valuable or the loss is small. However, many dishonesty claims are small at first but grow as they are investigated. The insurance company can deny a claim if the employer attempts to protect the employee by failing to notify the police.

This is a significant difference from the Commercial Crime Coverage Form in which the named insured is not required to notify the policy for any employee dishonesty loss.

· Promptly give the insurance company notice of the claim and describe the property involved.

NOTE: Prompt notification is not defined, but unreasonable delays could be grounds to deny the claim for lack of cooperation.

· Give the insurance company details of how, when, and where the loss or damage occurred as soon as possible.

NOTE: This information does not have to be in writing, but a signed proof of loss that includes this information will be required at a later date.

· During and after a covered loss, take steps to protect covered property from any further damage. The insurance company pays for reasonable repairs and emergency measures taken to protect covered property against further damage by covered causes of loss. The named insured must keep accurate records of the costs of these repairs, keeping in mind that they do not increase the limit of insurance. However, the company does not pay for repairs or emergency measures to property that has not yet been damaged by a covered cause of loss. It also does not pay for subsequent loss to the repairs unless damage is due to a covered cause of loss.

Examples:

· The costs of materials and labor to board up windows in advance of a hurricane are not covered.

· Repairs to plywood coverings made during the eye of the hurricane to replace pieces that the initial phase of the storm blew off are covered.

· The cost of sandbags purchased to protect the property from flood damage is not covered unless flood is a covered cause of loss.

· The cost of plastic sheeting applied to prevent rain from entering the roof after hail damage is covered.

· Earthquake damage to repairs done because of prior tornado damage is not covered.

If possible, damaged property must be separated from undamaged property and set aside. It must be kept in good order and be available for the insurance company to examine.

NOTE: Examining the property is crucial to determining the cause and origin of the loss, and missing evidence may lead investigators to conclude that arson or another cause is involved. If an arson investigation suggests that the named insured may be involved, law enforcement is called in and newspapers report the case. The higher costs of counter-investigation and court defense are not covered.

· Provide a complete inventory of damaged and undamaged property, including quantities, costs, values, and the amount of loss claimed when the insurance company requests this information.

NOTE: The costs to produce this information can be high, especially if the loss destroyed the records needed. These costs are not covered.

· Permit the insurance company to examine the damaged property to prove that the loss or damage happened, along with letting it also examine the named insured's books and records. In addition, give the company samples of both damaged and undamaged property to inspect, test, and analyze, and let it make copies of such books and records.

NOTE: Records include property inventories, values, and losses, as well as tax records, bank records, computer records, and other related documents, but are not limited to these. Samples are important for determining the extent of loss to certain property when the amount of loss may not be obvious.

· Send a signed and sworn proof of loss to the insurance company within 60 days of its request to do so using the forms it provides.

NOTE: A proof of loss is much more detailed than the initial loss notification. The named insured discloses exactly what happened and when, identifies the damaged property, substantiates why the loss is covered, and recommends how much should be paid. All decisions the insurance company makes are based on this very important document.

· Cooperate with the insurance company as it investigates and settles the claim.

NOTE: Failing to do so may constitute a lack of cooperation, which may be grounds for denying the claim.

· Resume as much of the operation as can be resumed as soon as possible.

NOTE: Failing to do so could be grounds for denying further consequential loss payments, such as business income and extra expense. If operations will not be resumed, the insurance company must be notified as soon as possible so that loss payments are made in accordance with the property loss conditions. Even if operations are not resumed, business income pays for the loss of income resulting from operations being suspended after a covered cause of loss during the agreed period of restoration. The appraisal process can also be used to resolve and settle business income losses.

b. If the insurance company requests it, any insured must agree to be examined under oath as often as reasonably required and to sign the answers. The company may require that the individuals involved be questioned separately and not in the presence of other employees. This prevents collusion and ensures that all parties do not tell the same story.

4. Legal Action Against Us

Legal proceedings against the insurance company cannot begin until the named insured complies with all terms of the insurance policy. In addition, any legal action must commence within two years of the date of the direct physical loss or damage.

NOTE: Both parts of this condition can cause problems. The named insured may have a case against the insurance company for unreasonable requests for information or for delays. At times, the only way to obtain action is to ask a judge to determine whether the insurance company has complied with policy provisions and has made reasonable requests. The courts may award punitive damages against an insurance company for unreasonable delays. In addition, state law may override the two-year limitation on filing suits. In those cases, individual state endorsements adjust the time limits.

5. Loss Payment

a. The insurance company has four options for paying a covered loss. It can pay the value of the property lost or damaged; pay the cost to repair or replace it; take all or part of it at an agreed or appraised value; or repair, rebuild, or replace it with property of similar kind and quality. When the fourth option is selected, Paragraph d. (1) (e) below, which specifically excludes costs to meet ordinances or laws, must be followed.

Example: It will take an additional six months to replace the XYZ printing press with another XYZ printing press, but an equivalent FGH press is available immediately. The insurance company may pay for only the FGH press. Further loss or expense due to the named insured insisting on the XYZ printing press may not be covered.

b. The insurance company must give the insured notice of its intended payment method within 30 days after it receives a properly prepared sworn proof of loss.

c. The insurance company pays only up to the named insured's financial interest in the damaged covered property.

Examples:

· Paul is remodeling his office and agrees to sell his desk to Peter for $5,000. A fire destroys Paul’s office and the desk before Peter arrives. Because Paul no longer has a financial interest in the desk, he cannot collect proceeds for it.

· Jay and Maisy are insureds on a policy for a commercial building they own. When they file for divorce, the property settlement stipulates that Jay gets the building and Maisy gets their house. A fire damages the building. Jay collects since he is the only one who has an insurable interest in the building at the time of loss.

d. The value of covered property is determined as follows. It is important to consider each of these items because not all are valued at replacement cost.

(1) At replacement cost without a deduction for depreciation. However, there are several stipulations:

(a) The limit of insurance at the time of loss must be 80% or more of the property's full replacement cost. The insurance company then pays the cost to repair or replace, without a deduction for depreciation, but only after applying the deductible. However, this is limited to the least of the following:

· The Section I–Property Limit of Insurance that applies

· The cost to replace the lost or damaged property on the same premises with property of similar quality and used for the same purpose

· The amount spent to repair or replace the lost or damaged property

NOTE: If the decision is to build at other than the described premises, the payment is limited to the expense of rebuilding at the described premises.

Examples:

The policy for Marv’s Hunting Shop was written ten years ago with a building limit of $150,000. That amount increased by a modest 4% at each renewal, and the current limit is $222,000. A fire destroys the building, and the appraiser determines the replacement cost to be $225,000. The loss is paid at replacement cost because the limit is more than 80% of the property’s replacement cost valuation.
Marv notices that the ZIP codes of most of his customers are about five miles away from his current location. This is why he decides to rebuild at a location closer to his customer base. This increases the building costs by about $10,000. The insurance company does not cover these additional building costs.
Marv rebuilds, and the cost is $225,000 plus the $10,000 increase due to the new location. The insurance company pays only the $222,000 limit.

(b) If the limit of insurance at the time of loss is insufficient for replacement cost coverage, the maximum paid is the larger of the following:

· The property’s actual cash value

· The proportion of the limit of insurance to 80% of the replacement cost of the property multiplied by the cost to repair or replace. The 08 24 edition adds an example to explain this concept.

Payment is capped at the limit of insurance for the property.

Example: The Sergio Office Building is insured for a limit of $150,000. A windstorm causes $20,000 in damage to it. An appraisal determines that the replacement value of the building is $250,000. Because $250,000 X .80 = $200,000, Sergio is not covered for full replacement cost.

The actual cash value depreciation factor is .50 because of the building's age. This means the actual cash value of the loss is $20,000 X .50 = $10,000.

The replacement cost proportional factor is $150,000/$200,000 = .75. This means the replacement cost proportional loss value is $20,000 X .75 = $15,000.

Because $15,000 is the larger of the two and is less than the $150,000 limit of insurance, Sergio’s loss is valued at $15,000.

(c) The named insured has the option to postpone rebuilding and instead accept an actual cash value settlement. They can choose to rebuild later, but must notify the insurance company of this decision within 180 days of the loss date.

(d) The insurance company does not pay for any loss or damage on a replacement cost basis until the affected property is actually repaired or replaced, and unless the repair or replacement is completed as soon as possible after the loss or damage. However, if the cost to repair or replace is $2,500 or less, the loss is settled according to paragraphs d. (1) (a) and d. (1) (b) above, regardless of whether the repair or replacement is completed.

(e) Costs to repair, rebuild, or replace do not include any increased amounts required by the enforcement or compliance with an ordinance or law regulating the construction, use, or repair of the damaged property.

(2) The named insured has the option to insure the building for its actual cash value if the Actual Cash Value–Buildings option is entered on the declarations. In that case, the provisions of paragraph (1) above do not apply.

(3) Actual cash value always applies to the following property:

· Used or second-hand merchandise for sale or held in storage.

· Property of others unless a contract specifies the amount for which the named insured is liable. When a contract specification exists, valuation is based on the contract terms but not for more than the lesser of the replacement cost or the limit of insurance.

· Household contents. An exception is that personal property in apartments or rooms the named insured furnishes as a landlord is valued at replacement cost.

· Manuscripts.

· Works of art, antiques, or rare articles. Examples include etchings, pictures, statuary, marbles, bronzes, porcelains, and bric-a-brac, but this list is not exhaustive.

(4) Glass is valued at the cost to replace it with safety glazing material, but only when laws require the named insured to use safety glazing material.

NOTE: This is the only standard ordinance or law coverage in the Businessowners Coverage Form.

(5) Tenant’s improvements are valued at replacement cost if repaired promptly and at the named insured’s expense.

Tenant’s improvements that are not replaced after a loss are valued as a pro rata portion of the original installation cost as it relates to the named insured’s current lease. The formula involves dividing the number of days between the date of loss and the end of the lease by the number of days from the installation date to the lease expiration date, multiplied by the original cost of the tenant’s improvements. If the lease has a renewal option, the last date in the option is used as the new expiration date. No payment is made if repairs are made at the expense of others.

Example: A loss occurs on the 200th day of a one-year lease. $5,000 in improvements was installed on the first day of the lease. The lease does not have a renewal option. 365 days minus 200 days equals 165 days remaining in the lease. There are 365 days between the installation date and the end of the lease. 165 days divided by 365 days equals .452 x $5,000 equals $2,260. This is the amount of loss payment before applying any deductible.

(6) Optional Coverages are subject to separate specific valuation methods. Money is valued at its face value. Numismatic property, such as old coins or gold coins traded based on gold content instead of face value, is still adjusted based on only the face value.

There is no standard Businessowners Program endorsement that covers collections or gold coins. Extensive gold holdings require special coverage arrangements on other coverage forms and policies.

NOTE: If gold or silver coins are in a bank safe deposit box, check with the bank for their coverage and limits. If a gold or silver broker holds them, check with the broker on available coverage. Few insurance companies insure gold or silver investment coins.

The value of securities is their closing price at the close of business on the day the loss is discovered.

Examples:

· The bearer bond is valued at $100 on the date of loss. When the loss is actually paid, the class of bonds trades at $65 per bond. The loss payment is based on the $100 per bond value on the date of loss.

· The bearer bond is valued at $100 on the date of loss. When the loss is actually paid, the class of bonds trades at $125 per bond. The loss payment is based on the $100 per bond value on the date of loss.

(7) Accounts Receivable only:

· When the amount of accounts receivable outstanding at the time of loss cannot be determined accurately, the insurance company determines the total of the average monthly amounts for the last 12 months immediately before the month when the loss occurred. It also adjusts that total for any normal fluctuations that usually occur based on any demonstrated variance from the average for that month.

· Certain amounts are deducted from this total. Deductions include any amounts that did not incur loss or damage; amounts from accounts the named insured re-establishes or collects; amounts for probable bad debts that are not usually collectible; and any unearned interest and service charges.

e. Payment for loss or damage to personal property of others is for only the property owner’s account. The insurance company adjusts the loss with the owner. Paying the property’s owner satisfies the named insured’s claim against the insurance company for property of others.

Payment is not for more than the property owner’s financial interest in the property.

f. If the property owner sues the named insured, the insurance company can choose to defend the named insured. In that case, any defense costs are at the insurance company’s expense.

Example: The customer’s riding lawn mower is in for repairs when a fire destroys the named insured’s building. The insurance company offers and pays the mower’s $1,000 actual cash value, the amount it is required to pay. The customer is unhappy, demands an additional $1,000, and then sues the named insured. The insurance company will probably not pay the additional $1,000, but it can defend the insured at its own expense if it chooses to do so. The insured cannot seek more money from the company and must pay the difference from its own funds.

NOTE: Bailees coverage on property of others is usually broader.

Related Articles:

Property of Others

ISO Bailees Customers Coverage Form

g. The insurance company has 30 days to pay the loss after it receives the named insured's sworn proof of loss. This time period does not begin until all policy terms are complied with, the parties agree on the amount to be paid, or an appraisal award is made.

h. Party Walls

Buildings that abut one another often share a party wall. This wall separates the two buildings but is also part of each building. Loss settlements are not affected if the same insured owns both buildings. However, loss settlements may be more difficult if different insureds own the shared party wall.

When both building owners plan to repair and rebuild, each insurance company pays its insured’s proportional share of the damage to the party wall. However, if the named insured wants to rebuild but the other building owner does not, the insurance company for the rebuilding owner pays the full value of the party wall. The insurance company that paid then has the right to subrogate against the adjoining building owner.

Example: Titanic Tim's Toys and Jungle Jim's Jazzercise occupy adjoining buildings with a common party wall. A fire caused by smoldering cleaning rags stored in an unapproved container on Jim's premises results in serious damage to both businesses. Tim decides to proceed with the necessary repairs, but Jim throws in the towel and goes out of business. Tim's insurance company pays the full value of the party wall and then weighs its options before deciding whether to pursue its subrogation rights against Jim.

6. Recovered Property

Either the named insured or the insurance company can recover property. The recovering party must inform the other promptly. Recovered property includes items taken by police from burglars or property for which salvage was paid to either the insured or the insurer. The named insured can choose to keep the recovered property and return the insurance payout to the insurer, or retain the payout and allow the insurer to keep the recovered property as salvage.

7. Resumption of Operations

If the insured can restore normal operations by using salvaged undamaged or damaged property at their premises or elsewhere, the business income loss is decreased proportionally to the ability to continue operations. This wording suggests that if operations can be resumed with such goods, the insurance company covers only the business income loss as if operations were resumed, regardless of whether the insured chooses to do so.

NOTE: Questions often arise about what constitutes a reasonable time to restart operations. If the insurance company asks the insured to use damaged or unattractive back-office machines that are safe and produce acceptable results, it may refuse to pay if the insured declines. On the other hand, if the insurance company thinks the insured can resume retail activities through a fire or salvage sale, but the insured fears this could harm their brand and reputation, the insured may have grounds to claim business income reimbursement since restarting operations would be unreasonable.

Extra expense coverage ends when the named insured is able to resume normal operations. There is no explanation for how this is accomplished.

8. Vacancy

a. Terms

(1) With respect to the terms building and vacant used in this condition:

· If the named insured is a tenant, building refers to the part they rent or lease. This means that the rented or leased area is not considered vacant unless it lacks sufficient business personal property for the insured to carry out normal business activities.

Example: Friendly Deli occupies 25% of the McMillan Building. Felix the Cat Groomers occupied the other 75% but moved out. The building owner is currently in the ninth month of searching for a tenant to replace Felix. A small fire breaks out in the vacant portion of the building, and the resulting smoke causes significant damage to Friendly’s space. Friendly Deli’s loss settlement is unaffected by the vacancy in the other part of the building, even though the building is considered vacant.

· If the named insured owns the building or is a general lessee, the building is considered the entire structure. It is deemed vacant unless the owner or a lessee/sub-lessee utilizes at least 31% of the total square footage for their usual activities.

NOTE: The key word is “customary.” If the building owner, lessee, or sub-lessee is a retail business (and that is the customary operation), claiming the building is being used for storage is not a way to circumvent the definition of vacancy.

(2) Buildings being constructed or renovated are not treated as vacant.

NOTE: Buildings under construction or renovation are not classified as vacant. While the insured may attempt to slightly extend the non-vacancy period to obtain coverage, the insurance company might try to consider a building under construction or repair as vacant to limit or deny coverage. A building temporarily vacated for major renovations is not vacant if the tenant plans to return and occupy it immediately after the work finishes.

Example: The Jones Office Complex consists of four separate buildings and has struggled to retain its tenants. Building 1 is fully occupied by a single tenant. Building 2 is only 20% occupied by a retail shop, and the rest of the building has been vacant for more than six months. Building 3 has multiple tenants but remains 15% vacant. Building 4 has just been rented out, pending completion of major renovation work. A contract has been signed, and renovation is underway.

A major storm damages all four buildings. Based on the definition of vacancy, Buildings 1 and 3 are not vacant and are fully covered. Building 2 is vacant and subject to a vacancy penalty. Building 4 is being renovated, is not considered vacant at the time of loss, and is not subject to a vacancy penalty.

b. Vacancy Provisions

If the building that sustains loss or damage was vacant more than 60 consecutive days before the date of loss:

(1) The insurance company does not pay for loss or damage from vandalism, sprinkler leakage from a system that was not protected against freezing, building glass breakage, water damage, theft, or attempted theft, even if they are covered causes of loss.

(2) Losses due to covered causes of loss other than those listed in (1) above are reduced by 15%.

Example: Continuing the example above, the loss or damage to building 2 in the Jones Office Complex Center is penalized by 15% because the damage was caused by a storm, not by one of the listed excluded causes of loss.

NOTE: Insurance companies are interested in insuring only successful, ongoing businesses and their pricing contemplates an active occupancy. For this reason, vacant properties are subject to a significant rating surcharge. Because vacancy is frequently not discovered until after a loss occurs, the Loss Conditions restrict coverage if the vacancy is not disclosed in advance.

F. PROPERTY GENERAL CONDITIONS

1. Control of Property

Acts or negligence by individuals who are not the named insured or under its control do not impact the insurance coverage.

Example: A disgruntled former employee burns down the named insured’s building. Rioters break windows in the building and steal goods that belong to others. These losses are covered.

In addition, if the named insured breaches one or more policy conditions at one location, coverage at other locations is not affected if the breach condition does not exist there.

Example: The named insured's partner burns down the named insured’s headquarters building. Coverage does not apply. In an unrelated incident on the same day, a car skids off the road, slams into the wall of the named insured’s second location, and damages it. The damage to the second location is covered.

2. Mortgageholders

a. Trustees are included as mortgageholders.

NOTE: Mortgageholders and trustees have certain rights. They have the right to be reimbursed for losses the insured voided through misrepresentation, fraud, or criminal activity, such as arson.

b. Payments for loss or damage to covered buildings to involved mortgageholders are made in the order of precedence, based on their respective interests.

NOTE: Mortgageholders need to be listed on the declarations, and loss payments follow the order of listing. Property law considers the first-filed mortgage as having priority, typically recorded as a deed amendment. To avoid legal issues, the named insured should verify the correct order of mortgageholders. The first mortgageholder is generally paid first, with second and subsequent mortgageholders being paid only after the first is indemnified.

c. Mortgageholders have the right to receive loss payments even if they have initiated foreclosure or similar proceedings on the building or structure involved.

d. If the insurance company denies the named insured's claim because of the named insured's actions or failure to comply with policy terms, the mortgageholder still has the right to receive loss payments. To do so, the mortgageholder must:

· Pay any overdue premium the named insured failed to pay when the insurance company requested.

· Submit a properly executed proof of loss within 60 days after the insurance company notifies the mortgageholder that the named insured failed to do so.

· Notify the insurance company of any change in ownership, occupancy, or risk that it knows about.

e. The insurance company may pay a mortgageholder for a loss and not pay the named insured because of its acts or failure to comply with policy terms. In that case, the mortgageholder's rights transfer to the insurance company to the extent of its payment. However, the mortgageholder's right to recover the full amount of its claim is not affected.

On the other hand, the insurance company can choose to pay the mortgage holder the full principal amount plus accrued interest, in return for receiving the mortgage and note, while the named insured clears its remaining mortgage debt with the company.

f. The insurance company must provide at least ten days' written notice of cancellation to the mortgageholder if the named insured fails to pay the premium. For any other reasons, the notice period is at least 30 days.

g. The insurance company provides the mortgageholder with at least 10 days' written notice prior to the policy's non-renewal date.

NOTE: Laws in most states may require longer notification periods than 10 days for non-renewal and 30 days for most other reasons. However, most approve the 10-day notice for non-payment of premium.

3. No Benefit to Bailee

This insurance only benefits the named insured; it does not cover anyone else who has custody of the covered property.

4. Policy Period, Coverage Territory

The insurance company pays for loss or damage under Section I–Property that occurs:

a. During the policy period on the declarations. It begins at 12:01 a.m. standard time at the named insured's mailing address on the declarations.

NOTE: The policy period is usually one year or three years.

b. Within the coverage territory

The coverage territory includes the United States of America, its possessions and territories, Puerto Rico, and Canada. Property is protected while in transit within this coverage area.

NOTE: Transit can include air, land, or water, including travel to Hawaii, Guam, Puerto Rico, and Alaska that involves travel over international waters. The insurance limit is $10,000 for Coverage Extensions b. Personal Property Off-premises. As a result, motor truck cargo or another form of transportation coverage may be necessary when higher limits are needed.

Related Articles:

AAIS Transportation Coverage Forms

ISO Annual Transit Coverage Form

ISO Motor Truck Cargo Owners Coverage Form

ISO Trip Transit Coverage Form

G. OPTIONAL COVERAGES

If one or more of the following Optional Coverages apply, a limit must be entered in the declarations for each applicable coverage. Each selected coverage is subject to the property coverage terms and conditions in this policy, except as stated below.

1. Outdoor Signs

a. The insurance company pays for direct physical loss or damage to outdoor signs at the described premises. The outdoor signs may be owned by the named insured or by others and be in the named insured’s care, custody, or control.

NOTE: Wooden signs not located at the specified premises can be insured as separate structures with their details included in the declarations. Use Inland Marine Coverage Forms to insure neon and electric signs, whether on or off the premises.

Related Articles:

ISO Signs Coverage Form

AAIS Sign Coverage

ISO Signs Coverage Form

b. Signs are not subject to A.3. Covered Causes of Loss or B. Exclusions. The cause of loss, as stated in a. above is “direct physical loss or damage.” The only exclusions that apply are the following:

· B. 1. c. Governmental Action

· B .1. d. Nuclear Hazard

· B. 1. f. War and Military Action.

NOTE: Governmental action is an important exclusion because most municipalities have ordinances that regulate how signs are placed and used. Many require sign bonds for signs that overhang public thoroughfares, sidewalks, or rights-of-way, or for signs that exceed a certain size or height. The sign could be forcibly removed by the governmental authority if it did not meet the ordinances.

c. Coverage also does not apply to loss or damage due to wear and tear, hidden or latent defect, rust, corrosion, or mechanical breakdown.

d. The most paid in a single occurrence for loss or damage is the Outdoor Signs Limit of Insurance on the declarations.

NOTE: Signs are covered for the limit on the declarations. Outdoor sign coverage that Coverage Extensions c. Outdoor Property otherwise provides does not apply when this optional coverage is added.

e. These provisions supersede and replace all other references to outdoor signs in the coverage form.

Example: If the value of a sign is $5,000, do not subtract the $2,500 limit the coverage extension provides and enter a $2,500 limit on the declarations. The limit on the declarations should be $5,000.

NOTE: There are no limitations on the sign's construction.

2. Money and Securities (08 24 edition)

a. Coverage applies to loss of only the named insured's money and securities used in its business while at any of the following:

· Banks or savings institutions

· Inside the named insured's living quarters

· Inside the living quarters of a partner, employee, leased employee, or temporary employee while that person has custody and use of the money and securities

· At the described premises

· In transit between the places listed above

Direct loss caused by theft is covered. In addition, direct loss because money and securities disappear or are destroyed is also covered.

NOTE: Crime Coverage Forms provide coverage only within the interior of a bank or savings institution. BP 00 03 covers only money and securities while at a bank or a savings institution. As a result, this can be broadly interpreted to mean while in the bank, at the drive-through, at the outside night deposit drop, or at the outside Automated Teller Machine (ATM). An ATM at a location away from the actual bank building might even be construed to be an extension of the bank or savings institution. In other words, an ATM may be treated as a branch of the financial institution. Coverage within the living quarters of the insured’s employee, leased employee, or temporary employee must also be interpreted broadly, especially when determining what it means that such a person must have use and custody of the property. A final concern is what the coverage means when it states that it covers money and securities in transit between the locations. There is no statement as to who actually control or custody of the money and securities must have while it is in transit or how long it can be in transit.

Example: The employee takes the night deposit to the bank and finds that the drop is out of order. She decides to visit a friend and leaves the money in her car during the visit. The car is broken into and the money is taken.

In addition, employees who make stops for reasons other than to properly deliver money or securities could create questions as to whether the money was in transit to the financial institution or was in their living quarters. There is no requirement to take a direct route, but a significant deviation could be grounds to deny a claim. A significant deviation could also lead to an investigation into whether the claim was actually an employee dishonesty claim that this Optional Coverage does not insure.

b. In addition to the Section I–Property Limitations and Exclusions, coverage does not apply to losses caused by or that result from accounting or arithmetical errors or omissions, giving or surrendering property in any exchange or purchase, or property contained in money operated devices that do not have continuous recording devices.

NOTE: Property in vending machines, arcade machines, and other money-operated mechanical or electronic devices is excluded unless the device continuously records the transactions and amounts.

Examples:

The $600 amount on the cash register tape does not match the $400 in the cash register drawer. In addition, the cash register drawer does not balance with the tape amount and the opening balance. The clerk admits leaving the register briefly while customers were present. There is no actual evidence or proof that a theft occurred, but theft is presumed. Coverage applies.
The books do not balance, and no one can figure out why. Coverage does not apply.
The named insured sells a large flat screen television for $1,400 and delivers it to the customer. Two days later, the check bounces but the customer is gone and cannot be located. Coverage does not apply.

c. The most paid for a single loss that occurs inside the named insured’s described premises or inside a bank or savings institution is the limit on the declarations for money and securities inside the premises. The most paid for a single loss that occurs at any other location or while in transit is the outside the premises limit on the declarations.

d. Regarding this Optional Coverage, premises refers to the interior area of the part of any building you use for your business operations.

e. All losses are treated as a single occurrence, no matter how many people are involved or whether it was a single act or multiple acts.

f. The named insured must maintain accurate records of all money and securities to verify loss amounts.

NOTE: This includes cash register tapes, computer reports, logs, and sales slips to verify a loss. Information that identifies a security’s issuer, serial number, date, and complete description should be at a different location than where the security is kept. All securities, especially negotiable securities, should be stored in a safe deposit box or other secure place.

3. Employee Dishonesty

a. The insurance company pays for direct loss of business personal property and money and securities due to dishonest acts its employees commit, whether they act alone or collude with others to do so. However, it does not include actions by the named insured or a partner. For coverage to apply, the act must be intended to cause the named insured to sustain a loss and to benefit the employee, other persons, or other organizations.

NOTE: The term employee as used in this optional coverage is broad. It is not defined within the Definition section but is defined later in this optional coverage.

b. There is no coverage for loss or damage:

· Due to dishonest acts by the named insured, its partners, or members, whether they act alone or collude to do so.

· For dishonest acts by managers or directors who act alone or who collude with others. Such acts are excluded when they are providing a service to the named insured or performing a service for others.

· For dishonest acts of employees, except as a. above provides, while in collusion, acting alone, or while they are performing for the named insured or performing services for others.

· If the only proof that a loss occurred is an inventory or a profit and loss calculation

· Losses an employee causes if both of the following apply:

o The employee committed a dishonest act or theft prior to the inception date of this policy

o Any of the named insured’s partners, members, managers, officers, directors, or trustees knew about that employee’s prior dishonest act or theft. This item does not apply if the individual who knew about the incident colluded with the employee.

c. The most paid in a single occurrence is the Employee Dishonesty Limit of Insurance on the declarations.

d. Loss or damage caused by one or more persons, or that involves a single act or a series of acts, is considered a single occurrence.

e. If the current policy and a previously terminated or cancelled policy that the same or an affiliated insurance company issued to the named insured both cover a loss, the amount paid is limited to the largest amount that any policy provided, regardless of the number of years it was in effect. Limits are not cumulative from year to year.

NOTE: This provision eliminates stacking limits from two or more policies due to a series of acts.

Example: Floyd’s Meat Market has the best steaks in town. Ernie is the head butcher and has taken steaks home with him at least once a week for over ten years but never tells Floyd. Ernie finally recognizes the error of his ways and confesses to Floyd. Floyd suddenly realizes that Ernie has stolen $6,000 worth of steaks over the past 10 years. His claim is for $60,000 since he has been with the same company the whole time. The loss is capped at $10,000 because the Employee Dishonesty Limit of Insurance is $10,000.

f. This coverage is cancelled with respect to a specific employee as soon as the named insured or one or more of its partners, members, managers, officers, or directors who are not in collusion with the employee become aware of dishonest acts the employee committed before or after he or she was hired.

Example: Floyd at Floyd’s Meat Market really likes Ernie and wants to keep him as an employee. The policy permits this, but coverage does not apply to Ernie if he commits any other dishonest acts. Even if Floyd did not report Ernie’s actions, Ernie is not covered going forward because Floyd knew about the situation.

g. Losses must occur during the policy period and be identified within one year after the policy ends.

h. If the named insured had a covered loss in a previous policy period but did not discover it until after its discovery period expired, the current policy covers the loss as long as there was no break in coverage from the previous policy and the current policy would have covered the loss or damage if it was in effect at the time of loss.

Example: The policy for John’s Pizza and Deli has been in force continuously since the business started ten years ago. The policy dates are 01/01 to 01/01 of each year, and it has always included employee dishonesty coverage. John hired Joanne as a cook two years ago. During the time she was employed, from 01/14/21 to 07/13/21, John noticed a strange pattern in the inventory. He couldn’t prove anything but suspected that Joanne was taking inventory. She ended her employment and was arrested in connection with theft at another pizza place in June 2022. She was a first-time offender and confessed to all previous crimes, including her thefts at John’s. John reported the crime as a claim to the company that provided coverage for the 01/01/21 to 01/01/22 policy period. The company denied the claim. He then forwarded the claim to the current carrier, and its coverage paid the claim submitted.

i. The insurance in paragraph h. above is limited to the lesser of the limits on the current policy or the limits on the policy in effect when the loss occurred.

j. This Optional Coverage defines employee. When used in employee dishonesty, an employee is any natural person:

· While working for you and during the 30 days following the end of their service, unless their termination is due to theft or another dishonest act by the employee.

· Who acts as a temporary substitute for a regular employee or one hired for certain short-term situations.

· Leased under a written agreement with a labor leasing business to perform certain duties. This does not include temporary employees.

· A former employee, partner, member, manager, director, or trustee the named insured hires as a consultant to provide services for the insured.

NOTE: (08 24 edition made a slight change to the list in this category).

· Who is a guest student or intern while working on their studies or duties.

· A manager, director, or trustee acting within their normal job responsibilities or serving on a committee elected or appointed by the board of directors or trustees. Their acts are specific and distinguished from general or broad directions.

Independent contractors are not employees.

ISO uses the term “natural person” in the definition above. A natural person means a living, breathing individual. Unnatural persons are entities, such as corporations, that have rights and obligations as defined by law.

NOTE: This definition of employee matches the same definition in the ISO crime coverage forms.

k. If either the insured or the company recovers property involved in the loss under this Optional Coverage, that party must notify the other one as soon as possible. That recovery will be applied to the loss as follows (net of expenses):

(1) First, the insured will be paid to satisfy the covered loss or damage that exceeds the amount paid under this Optional Coverage;

(2) Second, the company will be reimbursed for the loss settlement amount paid under this Optional Coverage;

(3) Third, the insuserd will be paid for any deductible that was applied.

(4) Fourth, the insured will be paid for loss or damage to such property not covered under this Optional Coverage.

Recoveries exclude any recovery from insurance, suretyship, reinsurance, security, or indemnity obtained for the benefit of the company. Also excluded are original securities after duplicates have been issued.

Note: Paragraph E.6. (Recovered Property Property Loss Condition) of Section I Property does not apply to this Optional Coverage.

4. Equipment Breakdown Protection Coverage

a. The insurance company pays for loss or damage directly caused by or that results from electrical failure or mechanical breakdown to covered property. Covered property is electrical, mechanical, or pressure machinery and equipment. This coverage does not include:

· Adjustments, alignments, calibration, modifying, cleaning, and other types of malfunctions.

· Any leakage from valves, fittings, shaft seals, gland packing, joints, or connections.

· Damage to vacuum or gas tubes or brushes.

· Operations of protective or safety devices.

b. A. Coverage 4. Limitations a. (1) and (2) do not apply to this Optional Coverage. This is because both relate to limitations to boilers and water heaters that do not apply because of this optional coverage.

c. B. Exclusions B. 2. a. Electrical Apparatus, B. 2. d. Steam Apparatus, and B. 2. l. (6) Mechanical Breakdown do not apply with respect to this Optional Coverage.

d. G. Optional Coverages 1. c. (5) that excludes coverage for mechanical breakdown of signs in G. Optional Coverages 1. Outdoor Signs does not apply with respect to this Optional Coverage.

e. Any dollar amount of deductible listed for this Optional Coverage in the declarations is subtracted from the total loss before the insurance company pays the remaining amount, up to the insurance limit. The property deductible applies if no separate deductible is specified.

f. The 72-hour time deductible in the definition of period of restoration that applies to business income can be changed for this coverage. This is done by entering a different time period in the declarations for business income and/or extra expense mechanical breakdown.

NOTE: Time deductibles expressed in a number of days mean that a day consists of 24 consecutive hours.

With respect to this Optional Coverage, any time deductible listed in the declarations replaces any other time deductible that would otherwise apply to business income coverage.

g. With respect to this Optional Coverage, the definition of computer is broadened to include computers that operate production equipment and machinery.

h. Any representative of the insurance company may suspend this Optional Coverage as it applies to any covered property found to be in or exposed to a dangerous condition. The suspension can be lifted and coverage reinstated once the reason for the suspension is resolved and no longer exists.

The insurance company suspends or reinstates this Optional Coverage by mailing or delivering written notice to either the named insured's last known address or the address where the affected equipment is located. The notice must include the date coverage is suspended or reinstated. The insurance company refunds premium on a pro rata basis if coverage is not reinstated. However, the suspension is effective even if there is a delay in offering or making a refund.

H. PROPERTY DEFINITIONS

Defined words are used throughout the coverage form. These are not mere dictionary definitions. Instead, they are often used to broaden or to restrict coverage. This means that they are very important to review when analyzing coverage. Fourteen terms are defined.

1. Computer

This includes any electronic equipment that can be programmed to store, retrieve, and process data, as well as all equipment needed to support its function. It does not include computers used to operate production machinery and equipment.

2. Counterfeit money

This is a copy made to imitate the genuine article with the intent to defraud and to be taken as real money.

3. Electronic Data

This is an all-encompassing term. It means information, facts, or programs on computer software. It also includes media, data, programs, and software wherever and however stored. There is no requirement that the named insured must own it or that it must be on the premises.

4. Fungi

This includes any and every type of fungus, as well as any by-products fungi produce or release. This includes mold, mildew, spores, scents, and by-products, but is not limited to just these.

5. Manager

This is a director of a limited liability company.

6. Member

This is an owner of a limited liability company. Members may also be managers.

7. Money

This is currency, coins, and bank notes in current use that have a face value. It also includes traveler’s checks, register checks, and money orders held for sale to the public.

8. Operations

These are the named insured’s business activities that take place at the described premises.

9. Period of restoration

This begins 72 hours after an occurrence of direct physical loss or damage for business income coverage, but immediately for extra expense coverage. It ends on the date the property should be repaired with reasonable speed and to a similar quality, or on the date business resumes at a new, permanent location. It does not include any extended period due to enforcement or compliance with any law, or for pollution assessment, testing, cleanup, or removal. It also does not apply to increases resulting from enforcing or complying with ordinances that regulate construction or require that pollutants be monitored, tested, or neutralized. It is not affected by the policy expiration date.

10. Pollutants

These are any solid, liquid, gaseous, or thermal irritants or contaminants. They include smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes products to be recycled, reconditioned, or reclaimed.

11. Securities

These are negotiable and non-negotiable instruments or contracts that represent money or other property. This includes tokens, tickets, revenue, and other stamps, or unused postage in a meter. It also includes evidences of debt such as charge slips used in charge cards the named insured did not issue. It does not include money itself.

12. Specified causes of loss (08 24 edition)

This means only the following causes of loss: Fire, lightning, explosion, windstorm, hail, smoke, aircraft, vehicles, riot, civil commotion, vandalism, leakage from fire extinguishing equipment, volcanic action, and weight of snow, ice, or sleet. The following are also considered specified causes of loss:

a. Sinkhole collapse is the sudden sinking or collapse of land into spaces created by water acting on dolomite or limestone. The coverage provided does not include the cost to fill sinkholes or any sinking or collapse into man-made underground spaces.

b. Damage that falling objects causes is covered. However, coverage does not apply to loss or damage to personal property left in the open. It also does not apply to loss or damage to the interior of a building or to personal property inside the building unless the falling object first damages the building’s roof or an outer wall.

Example: The bookshelf at Maury’s Book Store falls and lands on top of the reading chairs. There is no coverage for the bookshelf, the books on the bookshelf, or the reading chair.

k. Water damage is accidental discharge or leakage of either of the following:

· Water or steam, but only when caused by the plumbing, the heating, ventilating, or air conditioning system, or an appliance on the described premises, cracking or breaking apart. The system must contain water or steam. However, this coverage does not apply to sump systems.

· Water or waterborne material, but only when caused by a water or sewer pipe located off premises that cracks or breaks apart caused by wear and tear. The water or sewer pipe must be situated outside the described premises and part of a potable water supply or sanitary sewer system managed by a public or private utility provider, authorized by the state or local government where the premises are located.

This definition is limited by conditions in the Water Exclusion. Any situation the Water Exclusion excludes is not considered water damage. Two examples are provided as to when situations may appear to be water damage but are not because the Water Exclusion excludes them.

ISO Example 1: Weather-induced flooding causes a pipe to break apart, causing water damage. There is no coverage, even if wear and tear contributed to the pipe breaking, because flooding caused it to break.

Example: The water on the Wabash River crests at 15 feet above flood stage. Krimp’s Crumpets’ basement is flooded. The impact of the flood breaks 75-year-old pipes, resulting in water damage to upper areas the flood did not reach. There is no coverage because the flood caused the pipes to break.

ISO Example 2: A pipe breaks because of wear and tear. Damage that occurs after that break due to weather-induced flooding, or damage that worsens because of the flooding, is excluded.

Example: The water on the Wabash River crests at 10 feet above flood stage. Liz noticed a leak in her bathroom earlier in the day and contacted a plumber to correct it. As a vigilant store owner, she turned off the water to the pipe in order to prevent damage. The flood entered her basement, and the impact of the water sheared off the cutoff valve. The water damage that occurred when the water restarted in the bathroom is excluded because the weather-induced flood aggravated it.

13. Stock

This is goods held in storage or for sale, raw material, goods-in-process, or finished goods. It also includes their packing and shipping supplies.

14. Valuable papers and records

These are inscribed, printed, or written documents, manuscripts, and records. It also includes abstracts, books, deeds, drawings, films, maps, or mortgages. It does not include money and securities.

SECTION II–LIABILITY

Highlights of the differences between the ISO Commercial General Liability Coverage Form and the Businessowners Coverage Form Liability Coverage

This section of the ISO Businessowners Coverage Form is similar to the ISO Commercial General Liability (CGL) Coverage Form. However, there are some important differences.

The Businessowners Coverage Form's business liability coverage is written only on an occurrence basis. Claims-made coverage is not currently available. If claims-made coverage is needed, the CG 00 02–Commercial General Liability Coverage Form (Claims-Made Version) should be used.
The IL 00 21–Nuclear Energy Liability Exclusion Endorsement (Broad Form) is attached to the CGL Coverage Form. This endorsement is not needed with the Businessowners Coverage Form because its language is incorporated into that form.
The CGL Coverage Form is organized into three distinct coverage parts. Coverage A covers Bodily Injury and Property Damage. Coverage B covers Personal and Advertising Injury, and Coverage C covers Medical Expenses. The Businessowners Coverage Form includes these coverages in Section II–Liability.
Each coverage section in the CGL Coverage Form has its own set of exclusions. The Businessowners Coverage Form has one comprehensive set of exclusions that apply to the entire business liability section.
The Businessowners Coverage Form's liability section specifically excludes professional liability. The CGL Coverage Form does not have a similar exclusion, but any of a number of professional liability exclusions may be attached.
The Businessowners Coverage Form does not have the CGL provision for newly formed or acquired organizations.
The Businessowners Coverage Form includes a condition regarding financial responsibility laws that apply to automobiles. The CGL Coverage Form does not include a similar or corresponding condition.

A. COVERAGES

1. Business Liability

a. The insurance company pays damages to third parties due to covered occurrences of bodily injury, property damage, and personal and advertising injury. This is subject to the limits of insurance and the named insured's legal obligation to pay. The amount the insurance company pays for damages is limited as described in Section II–Liability D. Liability and Medical Expenses Limits of Insurance.

The insurance company has the right and duty to defend against all suits brought against the named insured that are covered by the insurance. The insurance company controls all decisions on the occurrence and offenses, claims, or suits it investigates, defends, and/or settles. Its responsibility to defend ends when claims payments or settlements use up the limit of insurance that applies to a given loss.

NOTE: Defense coverage is for the insured's benefit. There is no duty to defend against any suit seeking damages the insurance does not cover. This wording clarifies the intent to defend only claims or suits covered by the insurance and should eliminate any confusion or ambiguity regarding when defense is available.

Example: The Businessowners Coverage Form provides liability coverage on Anton's Army-Navy Store with a $1,000,000 limit of insurance. Anton's negligence causes an explosion that injures a number of people and damages several other premises. Each injured person and property owner files a separate claim for injury or damage. The insurance company settles with the injured persons. Once the $1,000,000 limit is completely exhausted, it is no longer obligated to defend the remaining lawsuits.

The insurance company is not obligated to provide or perform any other acts or services, or to pay any other expenses or sums, except those under Coverage Extension–Supplementary Payments.

b. Insurance applies:

(1) To only bodily injury and property damage:

(a) Caused by an occurrence that takes place in the coverage territory

Example: Fred's Finer Foreign Frillery has an operation in Hong Kong, and its products are both manufactured and distributed from there. These products are excluded based on the definition of coverage territory. On the other hand, products manufactured in the United States but sold in Hong Kong fall within the coverage territory, as do products manufactured in Hong Kong and sold in the United States.

(b) That takes place during the policy period

NOTE: The occurrence resulting in bodily injury or property damage may occur at any time. Only bodily injury or property damage occurring within the policy period is covered.

Example: A truck ran over a shallow water pipe on Melvin’s premises. The pipe leaked for over a year, and no one noticed until Sally, a four-year-old girl, was on the premises and fell into a hole the leak had caused on Melvin’s property. After Sally was rescued, her parents sued Melvin for her injuries. Coverage applied under the policy for the policy period in which Sally was injured. Coverage did not apply to the policy for the policy period in which the initial pipe break occurred because no bodily injury or property damage occurred at that time.

(c) If the named insured or anyone who becomes an insured because of the type of business entity is aware of bodily injury or property damage occurring fully or partially before the current policy period, the current coverage does not cover that event. Additionally, any continuation, change, or resumption of that injury or damage during the current policy period is considered known before the policy began. This also applies if an employee authorized by the named insured to report claims is aware of bodily injury or property damage that occurred during the previous policy period.

(2) Insurance applies to personal and advertising injury caused by offenses related to the business committed in the coverage territory during the policy period.

NOTE: The word committed replaces the words occurred or occurrence. This means that this coverage is much different than bodily injury and property damage coverage. Occurrence has a long, controversial history, while committed is much clearer. Rather than defining the term, the Businessowners Coverage Form relies on its plain meaning.

c. Bodily injury and property damage taking place during the current policy period are covered. In addition, coverage applies to bodily injury and property damage that occurred in prior policy periods that were unknown to the named insured, to anyone who became an insured because of the type of business entity, or to an employee authorized to provide notice. The Businessowners Coverage Form also covers any continuation, change, or resumption of bodily injury or property damage after the policy period ends.

d. The date of knowledge of bodily injury or property damage is the earliest that the named insured, anyone who became an insured because of the type of business entity, or an employee authorized to provide notice did any of the following:

· Reports any part of the occurrence or claim to the insurance company.

· Receives a written or verbal demand or claim for damages.

· Becomes aware in any other way that bodily injury or property damage has begun or is beginning to occur.

e. Bodily injury damages include damages claimed for care, loss of services, or death. All must result from the bodily injury, but they can occur at any time.

Example: Prather was injured when he fell over a display on a sidewalk in front of Robinson’s Books. He was hospitalized and suffered from respiratory failure during surgery. He survived but entered rehabilitation and then a nursing home before dying five years after the initial fall. The care, loss of services, and death are all considered bodily injury damages from the fall.

f. Coverage Extension–Supplementary Payments

(1) These payments apply to any claim or suit the insurance company defends, investigates, or settles. They do not reduce the limit of insurance.

(a) All expenses the insurance company incurs.

(b) Costs of bail bonds required because of accidents or violations of traffic laws that result from use of any vehicle that bodily injury liability covers. Payment is limited to $250. The insurance company is not required to furnish these bonds.

(c) Costs of bonds required in order to release attachments. Payment is limited to the amount of the bond within the limit of insurance. The insured is responsible for the costs in excess of the bond amount and the limit of insurance. The insurance company is not required to provide these bonds.

(d) Reasonable expenses the insured incurs to assist the insurance company in investigating or defending claims or suits. However, they are paid only when the insurance company requests the insured’s assistance. This includes actual loss of earnings up to $250 a day for time away from work.

(e) A suit's court costs that are the insured's responsibility. This does not include attorney fees or expenses that are the insured's responsibility.

NOTE: This restriction can be very costly to the insured, especially when a court assesses a proceeding’s costs and expenses against the negligent party.

(f) Prejudgment interest awarded against the insured for the part of the judgment the insurance company pays. However, once the insurance company offers to pay the limit of insurance, no further prejudgment interest will be paid.

(g) Interest on the full amount of a judgment that accrues after it is entered but before the part within the limit of insurance is paid.

None of the payments described above reduce the limit of insurance.

(2) An insured may agree to reimburse another party (indemnitee) for damages when both are sued. One example is when the insured asks that an entity be added as an additional insured because of a contractual relationship. When a suit is presented and the insurance company defends the insured, it also defends the indemnitee but only when all of the following apply:

(a) The damages the suit seeks are for liability that has been assumed in the contract between the insured and the indemnitee.

(b) The insurance this coverage form provides applies to that assumed liability.

(c) In the same contract under which the insured agreed to assume liability, the insured also assumed the obligation to defend the indemnitee.

(d) There is no apparent conflict of interest between the insured's or the indemnitee's interests based on the allegations made in the suit and other information the insurance company obtains.

(e) Both parties ask the insurance company to conduct and control the indemnitee's defense. Both parties agree to mutual defense, and the same counsel will conduct both defenses.

(f) The indemnitee agrees in writing to:

· Cooperate with the insurance company as it investigates, defends, or settles the suit.

· Immediately send the insurance company copies of any and all demands, notices, summonses, or legal papers it receives related to the suit.

· Notify any other insurance company that may be available to provide coverage for the indemnitee.

· Work with the insurance company to coordinate any other available insurance coverage.

The indemnitee is also required to provide written authorization for the insurance company to obtain relevant records and information and to conduct and control the indemnitee's defense in the suit.

NOTE: These indemnitee obligations are similar to the conditions that apply to the named insured. However, the indemnitee must agree to them separately, as the indemnitee is not a party to the policy.

(3) Attorney fees and all litigation expenses are paid, without reducing the limits of insurance, when all of the above requirements are met.

The insurance company does not have an obligation to defend after the limit of insurance that applies is used up to pay judgments or settlements.

In addition, the insurance company is not obligated to defend the indemnitee if it fails to meet the conditions in (f) above.

NOTE: This last sentence goes beyond just Supplementary Payments. All defense ends when the indemnitee does not cooperate. This is logical because the insurance company cannot defend any party that does not cooperate.

2. Medical Expenses

a. The insurance company pays medical expenses related to a covered bodily injury accident that occurs on owned or rented premises or on ways adjacent to them. It also pays if an injury results from the named insured’s operations. The accident must occur during the policy period and in the coverage territory. The expenses must be incurred and then reported to the insurance company within one year from the date of loss. The injured party must submit to examinations by physicians the insurance company selects as often as reasonably necessary. The insurance company pays the physicians’ costs.

b. Payments are made without regard to fault, but all expenses must be reasonable. Medical expenses include first aid administered at the time of the accident; necessary medical, surgical, x-ray, and dental services, including prosthetic devices; and ambulance, hospital, and professional nursing services. Funeral expenses are also covered.

B. EXCLUSIONS

1. Exclusions that apply to Business Liability Coverage

a. Expected or Intended Injury

Bodily injury and property damage that the insured expects or intends is excluded. However, coverage applies to bodily injury that results from using reasonable force to protect persons or property.

NOTE: This exclusion protects insurers from paying damages for injuries or damage the insured intentionally causes. It serves the public interest by ensuring the insured does not use the coverage for personal gain, such as theft, or to injure competitors, take revenge, or cause any other intentional harm. However, this wording is frequently challenged and clarified in court cases across the country. These challenges typically seek coverage for intentional acts that result in unintended consequences. In other words, the insured's action produces an unexpected and unintended result.

Example: Paula’s Pancake Heaven is insured under the Businessowners Coverage Form. Paula has had it with a homeless man who hangs around the front of her store and frightens her customers. Paula asks the man to leave, then shoves him, and is shocked to see him lose his balance, fall, strike his head first on a mailbox and then against the concrete curb. The man sustains serious injuries and sues Paula. Paula's insurance company denies coverage. While she never meant to hurt the man, the injuries he sustained were the result of her little (but intentional) shove.

b. Contractual Liability

Coverage does not apply to bodily injury or property damage that the insured is obligated to pay because of liability it assumed in a contract or agreement. However, this exclusion does not apply to:

(1) Liability for damages that would exist even without a contract or agreement.

(2) Liability for damages that are assumed in a contract or agreement that qualifies as an insured contract, but only if the injury or damage occurred after the contract or agreement was executed. With respect to liability the insured assumes in an insured contract, reasonable attorney fees and necessary litigation expenses of parties other than an insured are treated as damages because of bodily injury or property damage as long as:

(a) The same insured contract providing liability to the party also applies to its defense or for the cost of its defense.

(b) The attorney fees and litigation expenses are to defend the involved party against alternative resolution or civil proceedings for damages that this insurance allegedly covers.

NOTE: This exclusion both provides coverage and excludes coverage and must be reviewed carefully to completely understand it. One important point is that all reasonable expenses incurred in defending a suit filed under this contractual obligation are considered damages. This means that these defense costs are included in the limit of insurance, not outside it, as supplementary payments provide, and every dollar spent on defense reduces the amount available to pay for the actual injuries or damages. The cost to defend may be included in the supplementary payments if the terms of the indemnitee section of Supplementary Payments are met.

Example: Mary and Bob entered into a lease agreement. In one part of it, Bob agreed to assume Mary’s liability, but the lease does not address assuming defense costs in case of litigation. During the lease period, the furnace exploded and seriously injured two people. Mary owned the furnace, but because of the contract, Bob’s insurer responded up to its limit of insurance. Once the defense costs and the injury claims exhausted the insurance limit, Mary (or her insurance company) became responsible for the remainder. If the contract had been written to include defense costs, they could have been paid under f. Coverage Extension–Supplementary Payments.

c. Liquor Liability

There is no coverage if an insured is liable for bodily injury or property damage because of any of the following:

(1) Causing or contributing to any person's intoxication.

(2) Furnishing alcoholic beverages to a person who was already under the influence or to a person who was under the legal drinking age.

(3) Statutes, laws, ordinances, or regulations that address selling, distributing, using, or giving alcoholic beverages.

Any of the actions described above may result in an occurrence. In that case, there is also no coverage if any of the following claims related to that occurrence are brought against the insured:

(a) Supervising, hiring, employing, monitoring, or training others.

Example: Tina applies for a bartending position at Tom’s Tall Ones and tells Tom that she has already taken TIPS training. Tom immediately hires her and does not schedule TIPS training. Tina serves Terry beers even though he is visibly intoxicated. Terry leaves, starts his car, drives off, and strikes a pedestrian. The pedestrian sues him and Tom’s Tall Ones. The argument is that Tom is negligent because he did not properly hire and train Tina, and her lack of TIPS training is proof of that negligence. Such negligence is excluded because of this addition to the liquor exclusion.

(b) Noting that a person is intoxicated and either providing transportation to that person or failing to provide such transportation.

Example: Tom’s Tall Ones uses a local taxi service to provide rides home for intoxicated customers. Tanya takes advantage of this service but is injured when the driver turns the wrong way on a one-way street and strikes an oncoming vehicle. Tanya sues Tom’s Tall Ones because it hired a cut-rate taxi service that did not verify licenses or prior violations.

This exclusion does not apply if the named insured is not in the business of manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.

Examples:

The insured is a medical supplies distributor. It holds a company-sponsored Christmas party and serves alcoholic beverages at no charge.
The owner of a printing business takes a client to lunch that includes a bottle of wine.

Coverage applies in both examples if the client or guest is injured as a result of consuming alcohol.

On the other hand, consider this:

Example: The insured sponsored a fundraiser by hosting a Casino Night that included gambling devices. Food and alcoholic beverages were served for a charge. The insured did not obtain the necessary permits and licenses. A patron who was served alcohol was injured on his way home. Coverage applied if the patron sued, as long as the insured was not in the liquor business.

Note: The named insured may not serve alcoholic beverages but may allow others to bring such beverages onto its premises. In such a case, this exclusion does not apply even if a license is required to operate in this manner. It is not considered a liquor-related business, even if it charges a fee to consume the beverages on the premises.

Example: Bub’s Bodacious Bar-B-Q is a ribs joint and pool parlor. Bub cannot obtain a liquor license due to past indiscretions, but his patrons demand the right to drink on the premises. Bub reaches a compromise. He will sell “set-ups,” and his patrons can bring any alcohol they like to add. There is also a refrigerator on the premises where regulars keep their beer. Bub’s Bodacious Bar-B-Q is not subject to the liquor exclusion because of this new language.

NOTE: The Businessowners Coverage Form can use three different endorsements to provide liquor liability coverage.

· BP 04 88–Liquor Liability completely deletes this exclusion.

· BP 04 89–Liquor Liability Coverage is similar to the liquor liability policy and has its own common cause limit.

· BP 04 19–Amendment–Liquor Liability Exclusion–Exception for Scheduled Activities provides coverage for scheduled activities.

Another way to cover an insured's liquor liability exposure is through separate Liquor Liability Coverage. The two ISO Liquor Liability Coverage Forms are CG 00 33–Liquor Liability Coverage Form (Occurrence Basis) and CG 00 34–Liquor Liability Coverage Form (Claims-Made Basis).

Related Court Cases:

Liquor Liability Exclusion Held Applicable to Nonprofit VFW

Liquor Liability Suit Based on Failure to Restrain Patron Did Not Circumvent Exclusion

CGL Policy's Liquor Exclusion Inapplicable to Sales during Festival

Can Insurer Duck Liability for Drunk-driving Deaths?

d. Workers Compensation and Similar Laws

This insurance does not apply to any requirement or obligation that the insured must assume due to any workers compensation, disability benefits, unemployment compensation, or similar law.

NOTE: This exclusion and the next one are intended to prevent double indemnification for injury that only workers compensation and/or employers liability policies should cover.

e. Employers Liability

Bodily injury sustained by an employee of the insured in the course of his or her employment or while performing duties related to the insured's business is excluded. This exclusion applies regardless of the insured’s liability as an employer or in any other capacity, or its obligation to repay others who must pay damages because of the injury. This exclusion applies to both the employee’s claims as well as claims from the employee’s spouse, children, parents, and siblings as a consequence of the bodily injury.

This exclusion does not apply to liability the insured assumes under an insured contract.

NOTES: This clarification is especially important because of the widespread practice of outsourcing work to a variety of contractors, subcontractors, independent contractors, and leased employees and because it can be difficult to determine who is responsible.

Note: It is important to be aware of monopolistic states that provide or require workers compensation coverage but that do not require employers' liability coverage or make it available. This can create a significant gap in coverage. In the past, many insurance companies in these states developed their own endorsements and programs to add employers' liability coverage to the Businessowners Coverage Form. ISO has also developed endorsements that address this issue.

f. Pollution

NOTE: This is ISO's attempt to make this exclusion as comprehensive as possible by excluding virtually every potential pollution occurrence. There is no reference to pollution being accidental or gradual. Simply stated, all pollution events are excluded. However, there are some exceptions, even as comprehensive as it is.

(1) Coverage does not apply to bodily injury or property damage when discharge, dispersal, seepage, migration, release, or escape of pollutants known to have happened, is claimed to have happened, or is suspected or threatened to happen.

(a) At or from any premises, site, or location now or at any time that any insured ever owned, occupied, rented, or had loaned to it, except:

· Bodily injury that is sustained due to fumes, vapor, smoke, or soot from building heating, cooling, or humidifying equipment or non-industrial hot water heaters. This exception applies only if the injury is sustained inside a building.

· Bodily injury or property damage for which a contractor may be liable, but only if the liability results from a contractual relationship between the premises’ owner and the contractor. Neither the contractor nor any other insured on the policy, except the premises owner additional insured, can have ever owned, rented, or occupied the premises. The owner must be named as an additional insured on the contractor’s policy for the contractor’s ongoing operations on the owner’s premises.

· Bodily injury or property damage due to heat, smoke, or fumes from a hostile fire.

(b) At or from any premises, site, or location that any insured or others now or at any time ever used to handle, store, dispose of, process, or treat waste.

(c) That were transported, handled, stored, treated, disposed of, or processed as waste at any time by or for any insured or any other party for whom the insured is or may be legally responsible.

(d) At any place where any insured or a contractor working on its behalf performs operations, but only if the pollutants are brought on site in connection with them. However, coverage does apply if:

· The release of pollutants is due to fuel, lubricants, or other fluids needed to operate mobile equipment escaping, provided the escape is from the part of the vehicle intended to hold, store, or receive them. The escape, release, or discharge must be unintentional.

Example: A bobcat carrying a barrel of oil flips. Oil from the bobcat leaks out, and the barrel ruptures, discharging its contents. Bodily injury or property damage from oil that was part of the bobcat is covered. Bodily injury or property damage from the oil discharged from the barrel is not covered.

· The release of pollutants is due to gases, fumes, or vapors from materials the insured or its contractors brought into a building. The materials must be in connection with operations the insured or its contractors are to perform on or in the building.

Example: Perfection Painting is hired to paint a hotel. The paint fumes in a room trigger the smoke alarm. A hotel guest trips going down the fire escape and is injured. She sues the hotel and Perfection for her injuries. Coverage applies because of this exception to the exclusion.

· The release of pollutants is due to a hostile fire.

(e) Anywhere the insured or contractors working on the insured’s behalf are performing operations, if they involve anything to determine or treat the effects of pollutants.

(2) Any judgments, suits, awards, fines, or penalties that result from Environmental Protection Act (EPA) enforcement or on its behalf are also excluded. To clarify this intent, it states that insurance does not apply to any loss, cost, or expense that results from any request, demand, or order that requires the insured or any other party to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any way respond to or assess the effects of pollutants. It further states that insurance does not apply to any claim or suit brought by a governmental authority or on its behalf for damages because of any of these circumstances. However, this paragraph does not apply to any property damage liability the insured has except for the governmental request.

NOTE: There are five pollution-related endorsements that can be used with the Businessowners Coverage Form:

· BP 04 90–Pollution Exclusion–Limited Exception for a Short-Term Pollution Event

· BP 04 91–Pollution Exclusion–Limited Exception for Designated Pollutant(s)

· BP 04 92–Total Pollution Exclusion

· BP 04 93–Total Pollution Exclusion with a Building Heating Equipment Exception and a Hostile Fire Exception

· BP 04 94–Limited Pollution Liability Extension

An insured may have a pollution liability exposure because it owns, operates, uses, or maintains underground storage tanks, such as a retail gasoline station. A separate Underground Storage Tank policy may be issued to cover these exposures.

g. Aircraft, Auto, or Watercraft

There is no coverage for bodily injury or property damage resulting from owning, maintaining, using, or entrusting aircraft, automobiles, or watercraft to others. This exclusion applies to any aircraft, auto, or watercraft that the insured owns, operates, rents, or leases, including loading and unloading.

NOTE: Airplanes, drones, hang gliders, hot air balloons, ultra-lights, or helicopters are all types of aircraft that are excluded.

Example: The owner of Mike’s Marine & Sauna also owns a sailboat he uses to promote the store. It has the store’s logo, telephone number, and website prominently displayed on the main sail. Mike rents it to some of his friends to use, but it is not maintained properly, and his friends are injured when it sinks. This loss is excluded.

This exclusion applies even if claims allege negligence or other wrongdoing in supervising, hiring, employing, training, or monitoring others if the occurrence involves owning, maintaining, using, or entrusting aircraft, auto, or watercraft to others.

This exclusion has a few exceptions. It does not apply to:

(1) Watercraft on shore at the named insured's owned or rented premises

Example: Teenagers use a boat stored behind a warehouse to meet at night. One is injured trying to jump from the boat, and the parents sue the warehouse owner for having an attractive nuisance exposure. Coverage applies.

(2) Non-owned watercraft less than 51 feet long if it is not used to carry persons or property for a charge

(3) Parking an auto on the ways next to premises you own or rent, provided the auto is not owned by, rented by, or loaned to you or the insured.

Example: Harriett has five parking spaces next to her dress shop. When she has a fashion show on the premises, she has an employee act as a valet and park vehicles in her lot, on the street, and in the school parking lot on the next block. Injuries and damages due to the street parking next to her shop and in her parking lot are covered, but those at the school are not. In addition, there is no coverage if the employee parks Harriet’s car and causes injury and damage.

(4) Liability assumed under an insured contract that relates to owning, maintaining, or using aircraft or watercraft.

Example: An employee is injured during a trip out of town. Lionel charters a plane to bring him back to a local hospital. The charter operator requires a hold harmless agreement before he takes off to bring the employee back. Coverage applies if a covered loss occurs.

(5) Bodily injury or property damage from:

· Operating machinery or equipment attached to or that is part of a land vehicle that qualifies as mobile equipment except that it is subject to a compulsory, financial responsibility, or other motor vehicle insurance law where it is licensed or principally garaged.

· Operating cherry pickers or similar devices mounted on automobile or truck chasses and used to raise or lower workers or equipment. This also includes operating property such as air compressors, pumps, and generators, including spraying, welding, building-cleaning, geophysical-exploration, lighting, and well-servicing equipment.

Example: A pickup truck is modified to carry well-drilling equipment. The equipment accidentally strikes and damages the side of a building while being maneuvered into position over a well. Coverage applies to the damage to the building.

NOTE: There are many different liability policies available to cover the exposures of insureds that own, rent, lease, charter, or operate aircraft, autos, or watercraft. BP 04 04–Hired Auto and Non-Owned Auto Liability is available to modify the auto portion of this exclusion. BP 15 11–Exclusion – Unmanned Aircraft and BP 15 12–Limited Coverage for Designated Unmanned Aircraft should be reviewed to determine if they are needed for insureds using drones.

CG 24 12–Boats is used with the ISO CGL coverage form to insure boats. There is no corresponding Businessowners Program endorsement at this time. Consider writing the exposure under the ISO CGL Coverage Form if liability coverage on boats is desired.

Related Articles:

CA 00 01–Business Auto Coverage Form Analysis

Aircraft Insurance Coverage Analysis

h. Mobile Equipment

This insurance does not apply to bodily injury or property damage resulting from the transport of mobile equipment by an auto that any insured owns, operates, rents, or has loaned to it.

Bodily injury or property damage caused by mobile equipment that is used in, while practicing for, or being prepared for any pre-arranged racing, speed, demolition, or stunt activity is also excluded.

Example: A plumbing contractor hauls a backhoe to a job site on a trailer attached to an owned truck. The trailer hitch snaps, the trailer overturns, and the vehicles following behind the trailer are damaged. The damage to those vehicles is excluded.

NOTE: The auto liability coverage form or policy that insures the towing vehicle should respond to any liability for a trailer being towed or for mobile equipment that the vehicle transports.

i. War

There is no coverage for bodily injury, property damage, or personal or advertising injury that results from war, undeclared civil war, or warlike action by a military force. This includes any actions by a government or sovereign that uses military personnel or other agents. Insurrection, rebellion, revolution, usurped power, or actions a government takes to defend against or hinder any of these are also excluded.

Example: Arnie's Air Works manufactures guided missiles. Country X purchases them and requires a purchase agreement from Arnie that guarantees the missile's accuracy within one meter. When Country X invades Country Y, the missiles completely miss their targets and cause extensive damage to Country Z. Coverage does not apply to this situation.

NOTE: Various terrorism endorsements affect this exclusion. Any coverage impact of this provision is substantially affected by either a full or limited exclusion of terrorism losses.

Related Article: Terrorism and Insurance

j. Professional Services

Bodily injury, property damage, or personal and advertising injury due to professional services that are provided or intentionally withheld are excluded. Nine specific professional services are listed, but the exclusion is not limited to just them.

(1) Any legal, accounting, or advertising service.

(2) Any preparation or approval, or failure to prepare or approve, maps, drawings, opinions, reports, surveys, change orders, designs, or specifications.

(3) Any supervisory, inspection, or engineering service.

(4) Any service, treatment, advice, or instruction of a medical, surgical, dental, x-ray, or nursing nature

(5) Any health or therapeutic service, treatment, advice, or instruction.

(6) Any service, advice, or instruction to enhance skin appearance, to remove or replace hair, or for personal grooming.

(7) Any optometric, optical, or hearing-aid service. This includes related prescribing, preparing, fitting, demonstrating, or distributing ophthalmic lenses, similar products, or hearing-aid devices.

(8) Any body-piercing service.

(9) Any pharmacy practice service.

This exclusion applies if the occurrence that caused the bodily injury or property damage, or the offense that caused the personal and advertising injury, involved performing or failure to perform any professional service. This includes claims alleging an insured's negligence or improper supervision, hiring, employment, training, or monitoring of others.

Example: The Bishop family sues The Best Drug Store. They contend that their father’s death was due to the interaction of two different drugs and that the death would not have occurred if Best Drug had properly monitored its pharmacists and discovered the interaction issue. There is no coverage because of this exclusion.

NOTE: Certain insurance companies offer professional liability supplements or coverage endorsements to their separate individual Businessowners Coverage Forms to insure various professional liability exposures. Each should be contacted to determine the coverages provided. This analysis does not cover insurance company-specific endorsements and coverage forms.

k. Damage to Property

NOTE: This exclusion combines all property damage-specific exclusions into a single exclusion. The goal is to clarify that this coverage is not first-party coverage for the named insured's benefit. In addition, this coverage is not intended to be a substitute for good-quality workmanship.

This insurance does not apply to property damage to:

(1) Property that the named insured owns, occupies, or rents. This exclusion includes the costs or expenses the named insured or others incur to repair, replace, enhance, restore, or maintain such property for any reason. The costs and expenses are excluded even if their goal is to prevent injury and/or damage.

(2) Premises that the named insured sells, gives away, or abandons, but only when the property damage arises out of any part of such premises.

(3) Property that is loaned to the named insured.

(4) Personal property in the insured’s care, custody, or control.

(5) That part of real property where the named insured or contractors or subcontractors working on its behalf perform operations. However, this applies only if the property damage arises from those operations.

(6) That part of any property that must be restored, repaired, or replaced because the named insured’s work was done incorrectly

There are four important exceptions to these exclusions:

· Exclusions (1), (3), and (4) do not apply to property damage (other than by fire) to a premises and its contents that the named insured rents for seven days or less. A separate Limit of Insurance applies to Section II–Liability D. Liability and Medical Expenses Limit of Insurance 3. Damage to Premises Rented to You.

· Exclusion (2) does not apply if the premises is the named insured’s work and the named insured never occupied or rented it or held it for rental.

NOTE: This is specifically and critically important to homebuilders. Because they build and sell homes, if this exclusion were to stand, there would be no property damage coverage once the home was sold. However, this exclusion does apply to any home that the named insured used as a model home or office.

· Exclusions (3), (4), (5), and (6) do not apply to sidetrack agreements.

NOTE: A sidetrack agreement is between a premises or location's owner and a railroad and involves a railroad transfer or access track located on the named insured's premises. The railroad allows the property owner to use the sidetrack if the railroad is guaranteed access to the sidetrack and there are certain agreed-on conditions of property maintenance. It may also contain specific hold-harmless agreements and conditions between the railroad and the property owner.

Example: Adolph's Appliances distributes large appliances. A railroad track is adjacent to its premises. Adolph believes sales would increase, expenses would drop, and overall growth would occur if the railroad constructed a sidetrack into its warehousing area. This would allow Adolph’s to load and unload directly into rail cars and save shipping costs and truck transportation time. The railroad agrees to the arrangement, subject to it having 24-hour access to the sidetrack and Adolph's guarantee that the track will be protected from vehicle damage, vehicle access will be limited, and Adolph will hold the railroad harmless for any collision or injury that occurs during loading and unloading.

NOTE: The Businessowners Coverage Form includes railroad sidetrack agreements as covered contracts.

· Exclusion (6) does not apply to property damage that the products/completed operations hazard includes.

l. Damage to Your Product

Coverage does not apply to property damage to the named insured’s product caused by the product or any part of it.

Example: Frankie prepares elaborate wedding cakes. His team works on one for five days. The cake is delivered to the wedding reception area and is set up. The lights and fountain built into the cake are switched on. The cake is beautiful, then sparks begin to fly, destroying the cake and setting the tablecloth on fire. The fire spreads to five tables and causes considerable smoke damage that ruins most of the food. All the fire and smoke damage is covered. However, the damage to the cake is excluded because it is Frankie’s product.

m. Damage to Your Work

Property damage to the named insured’s work or any part of it that the products/completed operations hazard insures is excluded. An exception applies to work subcontractors perform on the named insured's behalf.

Example: Elvira repairs electrical wiring in a building. The wiring is done incorrectly and shorts out. There is no coverage for the cost to replace the damaged wiring. However, if Steve's Subcontracting works on Elvira's behalf and incorrectly installed that wiring that shorted out, Elvira’s insurance would pay the loss and then subrogate against Steve’s Subcontracting.

n. Damage to Impaired Property or Property Not Physically Injured

There is no coverage for property damage when there is no physical damage to it, but the property is impaired because of a defect, inadequacy, or dangerous condition in the named insured’s product or work. There is also no coverage if a delay or failure by the named insured or its representative to perform the terms of its contract or agreement causes such property damage. This exclusion does not apply when other property cannot be used because a sudden or accidental injury to either the named insured’s product or work occurs after the product or work is put to its intended use.

Examples:

Eli's Electrical manufactures switches for a variety of products that turn them on and off. Eli sells a batch of defective switches to other manufacturers to incorporate into their products. However, they do not operate correctly after the defective switches are installed in them. As a result, they are impaired by Eli's defective product but were otherwise undamaged. This loss is excluded.
Artie agrees to complete the artwork for Charlie's brochure by a specific date. The date comes and goes, and the artwork is not done. There is no physical injury to any property, but Charlie loses potential income because the brochure could not be distributed. This loss is also excluded.

NOTE: There is no standard ISO endorsement currently available to buy back this coverage or delete this exclusion.

o. Recall of Products, Work, or Impaired Property

Damages claimed for loss, costs, or expenses incurred by the named insured or others when its product, work, or impaired property is withdrawn or recalled are excluded. This includes loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal, or disposal. This exclusion applies when the recall is due to a known or suspected dangerous defect, deficiency, inadequacy, or condition in the product.

NOTE: There are no established criteria or protocols that address the party ordering the recall or withdrawal, and there is currently no standard ISO endorsement available to buy back this coverage or delete this exclusion.

p. Personal and Advertising Injury

There is no coverage for personal and advertising injury:

(1) That the insured causes or directs, knowing that it will violate the rights of another and inflict personal and advertising injury.

(2) That arises from any oral or written publication the insured does or has done at its direction, knowing it is false.

(3) That arises from any oral or written publication first published before the policy period began.

Example: An incorrect story was first published on December 29. The policy period began on January 1. There is no coverage.

(4) That the insured assumed in a contract or agreement, unless that liability existed without a contract or agreement.

Example: A major male sports figure agrees to an interview with Ted's Tabloid that will be published. The sports figure insists on a written agreement where Ted promises not to slander or libel him. This liability exists without a contract or agreement.

(5) That arises from a breach of contract, other than misappropriating advertising ideas of others under an implied contract.

Example: Riley's Camera, Video, & One Hour Photo contracts with Retail World Magazine to run an advertisement in its publication the month before Riley's special sale. Riley sues for breach of contract when Retail World runs the advertisement the month after the sale. There is no coverage for this breach of contract.

(6) That arises from any goods, products, or services failing to comply with their advertised quality or performance.

Example: Big Wally gains even more weight after using a diet supplement that guaranteed he would lose at least ten pounds. Wally sues Rapid Weight Loss, the supplement’s manufacturer. There is no coverage in this case.

(7) That arises from incorrect descriptions of prices of advertised goods, products, or services.

Example: Morticia's Microwaves sues for lost revenue when Just-the-Facts Newspapers prints the price of a microwave in her advertisement incorrectly. Coverage does not apply.

(8) Committed by an insured engaged in the advertising, broadcasting, publishing, or telecasting business, designing, or assisting with the content of Web sites for others, or providing Internet search, access, service, or content. This exclusion does not apply to false arrest, detention, or imprisonment, wrongful eviction, entry, or invasion by a landlord, or malicious prosecution as described in F. Liability and Medical Expenses Definitions 14. Personal and Advertising Injury, items a, b, and c.

NOTE: Placing frames, links, or advertising on the Internet is not considered the advertising, broadcasting, publishing, or telecasting business.

(9) That arises from the actual or alleged release or escape of pollutants at any time.

(10) Concerning loss, expenses, or costs that arise from requests, demands, or orders to clean up, or any claims by a governmental body to clean up, test for, or assess pollutants.

(11) Due to an offense that the insured's hosted, owned, or controlled electronic bulletin board or chat room allegedly causes.

(12) That arises from infringing on copyright, patent, trademark, trade secret, or intellectual property rights. However, these other intellectual property rights do not include using advertising ideas of others in the named insured's advertisement. In addition, this exclusion does not apply to infringing on copyright, trade dress, or slogan in the named insured's advertisement.

(13) That arises from unauthorized use of another party's name or product in the named insured's email address, domain name, or similar initiatives designed to mislead potential customers of another party.

Related Court Case: Advertising Injury Exclusion is interpreted by Court

q. Electronic Data

There is no coverage for any damages due to loss of, loss of use of, damage to, corruption of, or inability to access or manipulate electronic data. This exclusion does not apply to liability for damages because of bodily injury. This exclusion defines electronic data. It is similar to the definition in H. Property Definitions and means most media, data, programs, software, and repositories of computer software wherever and however stored. Computer programs are defined as a set of related electronic instructions that direct operations and functions of the computer or electronic device it is connected to, enabling the computer or device to receive, process, store, retrieve, or send data.

r. Criminal Acts

Coverage does not apply to personal and advertising injury that arises from criminal acts the insured commits or directs.

s. Recording and Distribution of Material or Information in Violation of Law

There is no coverage for bodily injury, property damage, or personal and advertising injury that arises from violations or alleged violations of the following:

· Telephone Consumer Protection Act (TCPA)

· CAN-SPAM Act of 2003

· The Fair Credit Reporting Act (FCRA), including its amendments or additions. This also includes the Fair and Accurate Credit Transaction Act (FACTA).

· Other federal, state, or local statute, ordinance, or regulation other than the above that address, prohibit, or limit printing, distributing, disposing, collecting, recording, sending, transmitting, communicating, or distributing information or material.

The exclusions below do not apply to fire damage to premises the named insured rents or temporarily occupies with the owner's permission.

· c. Liquor Liability

· d. Workers Compensation and Similar Laws

· e. Employers Liability

· f. Pollution

· g. Aircraft, Auto, or Watercraft

· h. Mobile Equipment

· i. War

· k. Damage to Property

· l. Damage to Your Product

· m. Damage to Your Work

· n. Damage to Impaired Property or Property Not Physically Injured

· o. Recall of Products, Work, or Impaired Property

Section II–Liability D. Liability and Medical Expenses Limits of Insurance has a separate Damage to Premises Rented to You Limit of Insurance that applies to this coverage provided by the above exclusion exception.

2. Exclusions that apply to Medical Expenses Coverage

There is no payment for expenses related to bodily injury:

a. Of any insured. However, medical expenses of volunteer workers are covered.

Example: Patty, one of the Penelope's Partnership partners, is the first named insured. She slips and falls on ice on the building's steps and needs x-rays to determine if anything is broken. This expense is not covered.

b. Of any person hired to work for or on behalf of any insured or an insured’s tenant.

Example: Harry’s Habitat hires Paul to paint its building and rental dwelling. Paul falls from a ladder and breaks his wrist. The medical expenses due to the fall are not covered.

c. Of any person who is injured on the part of the named insured's owned or rented premises that the person normally occupies.

Example: Mona Moneybags is a tenant and occupies one of the units in the apartment building that Leonard Landlord owns. Mona falls down the stairs in her apartment and is injured. This coverage does not apply to Mona's medical expenses due to the fall.

d. Of any person (employee or non-employee) who is entitled to benefits for bodily injury under a workers compensation, disability benefits, or similar law.

Example: Wilbur sustains burns to his hands from a small fire while on the job. This coverage does not apply to this loss because it should be covered under his state's workers compensation statute.

e. Of a person injured while involved in games, sports, athletic contests, or physical exercise. There is no coverage while that person practices for, instructs, or participates in any of these activities.

Example: Lyle’s Linguini-To-Go sponsors a Little League team. Moses breaks his leg when sliding into home plate. This coverage does not apply to the expenses due to the injury.

f. Included in the products-completed operations hazard.

Example: Micah repaired an appliance. Stacey’s fingers were burned when that appliance caught fire because he used the wrong grade of wire. Stacey asked Micah to pay her medical bills, and he might, but this coverage will not pay anything.

g. That this business liability coverage excludes.

Example: One of Oscar's employees becomes angry, strikes a customer, and breaks his nose. This coverage does not apply to this loss because it is an intentional act that is excluded under the exclusions in item 1. above.

3. Exclusion that applies to both Business Liability Coverage and Medical Expenses Coverage–Nuclear Energy Liability Exclusion

a. Business Liability Coverage excludes bodily injury or property damage liability:

(1) For losses of an insured who is also an insured under a nuclear energy liability policy issued by the Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters, or Nuclear Association of Canada, including their successors. This exclusion is not affected by the termination or exhaustion of the limits of such policies.

(2) Of any loss resulting from the hazardous properties of nuclear material, including:

(a) The obligation of any entity to maintain financial protection to comply with the Atomic Energy Act of 1954 and its amendments.

(b) The insured is or would be entitled to indemnification from the United States of America or any of its agencies under any agreement it enters into with the United States of America or any of its agencies with any person or organization, if this policy had not been issued.

b. Concerning Medical Expenses Coverage, there is no coverage for bodily injury resulting from the hazardous properties of nuclear material and arising from a nuclear facility operated by any person or organization.

c. There is no coverage under Business Liability Coverage for any bodily injury or property damage resulting from the hazardous properties of nuclear material if any of the following applies:

(1) The nuclear material is at a nuclear facility that an insured owns, or that is operated on an insured's behalf, or has been released from such facility

(2) The nuclear material is contained in waste or spent fuel was possessed, handled, used, processed, stored, transported or disposed of at any time by an insured or on its behalf

(3) Bodily injury or property damage resulting from an insured providing services, materials, parts, or equipment related to planning, constructing, maintaining, using, or operating a nuclear facility. Nonetheless, this exclusion only covers property damage to a nuclear facility and its property located within the United States, its territories and possessions, or Canada.

d. These special terms are defined:

(1) By-product material

This material has the meaning given to it in the Atomic Energy Act of 1954 or any related amendatory law.

NOTE: This exclusion does not provide that meaning. It has multiple meanings in different sections of the act.

(2) Hazardous properties

This includes radioactive, toxic, or explosive properties.

(3) Nuclear facility

This is a nuclear reactor and equipment designed or used to separate uranium or plutonium isotopes, or for spent fuel processing, utilizing, waste handling, processing, or packaging. It also includes equipment or devices used in special nuclear material processing, fabricating, or alloying, if the total amount of such material at any time consists of or contains more than 25 grams of plutonium or uranium-233, or any combination thereof, or more than 250 grams of uranium-235. Any structure, basin, excavation, premises, or place prepared or used to store or dispose of waste is also included, along with the site on which all such operations are conducted and all premises used for such operations.

(4) Nuclear material

This is source material, special nuclear material, or by-product material. Each of these properties is defined by the Atomic Energy Act of 1954 or any amendments to it and is not repeated in this exclusion.

(5) Nuclear reactor

This is any device designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material. The size of the reactor and the amount or type of material that must be present are not defined.

(6) Property damage

This is all forms of radioactive contamination of property.

(7) Source material

This material has the meaning given in the Atomic Energy Act of 1954 or as amended.

NOTE: This exclusion does not provide that meaning. However, it is generally either the element thorium or the element uranium that has not been enriched in the isotope uranium-235. It also includes any combination of thorium and uranium, in any physical or chemical form, or ores that contain by weight one-twentieth of one percent (0.05 percent) or more of uranium, thorium, or any combination of these. Depleted uranium left over from uranium enrichment is considered source material.

(8) Special nuclear material

This material has the meaning given in the Atomic Energy Act of 1954 or as amended.

NOTE: This exclusion does not provide that meaning. However, it is generally plutonium, uranium-233, or uranium enriched in the isotopes uranium-233 or uranium-235. The definition also includes any other material that the Nuclear Regulatory Commission (NRC) determines to be special nuclear material. It does not include source material.

(9) Spent fuel

This is any solid or liquid fuel element or component that was used or exposed to radiation in a nuclear reactor.

(10) Waste

This is waste material that contains by-product material. By-product material does not include tailings or waste produced by extracting or concentrating uranium or thorium from any ore processed primarily for its source material content. Waste also includes any waste materials that result when any person or organization operates any nuclear facility included under the first two paragraphs of the definition of nuclear facility.

C. WHO IS AN INSURED

1. Insureds based on form of business

The declarations has spaces to check and describe the named insured's form of business. Each form has a different group of parties that are considered insureds and conditions under which they are insureds.

a. If the named insured is an individual, the individual is an insured. In addition, the named insured's spouse is an insured. However, their status as insureds is limited to only the named insured’s solely owned business operation(s).

Example: Mr. John, a sole proprietor, sells farm produce. Both he and Mrs. John are insureds. In addition, Mr. John is the sole proprietor of a separate wood kitchen cabinet manufacturing business. In both cases, he and Mrs. John are insureds. However, if he and his brother owned the carpentry business as a partnership, the partnership would not be covered.

b. If the named insured is a partnership or joint venture, the partnership or joint venture is an insured. Members and partners of the named insured and their spouses are insureds. However, the members, partners, and their spouses are insureds only while conducting the named insured's business.

Example: Mr. John and Mr. Joe are partners in a carpentry business. They and their spouses are insureds with respect to the conduct of the carpentry business. However, none of them are insureds under this coverage form for their personal exposures or for any other business activities.

c. If the named insured is a limited liability company, the limited liability company is an insured. Members of the company are insureds but only with respect to the conduct of the named insured's business. The named insured's managers are also insureds, but only to the extent of their specific duties as managers.

NOTE: A limited liability company is a hybrid form of business between a partnership and a corporation. Managers operate a limited liability company on behalf of its members. Members have the protection of a corporation: personal assets are shielded, and only company assets can be assessed. On the other hand, the income and profit the limited liability company earns are not taxed on the company but are the obligation of its members as individuals.

d. If the named insured is an organization other than those listed above, it is an insured. Executive officers and directors of the named insured are insureds but only while performing their duties as such. Stockholders are also insureds, but only for the liability imposed on them as stockholders.

e. If the named insured is a trust, it is an insured. Its trustees are also insureds but only with respect to their duties as trustees.

NOTE: A trust is an unincorporated business organized under a legal document and a declaration of trust. It is used instead of a corporation or partnership to transact business with limited liability. It is different than a corporation because it does not receive a charter from the state that gives it legal recognition. It derives its status from the voluntary actions of the individuals who form it.

2. Insureds based on relationship with the named insured

The following persons or organizations are also insureds:

a. Volunteer workers, but only when they perform duties related to the named insured's business.

Employees are insureds within the narrow range of activities in the scope of their employment or while conducting the named insured's business. This does not apply to executive officers of an organization nor to managers of limited liability companies.

Volunteers and employees are not insureds for bodily injury or personal and advertising injury:

· To the named insured, its partners, or members.

· To co-employees but only while those co-employees are acting within the scope of their employment or otherwise conducting the named insured’s business.

· To volunteer workers but only while they are involved in activities that are related to the named insured’s business.

Example: Meredith is an employee of Goods and Plenty. She drives a forklift that suddenly goes out of control and plows into a group of people before it comes to a stop. Meredith’s supervisor and two of her co-employees are injured. Meredith is not an insured for their injuries. John, a co-employee who had just clocked out for the day, is also injured. Meredith is an insured for his injuries because he was not within the scope of his employment at the time of the injury. Jason and Wendy, unpaid interns, were also injured. Because they were volunteers performing duties on behalf of Good and Plenty at the time of their injuries, Meredith is not an insured for their injuries.

· To designated relatives of any co-employee or volunteer if that co-employee or volunteer's injury is not covered above.

· When there is any obligation to share with or repay others for damages related to injuries described above as not covered.

· That relate to any professional health care services.

Volunteers and employees are also not insureds for property damage to property owned, occupied, used by, rented to, in the care, custody, or control of, or physically controlled for any reason by any insured.

b. Any party other than an employee or volunteer who acts as the named insured's real estate manager.

c. Any party with temporary legal custody of the property of a deceased named insured. The status applies to only liability that arises out of or is caused by maintaining or using that property and only until a proper legal representative is appointed.

d. A properly appointed legal representative for a deceased named insured, but only while carrying out duties as the legal representative

NOTE: The legal representative assumes all the deceased named insured's rights and duties. This goes beyond the standard insured status and extends to rights to cancellation, conditions, and other elements assigned only to named insureds.

Who Is an Insured providing broad coverage to the named insured for exposures usual to any business operation that can be expected in a commercial venture. It also clarifies that any current or past partnerships, joint ventures, or limited liability companies not listed on the declaration are not insureds.

NOTE: A number of endorsements are available to add other interests for liability coverage.

D. LIABILITY AND MEDICAL EXPENSES LIMITS OF INSURANCE

1. Amounts Paid

The most the insurance company pays is the limit of insurance on the declarations. This is regardless of the number of insureds, claims made, suits brought, or the number of parties that make claims or bring suits. This is subject to items 2, 3 and 4 below.

Example: Bonnie Brownlocks was a longtime customer but sued Lara and Prentiss Greatkuple D/B/A Hair Essentials. While getting into a chair in their salon, the chair collapsed and she fell to the floor, sustaining a concussion, various cuts, and a broken back. She filed two different lawsuits. One was named Lara, and the other was named Prentiss. The Greatkuples reported the loss and provided all the relevant paperwork on the two suits to their insurance company. The company informed them that it would defend the lawsuits, but the $1,000,000 limit was the most it would pay for both suits.

2. Liability and Medical Expenses Limit

The Liability and Medical Expenses limit on the declarations is the most paid for the total of all damages for bodily injury, property damage, and medical expenses that arise from a single occurrence. It applies regardless of the number of claims that develop from the occurrence. It is also the most paid for personal and advertising injury that any one organization or person sustains.

Example: Melvin’s Bakery has a liability and medical expenses limit of $1,000,000. Melvin is teaching a cake baking class when a stove explodes and injures a number of class members. Twenty-five claims for damages totaling $5,000,000 are submitted to the insurance company. The $1,000,000 limit applies to the occurrence and is subject to the aggregate limit. Melvin's Bakery is responsible for the remaining $4,000,000 claimed.

The medical expenses limit on the declarations is a sub-limit. It is the most medical expense paid because of bodily injury that a single person sustains. However, it is still subject to the Liability and Medical Expenses limit on the declarations.

Example: Melvin’s Bakery's medical expenses limit is $5,000. The claims adjusters settled the cases quickly. One late claim for medical expenses was not filed until the $1,000,000 limit was paid. Even though the amount claimed was less than $5,000, it was denied because the $1,000,000 limit had been exhausted.

3. Damage to Premises Rented to You

The Damage to Premises Rented to You Limit on the declarations for the location is the most paid under Business Liability coverage for damages to the premises the named insured rents. It is also the most paid in the event of a fire for premises that the named insured temporarily occupies with the owner's permission. The limit for premises the named insured temporarily occupies is the highest Damage to Premises Rented to You limit on the declarations.

Example: The Damage to Premises Rented to You limit at each location is $50,000. Melvin's Bakery operations at one such premises cause a fire that destroys the building. The total loss is $250,000. The $50,000 Damage to Premises Rented to You limit at that location is all the insurance company pays.

4. Aggregate Limits

The most paid for:

a. All bodily injury and property damage in the products-completed operations hazard is two times the Liability and Medical Expenses limit

b. All bodily injury and property damage except as the products-completed operations hazard includes is two times the Liability and Medical Expenses limit.

The Damage to Premises Rented to You limit is subject to either the products-completed operations aggregate or all other aggregate, whichever applies to the particular loss.

This section explains how the limits of insurance apply. They apply separately to each annual 12-month policy period, beginning with the inception date. If any period of less than 12 months remains, the limits apply separately to that period as well, unless coverage is extended for that period. In that case, the extended period is part of the preceding period for the purpose of applying the limits.

Example: Beulah's Boutique's coverage was originally in force from January 1 to January 1 of each year. In the second year, Beulah requested that the expiration date be extended to July 1 in order to match her accounting year. The limits applied separately to the first annual 12-month January 1 to January 1 period. They also applied separately to the second period now extended to 18 months, from January 1, past the next January 1 to July 1. After that, each annual July 1 to July 1 period has separate limits.

NOTE: ISO has not developed any endorsements to amend, modify, or delete either the liability limits or the aggregate limit. However, the Commercial General Liability (CGL) Coverage Form has endorsements that do so. The named insured should consider being insured under the CGL Coverage Form if its limits must be modified.

E. LIABILITY AND MEDICAL EXPENSES GENERAL CONDITIONS

1. Bankruptcy

The insurance company is not relieved of its obligations under this coverage form if the insured or the insured's estate becomes bankrupt or insolvent.

2. Duties in The Event of Occurrence, Offense, Claim, or Suit

The named insured has certain duties that it must perform if there is a claim or demand for coverage:

a. It must inform the insurance company of any occurrence or offense that may result in a claim as soon as possible. As a minimum, the notice should include information about how, when, and where the event took place and the names and addresses of all injured parties and any witnesses. It should also indicate the nature and location of any injury or damage as a result of the occurrence or offense.

b. Concerning claims made or suits brought, it must immediately record the details of the claim or suit, the date it was received, and notify the insurance company as soon as possible.

NOTE: This is in addition to providing the insurance company with timely written notice of the claim or suit.

c. Every insured involved in or with the claim must:

· Immediately send the insurance company copies of demands, notices, summonses, and legal documents it receives in conjunction with the claim or suit.

· Authorize and allow the insurance company to obtain records and other needed information.

· Cooperate with the insurance company as it investigates or settles the claim or defends against the suit.

· When the insurance company requests, assist it in enforcing any rights it has against any person or organization that may be liable to the insured for injury or damage that this insurance covers

d. No insured may voluntarily make any payments, assume any obligations, or incur any expenses (other than first aid) without the insurance company's consent. If it does, it does so at its own cost or expense.

3. Legal Action Against Us

No one has the right to:

a. Join the insurance company in any way or bring it into a suit that claims damages from an insured.

b. Sue the insurance company until the terms and conditions of the policy have been met.

The insurance company can be sued to recover under an agreed settlement or a final judgment against the insured. However, it is not liable for damages that are not payable under this policy’s terms or that exceed the applicable limit of insurance.

An agreed settlement is a settlement and release of liability that the insured, the insurance company, and the claimant or the claimant's legal representative sign.

4. Separation of Insureds

Other than the limits of insurance and any rights and duties that apply specifically to the first named insured, this insurance applies to each named insured as if it is the only named insured and separately to each insured against whom a claim is made or a suit is brought.

Examples:

Businessowners Coverage is issued to Zach Taylor, Inez Polk, and Leslie Enterprises, Inc. Inez sues Zach for defamation of character. The coverage form responds and defends Zach, even though Inez is another named insured.
Daisy Enterprises, Inc. has Businessowners Coverage. A suit is filed against it, Daisy’s president, and Orrin, an employee, for an alleged assault in the parking lot. The insurance company defends all three parties. If Orrin’s actions are found to be intentional, the insurance company may refuse to defend him but continue to defend Daisy Enterprises and its president.

F. LIABILITY AND MEDICAL EXPENSES DEFINITIONS

Defined words are used throughout the coverage form. Restricting their meaning to the definition in the coverage form gives all parties a clearer understanding of the coverage intended. Twenty-two terms are defined.

1. Advertisement

This is a published or broadcast notice to the general public or specific market segments concerning the named insured's goods, products, or services. The reason for the notice must be to attract customers or supporters. Material that is placed on the Internet and other electronic forms of communication is considered published notice. An entire website is not considered an advertisement. However, notices on a website that provide information about the named insured's goods, products, or services to attract customers or supporters are advertisements.

2. Auto

This is a land motor vehicle, trailer, or semi-trailer designed for travel on public roads. It includes any attached machinery or equipment. It does not include mobile equipment. However, Auto includes any land vehicle subject to financial responsibility laws or motor vehicle registration rules.

3. Bodily injury

This is bodily injury, sickness, or disease a person sustains. It includes death that results from bodily injury, sickness, or disease at any time.

4. Coverage territory

This is the United States of America, its territories and possessions, Puerto Rico, and Canada. It includes international waters or airspace, subject to the injury or damage occurring during travel or transportation between any of these places.

It includes other parts of the world, subject to injury or damage arising from the following.

Goods or products the named insured manufactures or sells in the coverage territory.
Activities of persons whose homes are in the coverage territory but who are away on the named insured's business for a short period of time.
Personal and advertising injury offenses that take place through the Internet and other electronic forms of communication.

The worldwide coverage above is subject to the insured's responsibility to pay damages being determined in a suit based on the merits in the territory described in the first paragraph of this definition, or in a settlement to which the insurance company agrees.

5. Employee

The term employee is broadened to include leased workers but not temporary workers.

6. Executive officer

This is a person who occupies any officer position the named insured's charter, constitution, by-laws, or similar governing document creates.

7. Hostile fire

A fire that becomes uncontrollable or burns at a place other than where it is supposed to be.

Related Article: Fire–A Discussion

8. Impaired property

Tangible property that cannot be used or is less useful because it includes a portion of the named insured's product or work known or thought to be dangerous, inadequate, defective, or deficient. It can also be a situation in which the property cannot be used or is less useful because the named insured has not satisfactorily performed under a contract or agreement. The property is considered impaired only if the property is capable of being restored to use by repair, replacement, adjustment, or removal of the named insured's product or work, or by the named insured fulfilling the terms of the contract or agreement.

9. Insured contract (08 24 edition)

This term means any of the following:

a. Leases of premises, except for the part that agrees to indemnify for fire damage to any premises the named insured leases, rents, or temporarily occupies.

b. Sidetrack agreements.

NOTE: A sidetrack agreement is between the owner of the premises or location and a railroad, and involves a railroad transfer or access track located on the named insured's premises. The railroad allows the property owner to use the sidetrack if the railroad is guaranteed access to the sidetrack and there are certain agreed-on conditions of property maintenance. It may also contain specific hold-harmless agreements and conditions between the railroad and the property owner.

c. Easement or license agreements. It does not include such agreements connected with construction or demolition operations that take place on or within 50 feet of a railroad.

d. Obligations to indemnify a municipality that an ordinance requires. It does not include obligations connected with work for that municipality.

e. Elevator maintenance contracts.

f. An insured contract also includes the part of any other contract or agreement that applies to the named insured's business whereby it assumes the tort liability of another party to pay for bodily injury or property damage to a third person or organization. This tort liability assumption must be allowed by law to qualify as an insured contract. This includes contracts or agreements that indemnify a municipality in conjunction with work done for that municipality. It does not include any part of a contract or agreement:

· That indemnifies a railroad for bodily injury or property damage that arises out of construction or demolition operations conducted within 50 feet of any railroad property and that affects railroad bridges, trestles, tracks, roadbeds, tunnels, overpasses, or crossings.

· That indemnifies an architect, engineer, or surveyor. However, this applies only as it relates to injury or damage that arises out of any of the following:

Preparing, approving, or failing to prepare or approve maps, shop drawings, opinions, reports, surveys, field orders, change orders, drawings, and specifications.
Giving or failing to give instructions or directions, if that act is the primary cause of the injury or damage.

NOTE: Tort liability is liability imposed by law without a contract or agreement.

10. Leased worker

A person the named insured leases from a labor-leasing organization under a contract or agreement to perform duties related to the conduct of the insured’s business. Leased workers are not the same as temporary workers. The manner in which the contract or agreement is made is not specified.

11. Loading or unloading

This is handling property after it is moved from where it is taken for transportation on aircraft, watercraft, or autos, while in or on those conveyances, and while being removed from them at the final delivery location. It does not include property that is moved by mechanical devices if the devices are not attached to the aircraft, watercraft, or auto. The only exception is when the device is a hand truck.

12. Mobile equipment

This includes the following land vehicles and machinery or equipment attached to them:

a. Bulldozers, farm machinery, forklifts, and other vehicles designed to be used off-road.

NOTE: These are considered mobile equipment even when used on public roads. However, they must be designed as off-road vehicles.

b. Vehicles the insured keeps with the plan to use them only on or next to owned or rented locations.

NOTE: These vehicles are covered if they leave the intended location as long as their planned use is always to be at the location. A golf cart owned by a condominium association, with the plan to use it only on the premises, is still mobile equipment when used on public streets in an emergency.

c. Vehicles that operate using crawler treads.

d. Vehicles used to provide mobility to permanently mounted power cranes, shovels, loaders, diggers, drills, and road construction or resurfacing equipment. Graders, scrapers, and rollers are examples of resurfacing equipment. The vehicles may or may not be self-propelled.

e. Vehicles other than as described above that are not self-propelled and that are used to provide mobility to permanently attached equipment. Examples include air compressors, pumps, and generators; spraying, welding, and building cleaning; geophysical exploration; lighting; well-servicing equipment; and devices used to raise or lower workers or equipment, such as cherry pickers.

f. Vehicles not described above that are used mainly for purposes other than to transport persons or cargo. The following self-propelled vehicles with permanently attached equipment are treated as autos and not as mobile equipment:

· Snow removal, street cleaning, and road maintenance equipment. This does not include construction or resurfacing equipment.

· Cherry pickers and related equipment used to raise and lower workers and are mounted on an automobile or truck chassis.

· Air compressors, pumps, and generators. This also includes spraying, welding, building cleaning, geophysical exploration, lighting, and well-servicing equipment.

Mobile equipment does not include land vehicles subject to mandatory or financial responsibility laws, or to motor vehicle insurance or registration laws, in the jurisdiction where they are licensed or principally garaged. Land vehicles subject to mandatory or financial responsibility laws, other motor vehicle insurance laws, or motor vehicle registration laws are considered autos.

NOTE: This type of mobile equipment is considered auto, and coverage is available only under auto coverage forms and policies.

13. Occurrence

This is an accident. It includes continuous or repeated exposure to essentially the same harmful conditions.

14. Personal and advertising injury

This is injury and consequential bodily injury that arises out of one or more of the following offenses:

a. False arrest, imprisonment, or detention.

b. Malicious prosecution.

c. Violations of the right of a tenant’s private occupancy. This includes wrongful eviction from, wrongful entry into, or invasion of a space or a premises a person occupies. The act must be committed by the owner, landlord or lessor, or by parties that act on their behalf.

d. Material that libels or slanders a person or an organization. It is also any material that discusses a person or organization’s goods, products, or services in a disparaging way. The material can be oral, written, or any other form, including Internet and electronic forms.

e. Any form or type of oral or written publication of material that violates a person's right of privacy.

f. Using another party's advertising ideas in the named insured's advertisement.

g. Infringing on another’s copyright, trade dress, or slogan in the named insured's advertisement.

15. Pollutants

This is any solid, liquid, gaseous, or thermal irritant or contaminant. It includes smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned, or reclaimed.

16. Products-completed operations hazard

a. This includes all bodily injury and property damage that occurs away from premises or locations the named insured owns or rents that arises from its products or work, except:

· Products the named insured still physically possesses

· Work that is not complete or that has been abandoned. Work is considered complete on the earliest date that all the work the contract calls for is done, when all work to be done at a job site is done (in cases where the contract calls for work at more than one job site), or when that part of the work done at a job site is put to its intended use by any person or organization other than another contractor or subcontractor working on the same job site project.

Work that is essentially complete except that it still requires some service, maintenance, correction, repair, or replacement is treated as complete.

The bodily injury or property damage must occur away from the named insured’s premises. There is an exception in cases where the named insured’s business includes selling, handling, or distributing its products to be consumed on its owned or rented premises.

b. Products-completed operations hazard does not include bodily injury or property damage that arises from:

· Transporting any property. There is an exception if the injury or damage is due to a condition in or on a vehicle the named insured does not own or operate. This is subject to the condition having been created when an insured loaded or unloaded the vehicle.

· The presence or existence of tools, uninstalled equipment, or abandoned or unused materials.

17. Property damage

This is:

a. Physical injury to tangible property. It includes all resulting loss of use of that property. Any and all loss of use claims are treated as having taken place at the same time as the physical injury that caused it.

b. Loss of use of tangible property that is not physically injured. Any and all loss-of-use claims are treated as having occurred at the time of the event that caused them.

Electronic data is not considered tangible property. Under this definition, electronic data is information, facts, or programs stored as or on, created or used on, or transmitted to or from computer software or any other media used with electronically controlled equipment.

18. Suit

This is a civil proceeding that alleges damages for bodily injury, property damage, or personal and advertising injury that this insurance covers. It includes arbitration and other alternative dispute resolution proceedings. The insurance company must consent to the insured submitting to any arbitration or alternative dispute resolution.

19. Temporary worker

Any person furnished to the named insured as a substitute for a permanent employee who is temporarily away from the business or is furnished to meet seasonal or short-term workload conditions.

20. Volunteer worker

This is a person the named insured does not employ but who donates his or her work and acts at the named insured's direction and within the scope of duties prescribed. Volunteer workers are not paid a fee, salary, or other compensation by the named insured or any other party for the work they perform.

21. Your product

This is not real property. Real property usually means land, buildings, and property rights. This means that a home a contractor builds is not a product.

a. It is goods or products the named insured or any party that trades under its name manufactures, sells, disposes of, handles, or distributes. It includes the goods or products of any party whose business or assets the named insured acquires. It also includes containers, materials, parts, or equipment furnished as part of the covered goods or products. Vehicles are not considered to be containers.

b. It also includes warranties or representations made with respect to the fitness, quality, durability, performance, or use of the named insured's product and the warnings and instructions provided with the product. It includes the warnings and instructions that were included as well as the ones that should have been and were not.

This definition does not include vending machines or other property rented to or located for use by others but not sold.

22. Your work

a. Work or operations the named insured does or that others do on its behalf. It also means materials, parts, or equipment furnished in connection with such work or operations.

b. Warranties or representations that are made concerning the fitness, quality, durability, performance or use of the named insured's work and the warnings and instructions provided with the work are also your work. The included warnings and instructions are your work but in addition those warnings and instructions that should have been included but weren’t, are also your work.

SECTION III COMMON POLICY CONDITIONS (APPLICABLE TO SECTION I–PROPERTY AND SECTION II–LIABILITY)

The Businessowners Coverage Form combines several different coverages. Most have their own coverage descriptions, definitions, causes of loss, and conditions. The two areas all coverages share in common are the declarations and the common policy conditions.

A. Cancellation

1. The first named insured person or organization on the declarations can cancel, make changes, pay premiums, receive cancellation notices, and request cancellation.

NOTE: It is important to select the correct first named insured for proper communication and to be certain that all rights are properly protected.

2. The insurance company can cancel the policy by mailing or delivering written notice of cancellation to the first named insured at least:

a. Five days before cancellation takes effect. This very short time period can be used only under the following circumstances:

(1) The building has been vacant for 60 or more consecutive days. This provision does not apply to buildings that experience normal seasonal unoccupancy or that are under construction. Vacant means 65% or more of rental units or floor area is vacant.

Example: Supersnob Department Store moves out of Magnificent Mall that Conservative Mutual insures. Supersnob was the mall anchor and occupied 70% of the retail space. Sixty days after the move out, Conservative Mutual sends Magnificent Mall a five days’ notice of cancellation.

NOTE: This definition of vacancy is not the same as the definition of vacancy in the Vacancy Condition. Instead of defining vacancy to be when less than 31% is occupied, this definition states that the building is vacant or unoccupied when 65% of the rental units or floor area is vacant. In addition, this item applies only to covered buildings so named insureds who are only tenants are not subject to this item.

(2) Repairs have not begun or been contracted for within 30 days after a covered loss is initially paid.

NOTE: Initial payment can include a minimum down payment against the total future payment.

(3) The building has an outstanding order to vacate, an outstanding demolition order, or a government authority has declared it unsafe.

(4) Repaired and salvageable items were or are being removed and will not be replaced. This does not apply to items removed due to remodeling or remodeling that will eventually be returned.

(5) Necessary heat, water, sewer, or electricity has not been provided for 30 days unless it is due to normal periods of seasonal unoccupancy.

Property taxes have not been paid for a year unless there is a legitimate dispute with the taxing authority over the tax payment.

b. Ten days when the reason for cancellation is nonpayment of premium.

c. Cancellation for any reason other than listed in a. or be above requires 30 days’ advance written notice.

3. All cancellation notices are sent to the first named insured at the last mailing address the insurance company knew about.

4. The cancellation notice must state the date that cancellation takes effect. That is the date when the policy period ends.

5. The first named insured receives applicable premium refunds. Refunds are pro rata if the insurance company cancels. The refund may be less than pro rata if the named insured cancels. Cancellation is effective even if a refund is not made or offered.

6. Proof of mailing is sufficient proof of notice unless a state law that requires certified mail or some other form of postal verification supersedes or replaces this condition.

NOTE: The cancellation notice periods indicated above may vary by state, as laws in some states usually require longer notice periods.

B. Changes

This coverage form contains all the agreements and terms between the parties. It can be changed or waived only by endorsements issued by the insurance company.

C. Concealment, Misrepresentation, or Fraud

This coverage form is void in case of fraud by the named insured as it relates to the coverage provided. It is also void if the named insured or any other insured at any time intentionally conceals or misrepresents a material fact. However, the material fact must concern the coverage form, covered property, interests of any insured in the covered property, or a claim.

Example: Mary’s application stated that her dog’s name was Spot, but its real name was Rover. This is not a material fact and does not affect her coverage. However, stating that Spot/Rover was a Teacup poodle instead of it actually being a Pit Bull could be a material fact that affects coverage and may result in it being voided.

D. Examination of Your Books and Records

The insurance company can examine or audit the named insured’s books as they relate to the insurance provided at any time during the policy period and up to three years after.

E. Inspections and Surveys

1. The insurance company may make surveys and inspections at any time. It may give reports of those inspections to the named insured along with recommendations to improve conditions, but is not required to do so.

2. Inspections are not required. The insurance company uses them only to determine insurability and premiums to be charged. Such inspections do not warrant that a location meets safety or health requirements or that it complies with local, state, or federal ordinances or regulations.

3. The provisions in 1. and 2. above also apply to rating, advisory, rate service, and similar organizations that conduct similar inspections and surveys and make similar reports and recommendations.

4. The provisions in 2. above do not apply to insurance company inspections, surveys, reports, or recommendations with respect to certification, ordinances, or regulation of boilers, pressure vessels, or elevators under state or municipal statutes.

NOTE: A number of states noted that insurance companies regularly entered buildings to conduct inspections. This drew the attention of legislators, who sought to make the industry the watchdog for various safety and health issues. These paragraphs represent the insurance industry's response.

F. Insurance Under Two or More Coverages

Only the actual amount of loss or damage is paid when two or more coverages apply to the same loss or damage.

NOTE: This eliminates double coverage and duplicate loss payments.

G. Liberalization

The insurance company may adopt revisions that broaden coverage during the policy period or within 45 days before it begins that do not require an additional premium. In that case, the broadened coverage applies immediately.

NOTE: However, any restrictions similarly adopted at the same time do not apply in the same way.

H. Other Insurance (08/24 edition)

1. If other insurance that covers the same loss or damage applies, this insurance is excess over the amount due from that other insurance, whether it can be collected or not. However, the insurance company never pays more than the Section I–Property Limit of Insurance that applies.

2. If the insured has other valid and collectible insurance for a loss covered by the Business Liability Coverage, the insurance company’s responsibilities are limited accordingly.

a. Primary

This insurance serves as the primary coverage unless the situations listed in paragraph B. below apply, in which case it becomes Excess. If it is primary, the company’s responsibilities remain unchanged unless another insurance is also primary. In that case, the company will share coverage with all other primary insurances as described in section c. below.

b. Excess

When any of the following conditions are met, this coverage will be considered excess coverage:

· If any other insurance includes Fire, Extended Coverage, Builder’s Risk, Installation Risk, or similar coverage for “your work.”

· Fire insurance coverage for premises rented to the insured or temporarily used with the owner's permission.

· Insurance the insured buys to protect against liability for property damage to rented or temporarily occupied premises with the owner's permission.

· If the loss is a result of maintaining or using aircraft, automobiles, or watercraft, and is not covered by Exclusion B.1.g. of Section II – Liability.

Any other primary insurance the insured holds that covers liability for damages related to the premises or operations, and for which the insured is also named as an additional insured.

3. If this coverage is considered excess, the insurance company does not pay defense costs that the other company should pay. If the other company refuses to defend, this insurance company has the option to do so. If it does, it assumes the insured’s rights under the other policy to bring a claim against the other insurance company.

When this insurance is excess over other insurance, the company will contribute only to its share of the loss, specifically the amount that exceeds what all other insurance would pay in the absence of this policy, including all deductibles and self-insured amounts under those policies.

Any remaining loss, if applicable, will be shared with other insurance policies not covered by this Excess Insurance clause and that were not purchased specifically to cover amounts exceeding the business liability coverage limits listed in the declarations. Contributions will be shared equally, if allowed; otherwise, contributions will be based on limit ratios.

I. Premiums

1. The first named insured pays all premiums due and receives all return premiums.

2. The premiums on the declarations are based on rates in effect when the policy is issued. Renewal premiums are subject to change, based on rules and rates in effect at that time.

3. Insurance coverage can remain active annually, provided the insured pays the premium before the anniversary date and has approval from the insurance company. Rate adjustments are included in the renewal premium, and any form changes are applied. If the renewal premium is unpaid, coverage terminates on the first anniversary when the premium is not received.

4. Any modifications in the named insured’s operations or exposures during the policy period may lead to an extra premium. The applicable rates and rules for these modifications take effect from the date of the change, not from the policy's start date.

J. Premium Audit

1. If the policy is subject to premium audit, the premium on the declarations is an advance premium. The insurance company calculates the final premium after the actual exposures are determined.

2. The advance premium is only a deposit. The actual earned premium is calculated at the end of the audit period. At that time, the first named insured must pay any additional premium by the due date specified on the billing. However, the first named insured receives a premium refund if the advance premium exceeds the earned premium.

3. The primary insured is responsible for maintaining records of the information necessary for calculating the earned premium and must provide this information to the insurance company when requested.

K. Transfer of Rights of Recovery Against Others to Us

1. With respect to property coverage, the named insured can waive its rights of recovery against other parties in writing prior to a loss. However, it cannot do anything after a loss to impair the company’s rights to recovery. The named insured can waive its rights to recovery after a loss only if it controls or owns the other business, if the business owns or controls the named insured, or if the individual or other business is the named insured's tenant. The named insured can accept normal bills of lading that limit the liability of carriers without restricting its insurance.

2. With respect to liability coverage (but not medical payments), the insured must ensure that the insurance company has the right to recover all payments it made, help it enforce them, and not do anything after a loss to impair them. The insurance company can request that the insured bring suit or transfer such rights to it and require the insured to assist it enforce them.

NOTE: The insured may agree to waive the right of recovery in contracts. By doing so, it has no right to recover and transfer to the insurance company. As long as these waivers were in effect prior to the loss, the insurance company must honor them and not penalize the insured. However, if the insured agreed to waive the recovery following a loss, it has breached the contract with the insurance company, and the insurance company can elect not to cover the loss.

L. Transfer of Your Rights and Duties Under This Policy

The named insured may not transfer its rights under the policy without the insurance company’s written approval to do so. However, practical considerations apply when an individual named insured dies. When that happens, the named insured's rights and duties transfer to his or her legal representative. The representative has insured status only while acting within the scope of its duties as a legal representative. Anyone who has proper temporary custody of the deceased named insured’s property assumes the named insured's rights until a proper legal representative is appointed.