The Businessowners Policy for small businesses was developed over 40 years ago and has evolved from a relatively simple product with limited perils, eligibility, and closely designated premises treatment to a much broader and more sophisticated product. It now applies to many more eligible classes of business with larger and higher eligibility thresholds.

BP 0200 is analyzed first. At the end of this article, the differences between it and BP 0100 are analyzed.

BP 0200–BUSINESSOWNERS SPECIAL POLICY ANALYSIS

This analysis focuses on the 06 12 edition of the American Association of Insurance Services (AAIS) BP 0200 – Businessowners Special Policy and BP 0100 – Businessowners Standard Policy. The BP 0816 – Policy Amendatory Endorsement, introduced with a 01 15 edition date, is a mandatory nine-page document that incorporates many changes typically included in a policy edition update.

Although the endorsement is analyzed separately, we have highlighted the changes in this analysis to enhance understanding. The modifications resulting from the BP 0816 – Policy Amendatory Endorsement are presented in bold print.

Related Article: BP 0816-Policy Amendatory Endorsement

This detailed table of contents follows the optional insurance company policy jacket and BP 0010–Businessowners Policy Declarations. In addition to chronologically listing the contents in subject and page order, it refers to mandatory state specific endorsements and other endorsements that may be added. It points out that certain words are defined in various definition sections and appear within quotation marks.

INSURING AGREEMENT

The insurance company provides certain coverages in return for the named insured paying the premium. This is subject to policy terms and conditions.

COMMON POLICY DEFINITIONS

Defined words are used throughout the policy. Restricting or expanding the meaning of words or phrases to only the definition in the section can reduce or increase coverage, so it is important to review each definition carefully. Defined terms are indicated in the coverage form with quotation marks. Fifteen terms are defined:

1. You and your

These are the parties identified on the declarations as the insured. Each party listed is a separate you.

2. We, us and our

This is the insurance company that provides the coverage.

3. Basic territory

This is the United States of America, its territories and possessions, Canada, and Puerto Rico.

4. Computers

This is hardware the named insured owns and any hardware in the named insured’s care, custody, or control. Computers also include software. The named insured is not required to own or have the software in its care, custody, or control.

5. Data Records

These are files, documents, and information stored electronically on any type of media.

6. Declarations

These are any pages designated as declarations, supplemental declarations, or schedules, but only if they relate to the policy.

7. Fungus or related perils

This is a broad definition. It encompasses mold, mildew, and other types of fungi, algae, slime mold, as well as any other type of protist, wet rot, or dry rot. It also includes the chemicals, compounds, and matter released by fungi, wet rot, dry rot, and protists. Examples include metabolites (such as microbial volatile organic compounds), toxins, spores, and fragments.

NOTE: A protist refers to a broad category of single-celled organisms that belong to the kingdom Protista.

8. Hardware

This is a network of electronic machine components that accepts instructions and information, processes the information according to the instructions, and produces the desired results. This definition restricts hardware to mean only mainframe and mid-range computers, servers, personal computers, workstations, various portable computer devices and accessories, and data processing equipment peripheral to the other hardware, such as printers, modems, and keyboards.

9. Limit

This is the amount of coverage that applies.

NOTE: Limits are usually on the declarations but may be anywhere in the policy.

10. Media

Media is used with hardware. It is where data records, programs, applications, and proprietary programs are recorded or stored. Examples of media are films, tapes, cards, discs, drums, cartridges, cells, DVDs, and CD-ROMs. However, the definition is not restricted to only the example items.

11. Pollutants

This is a broad and expansive term. It includes solids, liquids, thermal or radioactive contaminants, and irritants such as acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. However, it is not limited to just these. Waste also encompasses materials intended to be disposed of, recycled, reclaimed, or reconditioned. Additionally, the term includes both visible and invisible electrical, magnetic, and electromagnetic particles or fields, as well as sound.

12. Programs and applications

These are operating programs, applications, and data management tools that can be purchased retail or wholesale. They can be stored on media or be pre-installed in hardware.

13. Proprietary programs

These are operating programs and applications developed specifically for the named insured (or another entity). They are stored on media or installed in hardware.

14. Software

This is a broad term that includes media, data records, programs and applications, and proprietary programs as defined in this section. However, the definition of software is not limited to only these items.

15. Terms

These are provisions, limitations, exclusions, conditions, and definitions that can be found throughout this coverage form and other forms used in creating the policy.

COMMON POLICY CONDITIONS

The common policy conditions apply to the property, liability and any other coverage this policy provides.

1. Assignment

The policy cannot be assigned to another party without the insurance company's written consent.

NOTE: This is consistent with the long-standing rule that insurance coverage forms and policies are personal in nature and cannot simply be handed off from one party to another.

Example: Jason sells his Army-Navy clothing store to Merick. Merick does not have an insurance agent, so Jason agrees to just assign his current policy to Merick. In turn, Merick agrees to pay the premiums and abide by all the policy’s terms.

Jason and Merick believe this is an effective way to resolve the issue, but the insurance company does not. It will not honor any claim Merick presents because of this condition. If Merick wants coverage, he must apply in his own name.

2. Cancellation

Cancellation provisions vary by state, so rather than provide a countrywide cancellation provision, this condition refers the reader to specific state endorsements.

3. Change, Modification, or Waiver of Policy Terms

The insurance company is the only party that can make changes to or waivers in the policy terms. These changes are valid only when the insurance company makes them in writing.

Examples:

Scenario 1: Edward asks his agent to ask Simple Insurance Company to waive its vacancy provision. The underwriter agrees to do so but does not issue a written endorsement to the policy. Two months later, the vacant building is vandalized, and Simple denies coverage.

Scenario 2: Simple Insurance Company’s underwriter tells Edward’s agent that he will endorse Edward’s policy to provide coverage on only a named perils basis. A loss that none of the named perils covers occurs, and Simple denies coverage. However, the change in perils covered was not endorsed to the policy. As a result, the loss is covered because all changes must be in writing.

4. Conformity with Statute

This provision automatically adjusts any part of the policy that conflicts with applicable law to align with that law or statute.

NOTE: This eliminates having to constantly endorse the policy when new legislation is enacted, which affects the policy.

5. Cooperation

This condition requires the named insured to cooperate with the insurance company and perform all acts the policy requires. This condition applies only after a loss occurs.

6. Examination of Books and Records

The insurance company has the right to examine and audit the named insured's books and records, but only those that pertain to the policy. The insurance company may review these books and records only during the policy period and for up to three years after the policy expires.

NOTE: This caps the company’s right to examination while allowing it additional time to deal with unexpected circumstances and situations that may arise after the policy expires.

7. Inspections

Any inspection the insurance company makes is for its benefit, not for the named insured’s benefit. The insurance company has the right to inspect any of the named insured’s operations or properties. However, the insurance company decides whether it will inspect.

The insurance company may or may not share the information from an inspection it made with the named insured. However, any inspection, report, or advice the inspector gives to the named insured does not warrant that the property or operations are safe, healthful, or comply with codes, laws, rules, standards, or any regulations.

8. Liberalization

The insurance company may revise this policy’s coverage during the policy period, broadening it without charging an additional premium. In such cases, the broadened coverage automatically applies to this policy. This condition also applies if the revision took effect up to 60 days before the policy’s effective date.

NOTE: This is helpful to both the named insured and the insurance company because insureds and agents may ask to cancel and rewrite policies or delay renewal issuance to obtain the latest edition.

Related Court Case: Pollution Definition, Policy “Revision” Challenged

9. Misrepresentation, Concealment, or Fraud

Coverage is void to all insureds – named or not - when any of the following takes place:

An intentional or willful concealment or misrepresentation by any insured – named or not - of a fact or circumstance that is both material and relates directly to this insurance.

An intentional or willful concealment or misrepresentation by any insured – named or not – of any insured’s interest in the insurance coverage.
False swearing or actual fraud by any insured- named or not – but only when it is regarding this specific insurance or the object of such insurance.

Related Court Case: Misrepresentations Voids Entire Policy

NOTE: The materiality and significance of the misrepresented information is the key element in any situation that involves concealment or misrepresentation.

PROPERTY COVERAGES

This section pertains to the property coverages in this form. It includes its own definitions, coverage descriptions, perils, exclusions, limitations, and conditions. These are applicable in addition to the common policy definitions and conditions.

ADDITIONAL DEFINITIONS

The following definitions apply to the Property Coverages. They are in addition to the Common Policy Definitions. Fourteen terms are defined.

1. Computer hacking

This occurs when an individual or group gains unauthorized access to a computer, website, or network in any manner. These individuals or groups may or may not be employees. The following are examples of potential outcomes when such individuals or groups gain unauthorized access, though this list is not exhaustive:

Modify, generate, delete, or destroy software
Destroy, degrade, corrupt, alter, or destroy software’s performance, quality, or integrity
Copy, scan, or observe proprietary programs, programs and applications, and data records
Destroy, damage, degrade, or corrupt hardware or media or make it inadequate or unable to function properly
Eliminate or deny access to or services from websites, computer networks, or computers

2. Computer virus

A computer virus is a type of code. It can be malicious and self-replicating, but it can also be another type of code. Regardless, it must be inserted into a computer, network, or website server. The following are examples of the types of actions that might occur due to the introduction of viruses:

Modify, generate, delete, or destroy software
Destroy, degrade, corrupt, alter, or destroy software’s performance, quality, or integrity
Destroy, damage, degrade, or corrupt hardware or media, or make it inadequate or unable to function properly
Eliminate or deny access to or services from websites, computer networks, or computers

3. Dependent locations (BP 0816 changes)

These are locations within the basic territory the named insured does not operate but relies on for its business. There are four types of dependent locations:

Contributing locations deliver material or services to the named insured’s business. This does not include utility service providers or services that remove wastewater.

NOTE: BP 0662–Utility Service Disruption–Time Element provides coverage for loss of income due to disruptions at utility service providers.

Example: A tire manufacturer may be a dependent property for a tire retailer.

Recipient locations receive the named insured's products.

Example: The named insured is a manufacturer. Its customers, especially significant ones, are the dependent locations.

Leader locations attract customers to the named insured's business.

Example: A major retail store in a shopping center could serve as the leading location for other retail stores in that center.

Manufacturing locations make products for the named insured's customers under a contract of sale.

Example: A machine shop provides component parts that completes the named insured’s machinery for its customers.

The BP 0816 change eliminated the term supplier and replaced it with the more precise term “deliver material and services.” It also specifically removed wastewater removal services from being a contributing location.

4. Earth movement (BP 0816 change)

The definition of earth movement in BP 0816 replaces the one in the BP 0200.

Paragraph a. in the BP 0816 defines Earth. Whenever the term is used in this definition, it is not only earth but also substrates, strata, soil, ground, and sediment.

Paragraph b. states that earth movement is quite simply the movement of earth. The following are examples of such movement.

1) Earthquake

An earthquake is defined as including earth tremors or temblors. The aftershocks that follow any earthquake are also included in the definition. How these events are manifested is insignificant. They can be experienced as shaking or through any other form of ground displacement.

2) Liquefaction of soil

Whenever soil is liquefied, it is an earth movement regardless of whether it is part of an earthquake.

3) Volcano

All the movement around a volcano is earth movement. This means the eruption, explosion, and effusion. It is also the shaking and ground rupture before, during, or after a volcanic eruption.

4) Landslide

The material carried by the landslide or moving with it is part of the landslide.

5) Mine subsidence

This term applies only to man-made mines and applies regardless of the activity or use of the mine at the time of the subsidence.

6) Any other earth movement

This item is further explained to include the sinking, contracting, shifting, or rising of the earth. Examples of this movement are erosion, expansion, shrinking, freezing, thawing, improperly compacted soil, and water that moves beneath the ground’s surface, but only if they cause covered property to crack, settle or shift.

Sinkhole collapse is not considered earth movement.

Paragraph c. Acts, errors, or omissions resulting in earth movement, regardless of where they occur, are also earth movement. Examples include the following:

1) Excavating or construction.

2) A blast or vibration without regard as to where it came from.

3) Any process that extracts natural resources underneath the earth’s surface. Examples of processes are hydraulic fracturing (fracking), drilling, mining, and the extraction of geothermal energy, but not limited to these. Examples of natural resources are gas, heat, minerals, water, and oil, but not limited to these.

4) Any injection under the earth’s surface. Examples are water and wastewater but could be any material natural resource or substance.

5) The storage of a natural resource, material, or substance beneath the earth’s surface. Carbon dioxide is one example.

6) Any of the above in combination with each other.

5. Employee

This definition describes three diverse types of employees.

a. This is the traditional definition of employee. An employee must meet all the following criteria:

Be a natural person.
Be in the named insured’s service or have been terminated 30 or fewer days before.
Receives monetary compensation from the named insured.
The named insured must have the right to direct the person while performing services for the named insured. The named insured is not required to direct the employee. It simply has the right to do so.

b. Employees of a labor contractor are considered employees of the named insured if they meet all the following criteria:

Be a natural person.
Be in the named insured’s service.
The named insured must direct the person while performing services for the named insured on either a long-term, short-term, or temporary basis.

c. An intern or student who meets the following criteria:

Be a natural person.
Be in the named insured’s service.
May or may not receive monetary compensation from the named insured.
The named insured must have the right to direct the person while performing services for the named insured. The named insured is not required to direct the employee. It simply has the right to do so.

There is an important restriction for temporary and short-term employees. They are considered employees if they have care and custody of property while on the premises. However, they are not considered employees if they remove that property from the premises.

NOTE: Short-term worker is not defined in the policy.

Example: Jayson asks Kate to take the company’s bank deposit to the bank. A week later, the bank informed Jayson that his funds were short because no deposit had been made the previous week. Kate disappeared after taking the deposit:

Scenario 1: Jayson employed Kate for two years. Employee Dishonesty covers this loss.

Scenario 2: Accounting Temps employed Kate, and she worked for Jayson over a two-year period, but only on a short-term basis for two or fewer weeks at a time. Employee Dishonesty does not cover this loss.

Scenario 3: Kate is an intern. Her internship was for three months and was to end a week after she made the deposit. Employee Dishonesty does not cover this loss because the internship was a short-term assignment.

There are two additional restrictions to consider. Individuals or entities such as agents, brokers, commission merchants, contractors, and similar roles are not classified as employees. However, partners, directors, trustees, joint venturers, managers, and members are considered employees only when they are performing typical employee duties. They do not qualify as employees when they are engaged in tasks that do not fall under the definition of employee duties.

6. Insured

This is the named insured. It also includes other persons or entities insured under Property Coverages.

7. Interruption

This is either of the following:

a. The named insured’s business being reduced or completely stopped.

b. Any (or all) of the described premises that become unfit for renters to occupy.

NOTE: This definition applies to Coverage C–Loss of Income. This definition may be viewed as a clarification of coverage or as a restriction.

8. Money

This is currency, coins, bank notes in common use (as opposed to collector’s items), and register checks. Traveler's checks and money orders being held for sale are also considered money.

9. Restoration period

This is an important part of Loss of Income coverage. It means the time it takes to resume normal business operations at the covered location. It determines when coverage begins and when it ends. While Earnings and Extra Expense coverages do not begin at the same time, they end at the same time.

a. Earnings coverage begins 72 hours after a covered peril physically damages covered property. Extra Expense starts immediately after such covered physical damage loss occurs.

b. The restoration period ends when the physical damage is restored, or when business resumes at a new business location, whichever occurs first. However, the date restored is not solely based on the date the building is repaired, replaced, or rebuilt. It is based on the date the building should have been restored.

Example: A fire destroys Joshua’s kitchen. He is visibly upset but immediately begins to talk to architects and contractors about rebuilding. He considers several options, including moving to another location, but finally decides to stay put and rebuild.

Rebuilding takes 180 days. Joshua’s insurance company believes that it should not have taken more than 120 days, but it was delayed because Joshua tried to select from his many options. Joshua argues that he was being prudent, but the insurance company contends that he procrastinated.

The expiration date does not affect the restoration period.

c. The restoration period is not affected by any delay due to enforcing any type of ordinance or law that regulates rebuilding, rezoning or any pollution or fungus-related activity (including abating).

New Unnumbered Definition – Secondary Dependent Location

(BP 0816 addition)

A location within the basic territory that is neither owned nor operated by a dependent location, but does one or both of the following:

Supplies services or materials to the dependent property, which are then used by the dependent property to supply services or materials to the named insured.
Receives products from a dependent location that receives products from the named insured.

This definition excludes transit-type structures such as airfields, bridges, pipelines, roads, tunnels, and waterways. It also excludes water, communication, and power suppliers, as well as wastewater removal services.

Example: Peggy sells custom-designed western shirts. Western Styles manufactures the shirts, but Flying Needles provides the embroidery. In this example, Peggy is the named insured, Western Styles is the dependent location, and Flying Needles is the secondary dependent property.

10. Securities

These are both negotiable and non-negotiable instruments or contracts that have monetary or other property value.

The following are examples of securities, but they are not the only such instruments or contracts considered securities:

Stock certificates
All tokens, tickets, revenue, or stamps but only if in current circulation. The stamps can be actual stamps or an unused value in a meter.
Evidences of debt used with credit, debit, or charge cards but only when the named insured did not issue the card.

NOTE: Money is not securities. In addition, stamps currently being used do not include stamps in stamp collections.

11. Sinkhole collapse

This occurs when the soil below the covered property that supports it collapses into an underground opening. The opening must have been created by water acting on limestone or similar rock formations. The term does not include the land’s value or the cost to fill sinkholes, nor does it include land that collapses or sinks into man-made underground cavities.

12. Specified Perils (BP 0816 change)

These are the named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, weight of sleet, snow, or ice, and windstorm. However, these perils are not covered if they are excluded or limited elsewhere.

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

The BP 0816 change is to enumerate these perils and then explain falling objects and water damage within the peril discussion. The falling object coverage is unchanged. However, a meaningful change has occurred with the water damage peril to align with the Water Exclusion.

Water damage is the sudden or accidental discharge or leakage of water or steam. However, it must directly result from the cracking or breaking of a part of the system or appliance holding the water or steam. It is also the sudden or accidental discharge or leakage of water or material that is waterborne, but only if all the following occur:

Direct result of a water or sewer pipe breaking or cracking
The breaking or cracking is due to wear and tear
The water or sewer pipe is part of a municipal sanitary sewer system
The sewer system is not on the named insured’s premises

The Water Exclusion’s paragraphs on surface water and water damage below the ground's surface do not apply if coverage is provided within this water damage definition.

13. Valuable papers and records

These are written, printed, or otherwise inscribed documents and records. Some examples are books, maps, drawings, abstracts, films, deeds, mortgages, and manuscripts. The definition does not include money, securities, or data records.

14. Volcanic action

Airborne is an important word in this definition. Airborne volcanic blast or shock waves are volcanic action. Ash, dust, particulate matter, and lava flow are also considered volcanic action. None of these actions take place underground.

The cost to remove dust, ash, or particulate matter is excluded unless the covered property first sustains direct damage.

Example: A nearby volcano discharges an ash plume.

Scenario 1: Hot ash lands on plastic containers in the named insured’s yard. The containers melt and must be destroyed. This loss is covered.

Scenario 2: Hot ash lands on several nearby buildings. The ash does not damage the buildings but must be removed because of its appearance. This loss is not covered.

PROPERTY COVERED

Coverage A–Buildings and Coverage B–Business Personal Property cover direct physical loss or damage to the property described. However, this coverage is limited by two conditions:

The loss or damage must be caused by or result from a covered peril.
The property defined under Coverage A and Coverage B must be located at the premises specified in the Declarations.

Coverage A–Buildings

Buildings and structures listed on the declarations with a limit of insurance. A covered building or structure includes the following:

1. Completed additions

NOTE: No further description is provided on completed additions.

2. Machinery and equipment

These machines are a permanent part of the described building or structure.

3. Fixtures, including outdoor fixtures

Fixtures include inside and outside property.

Example: A restaurant has several chandeliers installed in its main ballroom. These chandeliers are fixtures, not personal property.

4. Maintenance/service personal property

This personal property the named insured uses to maintain or service the specified premises. Examples include air conditioning equipment, fire extinguishing apparatus, and floor coverings, but not limited to these items. Other examples are appliances for refrigeration, ventilation, cooking, dishwashing, laundering, and outdoor furniture.

Example: Jerry’s apartment complex placed several benches along the common area sidewalks for the convenience of its tenants. It also installed outdoor grills to encourage tenants not to grill on their porches. The benches and grills are considered part of the building.

5. Construction materials

This property is only covered when there is no other insurance in place.

Coverage applies to additions being constructed, as well as to alterations or repairs being made to a covered building. It also includes materials, equipment, supplies, and temporary structures located on or within 100 feet of the described premises that are being used for these additions, alterations, or repairs.

NOTE: Once an addition is completed, it is covered as a completed addition as outlined in item 1. above.

6. Landlord-owned personal property

Personal property owned by the insured in communal areas, rooms, or apartments is covered, but only when the named insured is a landlord. Furniture, furnishings, or equipment provided to a tenant occupying the premises is an example of such property.

7. Building glass

NOTE: No further description is provided on building glass.

Coverage B–Business Personal Property (BP 0816 Change)

The following replaces the wording of the first paragraph of Coverage B – Business Personal Property:

When the named insured occupies the entire building, there is coverage for the insured's business personal property when the following conditions apply:

The property is located in or on a building or structure listed on the declarations with a BPP limit.
The property is in the open within 100 feet of the scheduled premises with a BPP limit.
The property is in or on a vehicle within 100 feet of the scheduled premises with a BPP limit.

If the named insured only occupies part of a building or structure, the business personal property must be within 100 feet of that building or structure and either in the open or in or on a vehicle to be covered. The property is covered only if there is a limit on the declarations for business personal property at the described premises.

Business Personal Property includes the following:

1. Owned property

Owned property of the named insured is covered, but only if that property is used in the named insured’s business.

2. Personal property of others

The legal liability of the named insured for the property of others (care, custody, or control), as well as the cost of labor, materials, and other services that the named insured has provided for that property, is covered.

Example: Jim is a tailor. When a small fire damages property on his premises, his business personal property coverage pays the following:

· $25,000 for the value of the suits in Jim’s possession to be altered at the time of the loss. The replacement value of the suits exceeds $100,000, but Jim’s legal liability is limited to their actual cash value.

· $10,000 for the cost of Jim’s labor in the alterations. This includes the fabrics and other notions used in the alterations.

NOTE: The insured who works on the property of others should consider whether legal liability coverage alone is sufficient. Bailee Customers Coverage may be more appropriate.

Related Articles:

AAIS Bailee Customers Floater Coverage–Dry Cleaners and Laundry Form

AAIS Miscellaneous Bailee–Processor Floater

ISO Bailees Customers Coverage Form

3. Leased personal property

Personal property the named insured leases is covered but only for the contractual obligation.

NOTE: Because property leases differ, the limit required can only be determined by reading the lease.

4. Tenant’s property

a. When the named insured is a tenant, this coverage applies to improvements made to the space they lease. Improvements include fixtures, alterations, installations, and additions. A tenant cannot remove these improvements when the lease ends and they move out of the building. However, these improvements hold financial value for the tenant during the lease period. This coverage pertains to the tenant’s use interest in those improvements.

NOTE: Items the named insured can legally remove are considered owned business personal property.

Example: Jessica is currently leasing retail space from Mini Shopping Plaza, which is in the process of renovating the space to meet her specifications. The planned renovations include dressing rooms, built-in cubbies, wooden coverings, and inserts for window displays.

The total cost of these renovations amounts to $50,000, which is incorporated into Jessica's rent. This arrangement means that the tenant improvements will be covered once they are completed. However, it's important to note the coverage is limited to Jessica's interest in the use of these improvements.

Related Article: Improvements and Betterments

b. The tenant may own or be in control of the building’s exterior glass. In such a case, this policy covers that glass as business personal property. However, if building coverage is provided at the same premises, this glass coverage does not apply, and only building glass coverage applies.

Example: Dan‘s Deli is required to carry building insurance on the leased building. One night, vandals broke the front glass windows. Since Dan has building coverage on his policy, the glass is covered as building and not business personal property.

PROPERTY NOT COVERED

Neither Coverage A–Building nor Coverage B–Business Personal Property insures the following property. However, Additional Coverages or Extensions of Coverage provide limited coverage for some of these items, as stated in the remarks accompanying each item.

1. Accounts Receivable

Accounts receivable are not covered.

There is an exception. Extensions of Coverage B–Business Personal Property 1. Accounts Receivable provides limited coverage.

2. Animals

Animals are not covered. There are two exceptions.

Animals the named insured owns with the intent to sell are covered, but only if the named insured keeps them inside a building.
Animals belonging to others that the named insured boards are covered. The named insured is not required to keep these animals inside a building.

3. Antennas, Fences, or Signs

Outdoor radio, television, satellite, dish-type, or other antennas or their masts are not covered. Towers, lead-in wiring, fences, and signs not attached to buildings are also not covered.

There is an exception. Additional Coverages 1. Antennas, Fences, or Signs provides limited coverage.

4. Contraband

Contraband refers to goods that are illegal to produce, possess, transport, or trade under the law. Examples of contraband include illegal drugs, counterfeit goods, smuggled weapons, and stolen property.

Property or contraband is not covered while being illegally transported or traded.

Example: Cigarettes can be sold legally in all states. However, cigarettes taxed in one state and then transported and sold in another state to avoid the second state’s excessive taxation are considered contraband.

5. Data Records and Programs (BP 0816 change)

Electronic data records, software programs and applications, and proprietary software programs are not covered.

There are two exceptions.

Prepackaged software the named insured is holding for sale is covered.
Electronic data records, software programs and applications, and proprietary software programs that are part of the building’s HVAC, lighting, elevators, or security systems if they are integrated into those systems.

6. Land, Water, Growing Crops, or Lawns (BP 0816 change)

Land is not covered by the policy, even if it is beneath a covered structure. Water, whether on the surface or underground, is also not covered. Additionally, growing crops and lawns are not included. The only exception is for lawns that are part of a vegetated roof.

7. Lottery Tickets

Lottery tickets in the possession of the named insured for the purpose of sale are considered covered under the policy. Conversely, lottery tickets not offered for sale, despite potentially holding value for the named insured, are excluded from coverage.

8. Money or Securities

There is no coverage for money, securities, accounts, bills, or food stamps.

NOTE: Coverage can be added by endorsement.

9. Trees, Shrubs, or Plants (BP 0816 change)

Indoor or outdoor trees, shrubs, or plants are not covered. Grain, hay, straw, or other crops outdoors are also not covered. However, coverage applies when they are indoors.

There are two exceptions.

· Extensions of Coverage: Coverage A–Buildings 3. Trees, Shrubs, and Plants provides limited coverage.

· Trees, shrubs, or plants on a vegetated roof are covered.

10. Valuable Papers and Records

There is no coverage for valuable papers and records.

However, limited coverage is provided under Extensions of Coverage: Coverage B–Business Personal Property 6. Valuable Papers and Records.

11. Vehicles or Aircraft

Coverage does not apply to aircraft or vehicles. There is also no coverage for any self-propelled machine requiring a license for use on public roads. Computers designed for or permanently installed in aircraft, vehicles, or self-propelled machines are also not covered.

Example: Kelly purchased a drone to take photographs of real estate properties for his business as a realtor. However, his insurance policy does not cover the drone. The drone has a permanently installed computer used for navigation and photography.

When Kelly removed some parts of the computer for maintenance, a fire caused damage to them. Unfortunately, the fire damage is also not covered by the policy, even though the parts were not attached to the drone at the time of the incident.

NOTE: There are now separate policy forms (such as Inland Marine) designed for these types of vehicles and aircraft.

Related Article: CA 00 01–Business Auto Coverage Form Analysis

12. Watercraft

There is no coverage for watercraft. There is also no coverage for the watercraft's motors, equipment, or accessories while afloat. The motors, equipment and accessories are covered property while on land.

NOTE: Coverage for watercraft and its related equipment is available under boat, yacht, or ocean marine policies.

Related Article: Ocean Marine Insurance Overview

ADDITIONAL PROPERTY EXCLUDED AND LIMITATIONS

The following exclusions and limitations apply to Coverage A–Buildings and Coverage B–Business Personal Property.

1. Animals

Animals are not covered. However, there are two exceptions under which certain animals can be considered covered property, but the coverage is quite limited. First, the animal must suffer damage caused by a specified peril or due to the breaking of building glass. Second, the damage must either result in the death of the animal or require its destruction.

NOTE: The only animals covered are those which the named insured owns, keeps inside a building, and holds for sale. Additionally, animals owned by others the named insured boards are covered.

2. Boilers

There is no coverage when loss or damage occurs to any of the following:

a. Steam boilers, steam pipes, steam turbines, or steam engines, but only when a condition or occurrence within them causes the loss or damage. However, if gas or fuel that explodes in a firebox, combustion chamber, or flue causes the loss or damage, then coverage applies.

b. Hot water boilers or water heaters, but only when a condition or occurrence within them causes the loss or damage. However, if there is an explosion within a hot water boiler or water heater, then coverage applies.

Example: The hot water heater's pilot light goes out. However, gas continues to fill the chamber and sparks from attempts to re-ignite the pilot light cause an explosion. The damage caused by the explosion is covered.

NOTE: Equipment Breakdown Protection Coverage should fill this gap in coverage due to this limitation.

Related Article: 231.1, ISO Equipment Breakdown Protection Coverage Form Overview

3. Furs

Theft of furs or fur garments is covered but limited to not more than $2,500 in a single occurrence.

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NOTE: Businesses with stocks of fur can be insured under furriers block coverage forms and policies.

Related Articles:

Furriers Block Policy

Other Non-Filed Inland Marine Coverage Forms Archive

ISO Furriers Block Coverage Form

4. Glassware/Fragile Articles

Loss or damage to fragile items such as glassware, statuary, porcelain, and bric-a-brac is excluded unless they break due to a specified peril or as a result of building glass breaking. This limitation does not apply to glass that is part of the building or structure. Additionally, it does not apply to bottles and other containers held for sale. Photographic and scientific instrument lenses are also exempt from this limitation.

5. Interior of Building or Structure (BP 0816 change)

Coverage does not apply to loss or damage to the interior of a building or structure caused by rain, snow, sleet, ice, sand, or dust. It also does not apply to loss or damage to the personal property in that building or structure from the same perils. This applies regardless of whether wind is involved.

However, there is coverage for the building or structure, and personal property if these elements enter the building through an opening that a covered peril first creates. Additionally, coverage applies if the snow, sleet, or ice thawing on the building or structure causes the loss.

Examples:

Rain enters through an open window, pools on the hardwood floor, and damages it. This loss is not covered.
The force of the wind from a tornado blows open the same window, rain enters, pools on the hardwood floor, and damages it. This loss is covered.
The snow on the roof is 10 inches thick. It begins to melt and leaks through the roof into the bedroom, pools on the hardwood floor, and damages it. This loss is covered.

6. Jewelry, Watches, Jewels, Pearls, Precious Stones, or Metals (BP 0816 change)

Theft of jewelry, watches, jewels, pearls, precious stones, or precious metals is covered but limited to no more than $2,500 in a single occurrence. However, individual watches and jewelry valued at $100 or less are not subject to this limitation. The $2,500 limit can be increased on the Declarations.

Example: A thief breaks into the Jones Department Store, focusing on the jewelry area. She steals $25,000 in jewelry and watches valued at less than $100 each. She also steals $50,000 worth of items, each worth more than $100. She then starts a fire to cover her tracks, which causes an additional $100,000 in damage to the jewelry area.

The total claim paid is as follows:

· $25,000 for jewelry and watches valued at less than $100 each.

· $2,500 for items valued at more than $100 each. The limitation applies because of theft, and the limit was not increased.

· $100,000 for the damage the fire caused.

NOTE: Businesses with stocks of this type of merchandise can be insured under Jewelers Block Coverage Forms and Policies.

Related Articles:

ISO Jewelers Block Coverage Form

Jewelers Block Policy

AAIS Jewelry Dealers Coverage

ISO Jewelers Block Coverage Form

7. Missing Property

Property that cannot be accounted for and lacks any physical evidence to explain its disappearance is not covered. Property considered missing because of an inventory shortage or that has mysteriously disappeared are examples of such uncovered losses.

This limitation does not apply to losses that would otherwise be covered under Optional Property Coverages 1. Employee Dishonesty, or 2. Money and Securities covers.

8. Patterns, Dies, Molds, Models, or Forms

Theft of patterns, dies, molds, models, or forms is covered but limited to no more than $2,500 in a single occurrence.

9. Personal Property in the Open

Personal property left in the open and then damaged by rain, snow, ice, or sleet is not covered.

NOTE: Personal property kept in the open is not usually susceptible to such losses; otherwise, the insured would keep it indoors for protection. Any insured who leaves personal property exposed to such losses outside would be considered negligent.

10. Unauthorized Transfer of Property

Coverage does not apply to loss or damage to property that has been transferred to a person or to a place outside the described premises when the transfer is made because of unauthorized instructions.

MusicStore_1

Example: Mary receives a call from someone named John, who says he is calling on behalf of Gus, Mary’s boss.

John tells Mary he paid Gus $2,000 for a new keyboard and asks her to give it to the deliveryman when he shows up. Mary follows John’s instructions.

When Gus returns, Mary tells him that she followed his instructions only to discover that John misrepresented himself, and the keyboard is now nowhere to be found.

This loss is not covered.

New Unnumbered – Lawns, Trees, Shrubs, or Plants Part of a Vegetated Roof

(BP 0816 addition)

Vegetated roof lawns, trees, shrubs, and plants are now covered under the same provisions as other types of property due to amendments in the Property Not Covered section. However, there are specific exposures unique to these items that remain excluded.

The four new exclusions applicable solely to these items are as follows:

· Temperature changes or extremes

· Disease

· Conditions of the atmosphere or soil being excessively dry or overly damp

· The perils of rain, snow, sleet, ice, frost, or hail

ADDITIONAL COVERAGES

This section provides additional property coverages. Each has additional limits unless specifically stated otherwise.

1. Antennas, Fences, or Signs

The Property Not Covered section excludes loss or damage to specific types of outdoor property. This additional coverage insures that type of property and is subject to the following limitations:

Outdoor fences are covered for only the perils of fire, lightning, explosion, riot, civil commotion, and aircraft.
The most paid is $2,500. Higher limits are available.
Outdoor signs not attached to a building are covered for up to $1,000 per sign.

NOTE: The wording that applies to the most paid does not indicate if the limit is per occurrence, per item, or per policy. This could lead to some confusion.

2. Collapse

The limit is not increased for the covered property under this Additional Coverage.

NOTE: This additional coverage is necessary because of the Collapse exclusion. At one time, coverage forms and policies did not exclude collapse. However, various judicial interpretations revealed an ambiguity in the concept of collapse, so form writers developed the current method of excluding collapse as a peril and then providing collapse coverage in a more straightforward and defined manner.

For an example of how the collapse continues, consider the following court case:

a. Collapse Coverage applies only to sudden and abrupt collapses, covering direct physical loss or damage to property when a building or structure collapses, either fully or partially. This coverage is triggered by one or more of the following specific causes:

1) A structural component being decayed. This cause is covered only if the decay was hidden in such a way that no insured was aware the decay existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the decay. This means that negligently ignoring signs of potential decay is not acceptable.

Related Court Case: Support Beam Failure Excluded Under the Policy

Example: The front porch suddenly collapsed.

Scenario 1: Jess was concerned because she had previously heard creaking when the wind blew. She Googled and talked with friends, who all told her that older buildings creak. Everyone was surprised when the porch collapsed. This loss is covered.

Scenario 2: Jess was concerned when she noticed her porch was bowing and suspected a problem. She did not have the money to spend to correct the condition, and she just ignored the situation and tried to build up her savings. She was thrilled when the porch finally gave way. The insurance company denied her claim because the decay was obvious.

2) A structural component that has been damaged by insects or vermin. This cause is covered only if the insect or vermin damage was hidden in such a way no insured was aware the damage existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the damage. This means that negligently ignoring signs of potential damage is not acceptable.

Example: The floor suddenly collapsed.

Scenario 1: Percy was very surprised when he heard a loud crash in the file room. The room contained archives and was occupied for only a few days each year. Termites had apparently infested the beams under the room and weakened them, causing the collapse. This loss is covered.

Scenario 2: Percy had noticed that the waiting room floor flexed when people walked on it. He checked in the basement but did not see any obvious problems because of the suspended ceiling in the finished basement. He noticed some ants and contacted an exterminator, but never followed through. The floor collapsed because of an infestation of carpenter ants. This loss is not covered.

3) Defective materials or methods used during construction, remodeling, or renovation while the construction activities are taking place is covered.

Example: Paul places boards against the tilt-up wall to hold it in place until it is properly secured. The boards give way because they are defective, and the wall collapses. This collapse is covered due to the defective boards.

If a completed building or structure collapses solely due to defective materials or methods used during construction, there is no coverage. However, there is an exception. If a sudden and abrupt collapse is caused by any of the following factors, there is coverage, even if the collapse is also the result of defective materials or methods.

a) A structural component being decayed. This cause is covered only if the decay was hidden in such a way that no insured was aware the decay existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the decay. This means that negligently ignoring signs of potential decay is not acceptable.

Example: James had windows installed when he remodeled his office. The windows were not installed properly, and water seeped in. Because the walls were paneled, there were no obvious problems. The water seeped into the floorboards and eventually resulted in their decay, leading to collapse. Even though defective construction methods were the reason behind the collapse, coverage applied because the hidden decay caused the collapse.

b) A structural component damaged by insects or vermin. This cause is covered only if the insect or vermin damage is hidden in such a way that no insured was aware the damage existed. Being unaware is acceptable only if there was no reasonable way for an insured to suspect the decay. This means that negligently ignoring signs of potential damage is not acceptable.

c) Specified perils or building glass breaking, but only as covered under the Property Coverages.

Example: Gayle purchased a garden shed kit. She assembled it based on her best guess and ignored the detailed instructions accompanying the kit. A windstorm that occurred three months later caused the improperly constructed shed to collapse. Coverage applies even though the defective construction was a primary reason behind the wind causing the shed to collapse.

d) Weight of personal property or people

Example: The architect’s plans for the balcony specified the use of 3/4-inch screws. However, Jerry’s crew opted to use 1/2-inch screws instead, believing they would suffice. The balcony ultimately collapsed when furniture was placed on it. Coverage is applicable even though the main reason for the collapse was Jerry’s faulty decision to substitute 1/2-inch screws for the specified 3/4-inch screws.

e) The cumulative weight of rainwater that collects on a roof.

b. Collapse restrictions

It is important to understand what collapse means. This paragraph defines the term.

The important words are sudden and abrupt. A gradual collapse is not a covered collapse. The building must cave in, fall in, fall down, or give way. The building, structure, or any portion of the building or structure can collapse. However, to be considered collapse, the building or part of the building where the collapse occurred can no longer be occupied for its intended purposes because of the collapse.
The following are examples of buildings not considered to be in a state of sudden and abrupt collapse:

o A building or structure, or any part of a building or structure, that remains standing even though it may be bending, bulging, cracking, expanding, leaning, sagging, settling, or shrinking.

o A building or structure, or any part of a building or structure, that looks like it may very soon cave in, fall down, fall in, or give way.

o Any portion of a building or structure that remains standing even though it has separated from the building or structure or any portion of it.

c. Additional Property Restrictions

This is coverage for collateral damage of a covered collapse. There is coverage when a building or structure collapses as described above and causes direct physical loss or damage to the property described in this paragraph. However, this applies only if this policy covers the described property. The described property is the following:

Outdoor radio, television, satellite, dish-type, and other antennas. This includes their masts, towers, and lead-in wiring.
Outdoor canopies, awnings, and their supports
Gutters and downspouts
Fences
Yard fixtures
Outdoor swimming pools
Wharves, docks, piers, and bulkheads
Beach and diving platforms and related attachments
Retaining walls that are not part of buildings or structures
Roadways, bridges, walkways, and other paved surfaces

Example: The high-rise office building has collapsed, causing damage to nearby properties. The building is covered, and coverage applies to all the following damages:

· The destroyed tower and antenna on the roof.

· The destroyed satellite dishes on the ground.

· The torn-off awnings on the owned building next door.

· The torn-off gutters and downspouts on the owned building next door from falling debris.

· The fences and yard fixtures of the building that collapsed, and the owned neighboring buildings that falling debris crushed.

d. Collapse of Covered Personal Property

Direct damage caused when covered personal property collapses is covered, even when the building or structure does not collapse. The personal property collapse must be sudden and abrupt and must result from one of the causes listed in paragraph a. of this additional coverage. The important words are sudden and abrupt. Gradual collapse is not a covered collapse. The personal property must cave in, fall in, fall down, or give way.

Personal property that is bending, bulging, cracking, expanding, leaning, sagging, settling, or shrinking has not collapsed. The collapse must be sudden and abrupt.

The coverage this paragraph provides has two restrictions. There is no coverage for either of the following:

Any property listed in 2. c. above.
If marring or scratching is the only loss or damage that sudden and abrupt collapse causes.

e. Any reference to Covered Peril includes this Additional Coverage 2. Collapse as described and limited in
2. a., 2. b., 2. c., and 2. d. above.

Example: An earthquake damages a building's wall and causes a tree limb to fall, causing part of the roof to collapse. The collapse peril usually applies to falling objects, but neither the damage to the wall nor the damage to the roof is covered because both were the result of the earthquake, an excluded peril.

Examples:

Carpenter ants eat through roof supports in sections of the roof where there is no access, and there is no visible evidence of damage until the roof collapses. This loss is covered.
Visible termite damage in the floor joists causes the floor to collapse. This loss is not covered.
The building under construction collapses when faulty temporary supports fail. This loss is covered.
The building collapses six months after being renovated and reoccupied due to the weight of personal property. This loss is covered.
Workers pile more weight on a shelf than the shelf was designed to handle. The shelf subsequently collapses, and $100,000 of merchandise is destroyed. This loss is covered.

Related Court Cases:

Collapse Coverage Did Not Apply to Replace All Stucco

Policy is Ambiguous about Collapse

3. Counterfeit Money or Money Orders

The insurance company pays up to $1,000 for loss if the named insured, in good faith, accepts counterfeit paper currency or accepts money orders that are not paid when presented. Coverage applies only if the named insured provided money, services, or products in exchange for the currency or money order. Higher limits are available.

Example: Jeremy takes a money order that Angela gave him to the bank. The bank rejects it.

Scenario 1: Angela buys groceries from Jeremy’s store and uses the money order to pay for them. Coverage applies.

Scenario 2: Angela gives Jeremy the money order as a gift. Coverage does not apply.

4. Debris Removal (BP 08 16 change)

The insurance company pays costs to remove debris that results from a covered direct loss during the policy period. This includes debris of both covered and other property.

There is no coverage to remove any of the following debris:

Extract land or water pollutants
Items within the property not covered section
Trees, shrubs, or plants that are covered property only under extensions of coverage
Property of others that would not qualify as covered property under this policy
Mud or deposits of earth from the premises grounds
Polluted land or water. The restoration or replacement of the land or water is also not covered.

The most paid is 25% of the amount paid for the direct damage loss (not the limit), plus 25% of the deductible.

Example: Calculating Debris Removal Coverage

Walt insures his building for $100,000 with a $1,000 deductible. A tornado devastates the town and causes $85,000 in damage to Walt's building. The debris removal costs are $50,000. The maximum debris removal payment is $84,000 X .25 + $1,000 X .25 = $21,250. This means that $28,750 is not covered.

The combination of the debris removal payment and the direct damage loss cannot exceed the damaged property’s limit of insurance.

Example: Calculating the Loss Payment without Additional Debris Removal Coverage

In the example above, because the limit on Walt’s building is $100,000, it is the maximum amount paid. The $84,000 loss is paid (after the deductible is applied), and $16,000 is left to pay for the debris removal. This means that $34,000 of the calculated debris removal expense is not covered.

$100,000 Building Limit

- $84,000 Loss Amount Paid

= $16,000 Remaining Limit Left

($50,000 debris removal loss - $16,000 remaining coverage = $34,000)

An additional $25,000 is available for debris removal. It can be used if the 25% of direct damage is either inadequate or if the combination of direct loss plus debris removal is inadequate (but not both). The $25,000 additional limit is available only once, but the limit can be increased.

Example: Calculating the Debris Removal Coverage with the Additional Coverage

Using the $25,000 limit to satisfy the $28,700 shortfall in the first example does not prevent the limit capping. Applying the $25,000 additional amount of debris removal expense, as shown in the second example, results in a debris removal payment of $41,000.

$16,000 Remaining Coverage

+$25,000 Additional Debris Removal Expense

= $41,000 Debris Removal Payment

If only debris from other property occurs without any direct damage or loss to covered property, $5,000 is available to remove that debris.

Example: The tornado picked up a trailer from the neighboring trailer park and dropped it onto the named insured’s premises. When the trailer dropped, no property on the insured's premises was damaged, but the trailer was destroyed and needed to be removed. The $5,000 limit can be used to pay for the incurred removal costs.

The only expenses for debris removal covered are those reported to the insurance company in writing within 180 days of the direct damage loss.

Related Court Case: Debris Removal Obligation Was Paid

5. Fire Department Service Charges (BP 0816 change)

The insurance company pays any charges the named insured must pay to a fire department called to save or protect covered property from a covered peril. The charges may be required by a local ordinance or contract or agreement between the fire department and the named insured that was executed prior to the loss. The limit is $2,500 and is not subject to a deductible. Higher limits are available.

A very important restriction applies. The limit applies per occurrence and is not based on how many fire departments respond or how many services are performed.

Example: Enjoyable Eating has contracted with three different volunteer fire departments because it is located at the far end of town. During a fire, all three departments respond. After the initial response, one fire department remains on-site to monitor for any rekindling of embers.

The total bill amounts to $1,500 for two of the fire departments and $2,000 for the third. However, since the limit was not increased, the insurance company will only pay a total of $2,500.

6. Forgery

The insurance company pays for a direct loss caused by the following:

a. Forgery or alteration of written promises. This paragraph applies to written promises, orders, or directions requiring money to be paid. Examples of such promises include, but are not limited to, checks, drafts, and promissory notes. These could either be made, or allegedly made, or drawn on the named insured or an agent who works on the named insured's behalf.

Mechanically reproduced facsimile signatures are treated as handwritten signatures with respect to the coverage in this paragraph. In addition, substitute checks (as the 21st Century Act defines them) are considered the legal equivalent of the original check.

b. Forgery or alteration of cards. This paragraph applies to those written instruments used with credit, debit, or charge cards. These cards must have been issued to the named insured, a partner, officers, directors, trustees, members, managers, or employees for use in the named insured’s business.

This paragraph’s coverage applies only when the named insured is legally liable to the organization that issued the credit, debit, or charge card used with the forged or altered written instrument. The named insured is required to comply with all terms, provisions, and contract conditions to which it agreed when the credit, debit, or charge card was issued.

With respect to coverage described in item a. or b. above:

· If the named insured is sued for refusing to honor forged or altered documents, and the named insured has written permission from the insurance company to defend, the insurance company will pay reasonable defense costs.

· The most paid is $ 2,500 (unless a higher limit is selected). This limit includes the defense costs described above.

Example: Ornelle Shopping Company issues credit cards to all its managers, but Roger rarely uses his. He receives a credit card bill that reflects charges he did not incur. After checking his wallet and discovering that the card is missing, he immediately notifies the credit card company. Ornelle refuses to pay the bill because it is forged. When the credit card company sues Ornelle, its legal expenses are covered up to $2,500.

7. Glass

First things first, the actual glass loss is covered as either building or business personal property coverage. This Additional coverage is about the extra costs incurred following a glass loss.

The insurance company pays the following expenses if building glass is damaged. These expenses are not in addition to the limit of insurance.

a. When the glass frames are damaged as part of the building glass loss, the cost to either repair or replace those frames is covered.

b. Often, delays occur that prevent glass from being immediately repaired. This item pays the cost of protecting the opening where the glass had been until the glass can be replaced. This may involve boarding up the opening or installing temporary glass until the replacement glass is installed.

c. A glazier must have access to the glass to remove damaged glass and to properly install replacement glass. Barriers may be in place that must be removed before work can begin. The costs to remove and replace those barriers are covered.

However, this Additional Coverage does not include removing or replacing window displays.

Example: Velvy’s mother installed artistic iron gratings over all the storefront’s windows. In the past, a key allowed the gratings to be removed, but the key was lost years ago. Velvy is known for her creative window displays that work with the iron gratings while showing off the latest fashion. An attempted smash and grab damaged a window, but thanks to the iron gratings, the perpetrators did not enter the store.

Velvy’s insurance company pays to remove the gratings, and because they were damaged during the removal, it also pays to replace them. However, it does not pay for the cost Velvy incurs to remove and replace the window display.

8. Increased Costs-Ordinance or Law

Perils Excluded 5. Ordinance or Law excludes coverage for any increased costs of construction due to a civil authority imposing or exercising a law or ordinance after a loss. This Additional Coverage provides limited relief from that exclusion.

If construction costs related to a direct damage loss increase because a code, ordinance, law, or decree that regulates construction, use, or repair of any property is enforced, this coverage covers those increased costs. However, this additional coverage is subject to several restrictions:

a. Coverage is only applicable if the building is insured on a replacement cost basis.

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

Example: Al owns a two-story frame building in downtown Plymouth. It was built in 1900. After the building burns down, Plymouth passed an ordinance that all downtown buildings must be made of masonry or better construction. This coverage does not apply because the ordinance was enacted after the fire.

c. If the building is subject to a code, ordinance, law, or decree before a loss occurs, but the named insured does not comply with it, the insurance company will not pay to comply with it after the loss.

Example: Harry's Hardware is cited for not complying with the village's plumbing and drainage rules. Harry argues with the village about the issue.

A storm damages Harry’s building. Harry must pay the increased construction costs to satisfy the ordinance because he will not get a building permit unless he agrees to do so.

The insurance company will not pay for that cost.

d. If a business must relocate based on a code, ordinance, law, or decree, the increased cost of construction is limited to those required at the new location.

Example: Millie’s Pet Suites and Spa is located in West Union, where a new ordinance limits businesses and residences to four animals.

Millie's business is grandfathered in until her building collapses under the weight of ice and snow. If she stays, she must follow the ordinance.

Instead, she decides to move outside the village limits, where the ordinance doesn’t apply, and any increase in construction costs will be covered.

e. The named insured has the option to build at a new location. If it exercises that option, the insurance company pays only the increased costs of construction that the named insured would have incurred to rebuild at the old site.

Example: Let’s change Millie’s example from above so that no ordinance requires her to relocate. She is eligible to receive increased costs equivalent to what she would have incurred at her current location. She decides to voluntarily move her facility; therefore, she’s eligible for construction cost increases, but only for what she would have incurred at the old site location.

f. The insurance company does not pay anything until the building is repaired or replaced. However, there is a time frame to consider. The repair or replacement must be done as soon as reasonably possible and completed within two years of the date of loss.

Example: Millie is exhausted and decides to take a vacation before tackling the rebuilding project. If she delays too long, the insurance company could decline to pay any costs because of this condition.

g. This coverage is not intended to provide coverage for pollution or fungus and related expenses.

Many states have imposed environmental regulations, but this coverage will not apply to those. Any costs or expenses for abating, monitoring, assessing, cleaning up, removing, containing, treating, detoxifying, neutralizing, or in any other way responding to pollution or fungus or related perils are not covered. In addition, coverage does not extend to any increased costs resulting from the existence of pollutants or fungus or related perils.

This Additional Coverage’s limit of insurance is $10,000 on each covered building or structure.

The BP 0321–Ordinance or Law Extension is available, which provides a more comprehensive coverage and higher limits.

9. Inventory and Appraisal Expenses

The insurance company agrees to pay inventory and appraisal expenses the named insured incurs. However, these expenses are covered only if the insurance company requests that the named insured incur them to determine the value of the loss. This means that coverage does not apply if the named insured incurs the expenses solely for its own benefit.

In addition, this Additional Coverage does not pay public adjusters’ fees or any expenses due to invoking the Appraisal condition. The most paid is $2,500 and is not subject to a deductible. (Higher limits are available.)

10. Limited Fungus and Related Perils (BP 0816 change)

This Additional Coverage is provided because the policy excludes most losses that fungus causes. This extremely limited coverage is similar to Additional Coverages 12. Pollutant Cleanup and Removal, especially with respect to the aggregate limit.

a. Coverage

Coverage applies only if a covered loss resulting from a specified peril first occurs, and because of that covered loss, a fungus or related peril loss occurs. The specified peril must occur during the same policy period in which the fungus loss occurs.

Example: Costume Corner’s policy is issued for the period May 4, 2024, to May 5, 2025. The renewal period is May 5, 2025, to May 5, 2026. A windstorm occurs on February 2, 2025. On July 1, 2025, Margie notices fungus activity that she believes is directly related to water that entered the building at the time of the storm. Her claim is denied because the specified peril loss occurred in the first policy period, and the fungus loss occurred in the second policy period.

The coverage aggregate limit applies to both direct loss and clean-up costs. The costs of removing and replacing property to remove the property that the fungus damaged and conducting any follow-up testing are also covered.

Coverage applies only if the named insured does everything possible to protect the property at and after the occurrence.

Coverage does not apply to a vegetated roof’s lawns, trees, shrubs, or plants.

b. Limited Fungus and Related Perils Coverage Aggregate Limit

This coverage is subject to a $15,000 aggregate limit. This limit is restrictive in that it does not apply per occurrence. It applies for each consecutive annual policy period or any extension of a policy period that consists of less than 12 months, regardless of the number of claims made or buildings insured. This coverage does not increase any other limits for covered property, expenses, or assessments.

c. Exceptions

This Additional Coverage has four exceptions. These are intended to prevent conflict and ambiguity because each exception is covered elsewhere in the policy. The limitations within this item do not apply to any of the following:

Fungus that results from fire or lightning
Additional Coverages 14. Removal
Collapse caused by hidden decay subject to Additional Coverage–Collapse
Accounts receivable, computers, or outdoor signs coverages

d. Application of Coverage

This Additional Coverage does not apply to loss or damage to covered property if it is not caused by fungus or related perils in any way. The only exception is when fungus or related perils increase the amount of a loss. This Additional Coverage only insures the increased amount of loss due to fungus or related perils, and this increase is subject to the terms of this Additional Coverage.

11. Lock and Key Replacement

When a burglary is considered a covered theft loss, this coverage is available. It covers the expenses the named insured incurs to repair or replace exterior or interior door locks and keys, but only at the location where the loss occurred. Coverage applies under two circumstances. The first is if the named insured property was damaged, and the second is if the named insured’s keys were stolen.

The most paid is $1,000, but it is not subject to a deductible. Higher limits are available.

12. Pollutant Clean Up and Removal

This Additional Coverage is provided because this policy excludes most pollution losses. This extremely limited coverage is similar to Additional Coverages 10. Limited Fungus and Related Perils, especially with respect to the aggregate limit.

Coverage applies to expenses the named insured incurs to extract pollutants from land or water. However, it applies only if a covered peril caused the pollutant to be released. The peril that causes the release must occur during the policy period.

There are two restrictions:

a. The named insured must report the expenses to the insurance company within 180 days of the date that the covered peril occurred to be paid.

b. The insurance company pays the costs to observe, test, evaluate, or record pollutants (or their effects) only when this Additional Coverage covers the expense to extract them.

This coverage is subject to a $10,000 per premises aggregate limit. This limit is restrictive in that it does not apply per occurrence. It applies to each consecutive annual policy period. Higher limits are available.

Example: Because of a fire in Fernando's building, chemicals leak onto the land, into the stream, and into the building’s basement. This Additional Coverage covers the costs to clean up the land and the stream. It does not cover the cost of removing chemicals from Fernando's basement.

13. Recharge of Fire Extinguishing Equipment

This Additional Coverage pays the costs to recharge fire extinguishing systems or manual fire extinguishing equipment. Coverage applies only if the discharge was due to an accident, a covered loss, or fighting a fire on the premises or within 100 feet of it. Coverage also applies to conduct hydrostatic testing.

This Additional Coverage also applies to loss or damage to covered property that such accidental discharges cause. However, there is no coverage for loss due to a discharge that takes place during installation or testing.

The limit is $5,000 and is not subject to a deductible. Higher limits are available. The insurance company has the option to replace the equipment instead of recharging it.

NOTE: This Additional Coverage is to the named insured and the insurance company’s benefit because the safety equipment is fully charged and ready if there is another fire.

14. Removal

If covered property is moved from its original location to another location to protect it from a potential covered risk, it will be covered during the move and at the new location for up to 30 days, or until the policy expires, whichever comes first.

NOTE: This important coverage is unique because the coverage provided is not subject to any exclusions. The only requirement is that the potential peril be a covered peril.

ColoradoFirePan

Example: Roger watches the progress of the wildfire and moves his inventory to his brother's repair garage, which is safely beyond its reach. When he attempts to retrieve the property 20 days later, he discovers that it is damaged beyond repair by being exposed to the gasoline and oil fumes in the garage. The loss to the inventory is covered because it was moved there to protect it from the wildfire.

15. Tearing Out and Replacing

The named insured may have to open walls, ceilings, or floors to reach and repair a leaking plumbing system that causes water, liquid, powder, or molten material damage to the building or business personal property. Without this coverage, the policy does not cover the damage to the walls, ceilings, or floors because a covered peril did not damage them.

This Additional Coverage insures damage done to undamaged property that conceals the plumbing system. However, it does not pay the costs to repair the plumbing system itself, but there is an exception. It will cover damaged parts of an automatic fire protection system if damaged by freezing or discharge of any substance from such systems.

This Additional Coverage does not have its own sub-limit. It is considered part of the limit of insurance.

Example: A water pipe bursts behind a wall. The cost of tearing out the sheet rock to get to the break is covered. The water damage to the walls, floors, and personal property is also covered. The cost of repairing the pipe itself is not covered.

EXTENSIONS OF COVERAGE

Each extension of coverage is an additional amount of insurance that applies to losses a covered peril causes at the described premises unless stated otherwise.

The Following Extensions of Coverage Apply to Coverage A–Buildings:

1. Building Property–Off Premises

Building property being kept temporarily within the basic territory but at a location the named insured does not own, control, rent or lease is covered. Coverage applies while such property is in transit. There is no coverage for theft of that property from a vehicle that is left unattended unless the property was in a locked and secured part of the vehicle. Evidence of forced entry must be visible.

The limit for property off-premises is $5,000. Higher limits are available.

Example: Wally removes an air-conditioning unit and takes it to a dealer for repairs. While at the shop, a fire in the shop damages the unit. This loss is covered up to the $5,000 limit.

2. Newly Acquired Buildings

Buildings or structures newly constructed on the covered premises and buildings or structures newly acquired but at a premises not described are covered. The new construction or the acquisition must occur during the policy period. If newly acquired, the premises must be within the basic territory.

Coverage begins when construction begins or when the building or structure is acquired. It ends at the earliest of 30 days later, when the policy expires, or when the building or structure is reported to the company to be added to the policy.

This is not free coverage. Once reported, the items are added to the policy as of the acquisition date or construction starting day, and the premium must be paid. The maximum paid for a single newly acquired building or structure is $250,000.

3. Trees, Shrubs, and Plants (BP 0816 change)

Loss or damage to the named insured's outdoor trees, shrubs, and plants is covered, but only if the perils of aircraft, civil commotion, explosion, fire, lightning, or riot caused the loss or damage.

The cost to remove the debris created by a covered loss is part of this extension. The cost to remove debris of other property consisting of trees, shrubs, and plants that land on the premises is also part of this extension.

This coverage does not apply to a vegetated roof’s trees, shrubs, or plants nor to debris of other property that belongs to the named insured’s landlord.

The most paid is $2,500, subject to $1,000 for any one tree, shrub, or plant. The BP0816 change has removed the cost of debris removal from this limit. This is due to the changes within the Additional Coverages – Debris Removal. Higher limits are available.

Example: Paula’s outdoor landscaping was destroyed when a protest spilled out from the street onto her property.

Three young trees were bent so badly that they had to be removed. Each tree costs $500 to plant, but costs $400 to remove because the root systems have to be dug out before new trees can be planted.

The cost of the total covered claim was over $5,000, but this coverage paid Paula only $2,500.

The Following Extensions of Coverage Apply to Coverage B–Business Personal Property:

1. Accounts Receivable

a. Coverage applies to four types of losses if a covered peril damages the named insured’s records of accounts receivable.

Amounts that are owed to the named insured but that it cannot collect.
If the named insured must take out a loan to cover money it cannot collect, the interest charged on that loan is covered.
Any increased collection costs that the named insured incurs when the increase is due to the accounts receivable loss.
Costs that are incurred to reproduce or reconstruct the accounts receivable records. Only costs that are deemed reasonable are covered.

b. Exclusions

Only three exclusions in Perils Excluded apply to this Extension of Coverage.

Civil Authority
Nuclear Hazard
War and Military Action

Only four exclusions in Additional Exclusions apply to this Extension of Coverage:

Criminal, Fraudulent, Dishonest, or Illegal Acts
Electrical Damage
Indirect Losses
Voluntary Parting

Three exclusions are added for this Additional Coverage:

No coverage applies if a loss results from concealing, altering, or destroying the insured's accounts receivable records to hide criminal or fraudulent activities involving money, securities, or property.

NOTE: The concealment, falsifying, etc., can be conducted by any person – it could be the named insured, but it could also be any employee or even an outsider.

Example: Perry is the Journeyman’s bookkeeper. He has been embezzling for a few months and just found out that an outside auditor is coming to the office the next day to review the books. Perry panics, breaks into the office that evening and sets a fire that destroys all the accounting records. The investigation traces the arson to Perry, who confesses. The insurance company does not pay Journeyman anything for its accounts receivable loss.

When a loss is uncovered only because of a discrepancy in the named insured's books or records it is not covered. However, the named insured may use such a discrepancy to support its accounts receivable claim if there is other evidence to prove that a loss occurred.
Bookkeeping, accounting, billing errors, or omissions losses are not covered.

c. The most paid for an on premises loss is $10,000 per occurrence. The most for an off premises loss is $5,000. Higher limits are available.

2. Business Personal Property

The insurance company pays for loss or damage to the following Business Personal Property:

a. Business personal property at a new location the named insured acquires.

Example: Mark purchases a new building. The purchase price includes all business personal property inside the building. Extensions of Coverage 2. Newly Acquired Buildings covers the building. This Extension of Coverage covers the newly acquired business personal property. If Mark moves any business personal property into the new building, this Extension of Coverage also covers that property.

b. Business personal property newly acquired by the named insured but is located at an existing premises.

Example: Mark finds a great deal. He immediately purchases the machinery and has it delivered to his main building. This Extension of Coverage covers the newly purchased property.

c. Business personal property at the described premises in a building either under construction or newly acquired.

Example: Mark moves business personal property into a new building, which he is building on his property. Extensions of Coverage 2. Newly Acquired Buildings covers the building. This Extension of Coverage covers the business personal property.

Coverage applies to only such locations in the basic territory.

Coverage begins when the named insured acquires either the location or the business personal property. It ends no later than 30 days after the date it was acquired. However, the coverage extension ends as soon as the location or the business personal property is reported to the insurance company or the policy expires, whichever comes first. The named insured pays the premium for the location or the business personal property it acquired beginning with this coverage’s effective date.

The most this Extension of Coverage pays is $100,000 at each building.

3. Business Personal Property–Off Premises

This Extension of Coverage insures business personal property temporarily at locations in the basic territory that the named insured does not own, control, rent, or lease. It also covers property in transit. It does not cover valuable papers and records or accounts receivable. Coverage also does not apply to theft from unattended vehicles unless the property is in a locked and secured part of the vehicle and there are visible signs of forced entry.

The most this Extension of Coverage pays is $10,000. Higher limits are available.

4. Data Records and Programs (BP 0816 change)

Loss or damage that a covered peril, computer hacking, or computer virus causes to data records, programs and applications, and proprietary programs is covered.

However, there is no coverage for loss or damage:

when caused by or is a direct result of an employee or volunteer manipulating the computer system. The employee may be full time, leased or temporary. There is also no coverage if the computer manipulation was by an individual or organization hired by the named insured to provide computer-related services.
to accounts receivable.
to prepackaged software that the named insured holds for sale.
to electronic data records, software programs and applications, and proprietary software programs that are part of the building’s HVAC, lighting, elevators, or security systems if they are integrated into those systems.

The coverage is limited to no more than $10,000 aggregate in any one policy period. This limit is flat and is not increased regardless of the number of computers, premises, locations, or occurrences. The limit can be increased.

5. Personal Effects

Coverage applies to personal effects that the named insured, its partners, officers, directors, trustees, joint venturers, members, managers, or employees own. Personal effects do not include the named insured's business equipment or tools.

The most the insurance company pays at each premises is $2,500. Higher limits are available.

NOTE: The policy does not define Personal Effects.

Example: A windstorm blows in the windows at Jill’s Design Place and destroys Jill’s personal collection of tea cups. It also ruins her family pictures, the two suits she had just cleaned, and a pair of boots she stored under her desk. Her personal assistant’s vase, teapot, coat, and family pictures were also ruined. All could be covered as personal effects.

6. Valuable Papers and Records

a. This Extension of Coverage insures loss or damage to valuable papers and records that the named insured owns and those in its care, custody, or control. The loss or damage must be caused by a covered peril.

b. Coverage does not apply to loss or damage to property:

· After it has been sold, even though it has not yet been delivered.

· That is stored at a location other than the described premises

· When it is a sample that is for sale

Only exclusions in Perils Excluded apply to this Extension of Coverage:

Civil Authority
Nuclear Hazard
War and Military Action

Only three exclusions in Additional Exclusions apply to this Extension of Coverage:

Criminal, Fraudulent, Dishonest, or Illegal Acts
Voluntary Parting
Defects, Errors, or Omissions but only item c. in that exclusion

c. The most paid for an on-premises loss is $10,000 per occurrence. The most for an off-premises loss is $5,000. Higher limits are available.

Additional Unnumbered Coverage B – Business Personal Property Extension (BP 0816 addition)

Business Personal Property – Portable Storage Units

Business personal property stored in a portable storage unit or detached trailer is covered under the following circumstances:

There must be a direct physical damage loss
The property must be covered
The storage is temporary
The unit or trailer is within 100 feet of the described premises. The described premises may be the interior of a building or structure, and then this requirement is that it be within 100 feet of that building or structure.

The coverage provided above is restricted under the following circumstances:

The loss happens after the business personal property has been in storage in the unit or trailer for more than 90 days.
The actual unit or trailer has been on the premises and in use for more than 90 days in a row.
The loss or damage is due to rain, snow, sleet, ice, sand, or dust unless the actual unit or trailer was damaged by a covered peril allowing these excluded perils to enter or the snow, sleet or ice on the unit or trailer thawed and entered the unit or trailer.
The loss is covered elsewhere under this policy or an endorsement attached to it.
The loss or damage is to the trailer or unit.

The coverage is limited to $10,000 for a single occurrence and applies over covered property in such trailers or unit. There is no per trailer or per unit limit. This limit can be increased.

COVERAGE C–LOSS OF INCOME (BP 0816 CHANGES)

Loss of income coverage begins only after direct physical loss or damage to real or personal property. While direct damage to property does not always result in the business being interrupted, loss of income coverage applies if it does. This coverage applies only if the direct damage to property is caused by a covered peril that interrupts the named insured’s normal business activities. Any subsequent loss of income is covered but only during the period of restoration.

NOTE: There is no requirement that the damaged property be covered by this policy.

Restrictions

Coverage C–Loss of Income is subject to the following four restrictions:

a. A peril that applies only to computers is not a covered peril.

b. Real or personal property must sustain loss or damage at the described premises or within 100 feet of the premises either in the open or in a vehicle. If the named insured occupies, rents, or leases only part of the premises or building, the term premises includes both the portion the named insured occupies and any area of the building that provides service for or access to the named insured’s portion of the premises.

NOTE: With the 0816 change, the word site has been removed.

Damage to personal property in the open or in a vehicle within 100 feet of the building of the insured’s described premises.

c. There is no coverage when Loss of Earnings or Extra Expenses is due to loss, damage, destruction, or corruption of data records, programs and applications, or proprietary programs. A limited amount of coverage is available under Additional Loss of Income Coverages for Destruction of Data Records and Programs.

d. Only the loss of income and extra expenses incurred within the 12 months following the date of direct physical loss or damage to property are covered.

NOTE: This means that this coverage does not have a dollar limitation and that the time period can extend beyond the policy expiration date.

Example: Roger has an office on the 14th floor of a high-rise office building. The building’s lobby is damaged so severely that clients cannot use the elevators to reach Roger’s office. Roger has a loss of earnings even though his property is not damaged.

Roger’s policy period is February 1, 2025, to February 1, 2026. The damage to the lobby occurred on July 15, 2025. Roger cannot resume his operations until April 1, 2026. The insurance company pays Roger’s total claim even though his policy expired.

Coverage Limit

If there is a limit of insurance for this coverage on the declarations, it is the most paid for all earnings and extra expenses combined.

NOTE: This might create a degree of ambiguity because there is no indication whether the time limit or the dollar limit takes precedence. The Businessowners Policy Rating Manual states the limit for Loss of Income is to be 20% of the limit for Coverage A plus 100% of the limit for Coverage B. There is an option to provide coverage without a specific limit, but it is subject to a premium surcharge. When the named insured selects this option, the words “Actual Loss Sustained” are entered on the Declarations instead of a limit.

Earnings

This coverage pays the actual loss of net income. Net income is defined as the net profit or loss of the business before income taxes. This coverage also pays for interest, payroll expense along with operating expenses that continue even during a loss. However, only such expenses normal to the business are paid.

To compute the loss, the insurance company looks to the businesses experience and the probable experience had there been no loss.

Example: Harry had a net income of $100,000 from January 1, 2025, to January 1, 2026. He signed a contract with a new customer on November 15, 2025, that should produce an additional $50,000 in net income. Harry has a loss on October 1, 2025, that resulted in a five-month loss of income. The insurance company examines the net income for the period January 1, 2025, to January 1, 2026, and the anticipated future revenue due to the new contract.

Additional Restrictions

The following restrictions apply in addition to the restrictions listed under Coverage C–Loss of Income:

a. The only expenses paid under this coverage (extra expenses coverage will pay other types) are those determined to be necessary during the restoration period. Payroll and other expenses are paid, but only as much as needed so that the business can resume normal operations that existed before the loss occurred at the same level of quality.

NOTE: This means if the business had lousy service in the past because of inadequate staffing, the payroll expense would only be the amount needed to maintain the same lousy service.

b. The named insured is expected to be prudent. If the named insured can resume any or all operations but chooses not to, this insurance will not pay for an increase in the loss because of that refusal.

c. The insurance payment is for time that the named insured should have needed to resume operations. If the named insured chooses not to resume operations or delays operations, only the amount of loss that should have been incurred is paid.

Example: A covered peril damages the Millie and Sons store. Millie, the owner, has worked for 12 years and has never taken a vacation. She decides this is the perfect time to take a one-month European vacation. The insurance company believes her vacation delayed the book store resuming operations. As a result, it reduces its payment for loss of income by at least one month of her vacation.

d. If the direct damage loss that caused the named insured’s business income loss also caused a situation in which the named insured could have increased its earnings if it had been able to operate following the loss, this coverage does not include that increase.

NOTE: This income would be considered windfall income.

Extra Expenses

This coverage pays three types of extra expenses:

All necessary extra expenses the named insured incurs to continue or resume normal business activities following a loss.

NOTE: These are not the ordinary expenses described in Earnings. These are expenses incurred above and beyond ordinary expenses to help propel the business back into operation.

Any extra expenses to repair, replace, or restore any property. These expenses are incurred to reduce the down time so the only expenses paid are those that reduce the down time. The amount paid is no more than the actual income loss savings.

The extra expenses incurred to research, replace, or restore information on damaged valuable papers and records are paid but only for the amount those expenses reduce the loss of income.

If extra expense is used to purchase property for temporary use, the salvage value of that property is deducted from the extra expense payment.

Additional Restrictions

The following restrictions apply in addition to the restrictions listed under Coverage C–Loss of Income:

a. The named insured is expected to be prudent. If the named insured can resume any or all operations but chooses not to, this insurance will not pay for an increase in the loss because of that refusal.

b. Coverage is limited to only necessary extra expenses incurred during the period of restoration.

c. The insurance payment is for the amount of time the named insured should have needed to resume operations. If the named insured chooses not to resume operations or delays operations, only the amount of loss that should have been incurred is paid.

Examples:

Scenario 1: OK Printing sustains a covered loss. The equipment it needs to resume operations is not available for three months, but the work can be subcontracted to others for an additional cost for the three months. This extra expense is paid.

Scenario 2: Changing the scenario, OK Printing cannot operate without its presses, and its business operations are suspended. The new presses ordered from Regions Machinery will take six months to arrive. The suspension costs the insurance company $50,000 per month.

Regions Machinery offers a priority service that will reduce the waiting period to three months, subject to a $20,000 surcharge and $25,000 in additional freight charges. The insurance company agrees to pay these costs because it reduces its expected loss from $150,000 to $45,000.

Related Court Case: Extra Expense Coverage Endorsement Held Inapplicable

Exclusions and Limitations

The provisions below apply to Coverage C–Loss of Income.

1. Fire Extinguishing

Coverage does not apply to expenses to fight fires.

2. Leases, Licenses, Contracts, or Orders

There is no coverage for the increased amount of loss because a lease, license, order, or contract is suspended, lapses, or cancelled during the period of restoration.

The only exception applies if the suspension, lapse, or cancellation resulted from the interruption of normal business activities. The Period of Loss Extension also applies to this exception.

Extra expenses are paid for the covered suspension, lapse, or cancellation only during the restoration period. This means extra expenses beyond the restoration period is not covered.

Example: KB has a contract to supply Larry’s Retail with up to 10,000 units during a given year. KB’s roof collapsed one month after the contract took effect, and it did not deliver any units during the three-month restoration period. Larry cancels the contract. The insurance company pays for the loss of earnings from the number of units that would have been sold during the restoration period had the contract remained in effect. It does not pay for sales that could have been anticipated after the restoration period and any applicable period of loss extension if the contract had remained in force.

3. Strikes, Protests, and Other Interference

The restoration period is not extended if a strike, protest, or similar activity at the premises interferes with rebuilding, replacing, or repairing damaged property.

Example: A tornado destroys Rolly’s Hardware Outlet and Building Supply. Because the store cannot reopen, it misses the increase in sales from residents rebuilding and repairing their homes and businesses that the tornado also damaged. Rolly’s cannot include the potential increase in sales in its earnings calculation.

NOTE: This means that the insurance company does not cover the increased loss of earnings.

ClothingStore

Example: Stephanie’s clothing store is damaged when an automobile involved in a police chase crashes into it. The police arrest the occupants of the automobile, but one dies during the process.

Numerous individuals visit the crash site daily to protest what they believe to be police brutality. The protests make it impossible for contractors to access the premises, and as a result, repairs cannot be made. Because the demonstrations lasted ten days, Stephanie was not paid for the ten days of lost earnings.

4. Unnecessary Expenses

The insurance company does not cover any expenses incurred by the named insured during the restoration period that the insurance company deems unnecessary.

LOSS OF INCOME COVERAGE EXTENSIONS

The following Loss of Income Coverage Extensions are part of the applicable Loss of Income coverage limit, not in addition to it.

1. Alterations and New Buildings

Loss of Income coverage applies to any loss or damage caused by or resulting from a covered peril at the described premises, specifically to the following:

a. Additions or alterations

b. New buildings or structures that are currently under construction or have already been completed

c. Equipment, machinery, materials, or supplies located on the premises or within 100 feet of it. This coverage applies only to items intended for use in the construction of items a. or b. above, or that are incidental to the new buildings being occupied.

If the loss or damage delays the start of normal business operations, the restoration period will begin when those operations would have commenced if there had been no loss.

Example: The kitchen cabinets for the apartment units are received and stored in a storage shed on the premises. A lightning strike destroys the shed, resulting in the loss of all the cabinets. Replacing them sets the opening day back 30 days. The 30-day loss of income is a covered loss.

2. Fungus and Related Perils

Coverage applies for a cumulative period of up to 30 days to loss caused by the presence and/or any activity of fungus or related perils when it is a direct result of a covered peril. This Coverage Extension does not include fire and lightning as covered perils because fungus from fire and lightning is not excluded.

NOTE: There are some confusing aspects of this extension that may have to be examined:

What is a cumulative period of time? Does it apply to a single loss or to all losses?
When must the initial peril that caused the fungus or related peril occur? Can it be prior to the policy period?
This coverage extension does not refer to the period of restoration. Does the period of restoration apply to this specific type of loss or not?

3. Interruption by Civil Authority

Loss of Income coverage extends to include losses caused when a civil authority denies access to the described premises. The civil authority’s decision to deny access must be the result of damage to property at other than the described premises. This coverage applies only if a peril covered by this policy causes the damage. However, coverage is subject to both of the following provisions:

a. The described premises must be within one mile of the damaged property. It must also be inside the area to which access is denied.

b. The order must be issued because of one or both of the following:

The civil authority requires complete access to the damaged property.
The conditions in the area are considered dangerous because of the damage the covered peril caused or is causing.

NOTE: This change significantly reduces coverage. The previous edition had no restrictions on the distance the described premises had to be from the damaged property. This one-mile limitation may be particularly concerning in rural areas with limited access to roads and bridges.

Example: Millie owns a bait shop near Stonelick Lake. A wildfire starts in a nearby forest, and all access to Stonelick is restricted to emergency vehicles only. The fire does not damage Millie’s bait shop, but it loses two weeks of income during the period of restricted access.

The previous edition provided coverage for this situation. The current edition does not because the wildfire was more than one mile away.

Waiting Period and Time Limitation

Earnings Coverage lasts for up to four consecutive weeks from the order date. However, it does not take effect until 72 hours after this coverage starts.

Example: A riot two blocks from Joseph’s Stop and Shop starts at 9:00 p.m. on a Tuesday. The following day, civil authorities shut down all access to the area at 8:00 a.m. and closed all streets that offered access to Joseph's 24-hour convenience store. The looting continues, and the streets remain closed until the order is lifted at 8:00 a.m. on Saturday morning.

During this time, Joseph is unable to find suitable inventory or a temporary location for its operations outside the riot zone. Joseph’s loss of earnings is $8,500 per day, but the insurance company does not pay anything because the order was not in effect for more than 72 hours.

Extra Expense coverage begins when the civil authority issues the order that denies access to the premises. It ends either four weeks after the date of the order or when Earnings coverage expires, whichever is later.

Example: Joseph is quite the entrepreneur. He knows that, even during a riot, people need food, drink, and various types of supplies. He quickly rents a food cart and stocks it with inventory he moved out of his store. Extra expense coverage pays for the cost of the food cart and any other expenses above the normal expenses that he incurs to remain in operation. Because there is no waiting period, all the expenses are paid.

4. Period of Loss Extension (BP 0816 change)

A business that reopens following a loss can expect a time lag before it resumes a normal revenue stream. However, loss of income coverage ends when it can resume operations. This extension extends the earnings part of the loss of income coverage for the lesser of 60 days or the number of days needed for business activities to return to the level that existed prior to the loss. The 60 day period can be extended.

This additional coverage does not necessarily begin when business income coverage ends. It begins when the damaged property is rebuilt, repaired, or replaced and operations resume. Business income coverage ends when the damaged property should have been rebuilt, repaired, or replaced without stating that operations are resumed. As a result, there may be a gap between the time business income coverage ends and the time extended business income coverage begins.

Example: Hank's Hardware has a fire loss. He cannot find a substitute location, and the restoration takes five months. During this time, Hank's customers take their business to Stan's Structural Stuff in the next town. After the restoration period ends, Hank's seasonally adjusted traffic is only half of what it was before the loss, and he increases his advertising to get his old customers back. The insurance company pays the difference in earnings until business returns to normal or for 60 days, whichever is less.

Restrictions

a. This coverage does not apply when the reason the business activities have not returned to pre-loss level is because the peril that caused the loss of income caused damage in a widespread area, resulting in overall unfavorable business conditions.

Example: Let’s revisit Hank’s example above. Hank resumes business after five months, and the revenue is half of what it was before the loss. However, the reason is not that customers went to Stan’s. Instead, it is because many of his customers are still arguing with insurance adjustors about rebuilding following the tornado. They do not have any money until the claims to fix their homes are resolved, and they are not improving their homes because of the extensive work needed. Because the loss of revenue is due to the current economic conditions, Hank is not eligible for extended coverage.

b. The term “damaged property” does not include finished stock. This means coverage begins even if the finished stock has not been replaced.

ADDITIONAL LOSS OF INCOME COVERAGES

The following Additional Loss of Income Coverages provide additional amounts of insurance.

1. Destruction of Data Records and Programs

NOTE: This is a new section to the policy, but not new coverage. It is added because Loss of Income coverage now excludes it. This means coverage was removed, and a much lower amount of coverage with limited perils is now provided as an additional coverage. Additionally, the coverage is further reduced due to it now being provided on an annual aggregate basis, rather than the standard occurrence basis.

When a covered peril causes loss, damage, destruction, or corruption of programs and applications, proprietary programs, and data records, coverage is provided for the resulting loss of earnings or extra expenses.

a. The perils the policy covers do not apply. The only covered perils are the specified perils, computer hacking, computer virus, and Additional Coverages 2. Collapse.

b. There is no coverage if the damage is caused by or is a direct result of an employee or volunteer manipulating the computer system, regardless of whether the employee is full-time, leased, or temporary. There is also no coverage if the computer manipulation was by an individual or organization hired by the named insured to provide computer-related services.

c. Any additional peril(s) endorsed to the policy do not apply to this Additional Loss of Income Coverage.

Time Limitation

This Additional Loss of Income Coverage does not apply when a loss occurs or expenses are incurred after the restoration period has ended. This limitation applies even if the limit for this coverage has not been exhausted.

Coverage Limit

The most the insurance company pays in any one policy period is $10,000. This is an annual aggregate. It applies regardless of the number of computers, premises, or interruptions. This limit can be increased.

2. Earnings from Dependent Locations (BP 0816 change)

This coverage pays the named insured's loss of earnings because a dependent or a secondary dependent property sustains a direct damage loss from a peril this policy covers. It also covers extra expenses the named insured may incur due to the same type of loss.

There are three restrictions:

There is no coverage if the only direct physical loss or damage is to software. If both software and other property are damaged, coverage ends when the other property is repaired, replaced, or rebuilt, regardless of whether the software is ready.
The named insured may be able to resume business by using other sources or materials, but does not do so. Coverage is reduced by the savings that could have been obtained if it did. This restriction applies only to Loss of Earnings, not to Extra Expenses.
If the named insured chooses to either delay the resumption of operations or not to resume operations at all, the amount of loss is determined based on the time it should have taken to resume operations promptly.

Example: Ashland Floral receives all its orchids from Exotic Orchids. A fire destroys Exotic’s main greenhouse. Ashland’s income drops because it cannot provide many of the more popular flowers. This Additional Coverage pays for that loss of income, but only after the first 72 hours of the loss.

If Ashland can obtain comparable orchids from another source, it must do so. Otherwise, there will be a reduction in the payment for the loss of income.

Coverage Period

a. This coverage begins 72 hours after the direct physical loss or damage to the dependent or secondary dependent location. It ends when the property at the dependent or secondary dependent location should have been rebuilt, repaired, or replaced if reasonable speed and materials of similar quality had been used.

b. The time period is not extended because of enforcing any codes, ordinances, laws, or decrees that regulate any of the following:

Construction, use, repair, or demolition of property
Testing, abating, monitoring, cleaning up, or other activities related to pollutants or fungus

The policy’s expiration date does not limit the coverage period.

Coverage Limit

The most this coverage pays for any one loss is $5,000. Higher limits are available.

3. Newly Acquired Locations

Loss of earnings or extra expense because of loss or damage to property at a location acquired by the named insured is covered if the loss or damage is due to a covered peril. This applies only if the location is within the basic territory.

Time Limitation

Coverage applies for up to 30 days after the property is acquired. This restriction is in addition to other policy restrictions that apply to Earnings and Extra Expenses.

Coverage Limit

This is not free coverage. Once reported, the items are added to the policy as of the acquisition date, and premium must be paid. The maximum paid for earnings and extra expenses is $100,000.

NOTE: This applies only to property at acquired locations. This means this does not mesh exactly with the newly acquired building and business personal property extensions. There is no coverage for loss of income due to loss of earnings or extra expense for new buildings or structures or additional personal property at existing locations.

PERILS COVERED (BP 0816 CHANGES)

Perils Covered applies to Coverage A–Buildings, Coverage B–Business Personal Property, and Coverage C–Loss of Income, unless otherwise stated.

The insurance company covers direct physical loss or damage unless the loss is limited or caused by an excluded peril.

NOTE: The 08 16 mandatory endorsement removes the word “risk” from the above coverage language. This means coverage does not apply to “any” direct physical loss or damage. The inclusive statement needed to be modified because no insurance company can afford to pay for all physical damage losses. Perils Excluded and Additional Exclusions must be examined to determine what is covered.

PERILS EXCLUDED

If one or more of the following 10 exclusions cause loss or damage, the insurance company will not provide coverage for it. This statement applies regardless of any other events that may have contributed to the loss or damage or may have caused that loss or worsened the damage. The statement applies whether those other events occurred before, during, or after the excluded event.

1. Civil Authority

There is no coverage for loss or damage resulting from an order of any civil or government authority. Examples of such orders include seizure, confiscation, destruction, or quarantine of property, but this is not an exhaustive list.

However, coverage does apply for loss or damage caused when a civil authority orders that property be destroyed to prevent a fire from spreading, provided the fire is the result of a covered peril.

NOTE: Coverage for Interruption by Civil Authority at locations away from the described premises that prevent access to the insured's premises by its customers is available as a Loss of Income Coverage Extension.

2. Earth Movement (BP 0816 change)

There is no coverage for loss or damage caused by any earth movement. This applies when any of the following apply:

The earth movement is the result of natural causes
The earth movement is the result of manmade activities
The origination of the earth movement is the covered property. The cause can be on the covered property or under it.
Activities being performed at the named insured’s request or for the benefit of the named insured resulting in the earth movement.

There are four exceptions:

When a volcano explodes, erupts, or effuses so that either volcanic action or breaking of building glass occurs, there is coverage for the resulting loss or damage. All volcanic eruptions within a 168 hour time period is considered a single occurrence.

NOTE: Without this 168-hour grace period, separate deductibles would be applied to each eruption, and a new set of limits would be available for each occurrence. Because this is not practical, the arbitrary 168-hour time period provides at least a logical grouping of claims.

When a fire occurs because of earth movement, coverage applies to the loss or damage the fire causes.
When an explosion not related to volcanic activity occurs because of earth movement, coverage applies to the loss or damage resulting from that explosion.
Computers are not subject to this exclusion.

3. Fungus or Related Perils

There is no payment for loss, cost, or expense when caused by or in some way is related to the existence or any activity of fungus or related perils.

There are five exceptions:

Some coverage is provided by Additional Coverage – Limited Fungus and Related Perils.
Loss or damage caused by a specified peril, even though the specified peril is the result of fungus or related perils.

This exclusion does not apply to Loss or damage that results from fire or lightning.
This exclusion does not apply to collapse when it is caused by hidden decay under the Additional Coverages–Collapse.
This exclusion does not apply to computers.

4. Nuclear Hazard

The insurance company does not cover losses or damages caused by or resulting from a nuclear reaction, radiation, or contamination. This exclusion applies regardless of how the loss was caused or whether the nuclear incident was controlled. Any loss caused by the nuclear hazard is not treated as a loss caused by fire, explosion, or smoke.

The only exception applies to direct loss or damage caused by fire resulting from a nuclear hazard.

5. Ordinance or Law

The insurance company does not pay for losses or increased costs incurred when codes, ordinances, laws, or decrees regulating the construction, use, or repair of any building or structure are enforced. This also applies when any of these require property to be demolished and its debris removed.

The only exception is the limited coverage provided in Additional Coverages: Increased Costs – Ordinance or Law.

Additionally, there is no coverage if enforcement takes place when there is no loss or damage. Furthermore, there is no coverage for increased costs incurred to comply with regulations during a construction event or for debris removal in cases where a property has been physically damaged.

Example: Marilyn builds a frame addition to her brick restaurant. She and her husband do all the work and do not apply for a permit.

Scenario 1: Marilyn's neighbor becomes upset and complains to the city because the addition obstructs his view. City officials visit the site and inform her that city codes do not allow frame structures to be used with restaurants. The officials then order that the addition be destroyed. This loss is not covered.

Scenario 2: A kitchen loss has occurred. The general contractor applies for a permit to repair the kitchen and is informed that the existing frame kitchen must be removed and replaced with a brick kitchen.

While the kitchen loss is covered, the costs associated with removing the undamaged portions of the frame structure and clearing the debris are not covered. Additionally, the difference in cost between rebuilding the damaged section of the building with brick instead of frame is also not covered.

6. Utility Failure

There is no coverage for loss or damage caused by failure or disruption of power, water, communication, or other utility services supplied to the described premises. This exclusion applies only when the failure or disruption originates at one of the following:

a. A location that is not the described premises.

b. The described premises is subject to failure due to equipment owned by the utility company, which it furnishes to the described premises to provide utility service.

The following two definitions are provided within this exclusion:

The term “failure or disruption” refers to the disruption of normal services. This includes power surge, reduction in supply, low or high pressure, increased or decreased voltage, or other disruptions.
The term “communication utilities” is expansive. Services related to Internet access, telephone, cable, and other connectivity, including cellular, satellite, and various electronic services or networks, are all considered communication utilities; however, the term is not limited to just these.

There are two exceptions:

If any failure or disruption of these services results in a covered peril, there is coverage for the loss or damage that the peril causes.
No part of this exclusion applies to computers.

Transformer

Example: An electrical transformer explodes after being struck by lightning, causing an electrical surge that enters the building and ignites a fire that destroys sensitive electronic equipment, including computers.

Scenario 1: The pole is 20 feet away from the Martin Grocery Store premises. Coverage applies to loss or damage to computers, but does not cover electronic equipment. If the power surge causes a fire, the resulting damage from the fire is also covered.

Scenario 2: The pole is on the Martin Grocery Store premises. There is coverage for the computers and electronic equipment if the transformer is the named insured’s property. If the utility supplies the transformer, the situation is identical to Scenario 1.

7. Virus or Bacteria

NOTE: Although this exclusion is called the virus or bacteria exclusion, it is a microorganism exclusion. Virus and bacteria are merely two examples of microorganisms.

Coverage does not apply for loss, cost, or expense due to any microorganism.

The microorganism must meet both of the following criteria:

A virus, bacteria, or any other type of microorganism.
Actually, causes or can cause an illness, disease, or other type of physical distress.

This is a far-reaching exclusion. Loss, cost, or expense resulting from any of the following is not covered:

Any contamination that the microorganism causes
Any access to property that is denied because of the microorganism.

Loss, cost, or expenses resulting from fungus or related perils are not excluded under this provision because they are specifically addressed in Exclusion 3. above. If other exclusions also apply to the losses, costs, or expenses mentioned, the terms of those exclusions are overridden by this provision. This distinction is important because the other exclusions may include exceptions that are not available under this provision.

8. War and Military Action

There is no coverage for any loss or damage caused directly or indirectly by any act of war.

Loss or damage from any of the following activities is excluded:

a. War, this includes civil war and undeclared war.

b. Warlike action when such action is from any military force. Action taken to stop or hinder the actual or expected warlike action is also excluded. The military force must be part of a governmental, sovereign, or other authority using military personnel or agents.

This last sentence is very important because, without it, coverage for riot and civil commotion could be excluded.

c. Insurrection, rebellion, revolution, usurped power, or action by a governmental authority to hinder or defend against these.

Example: Frederick has an impressive arsenal at his home. He even owns a tank. One day, he drives his tank to the courthouse and threatens to shoot at it unless he is exempted from the local property tax. He is not happy with the response and chooses to fire a round. Although the act could be considered warlike, the fired round missed the courthouse and hit a retail store. The store is damaged from the errantly fired round. The store is insured under a Businessowners Policy and is covered because Frederick is not a governmental authority.

NOTE: This exclusion does not have any exceptions. All loss or damage is excluded. If an action could be considered both war and nuclear hazard, the war exclusion applies instead of the nuclear hazard exclusion.

9. Water (BP 0816 changes)

a. The insurance company does not pay for loss or damage caused by any of the following:

Floods, surface water, and waves, whether wind-driven or not, along with spray from any of these sources, are included in this definition. The term "waves" is expanded to encompass not only tidal waves and tsunamis but also tidal waters, tides, and the overflow of any body of water.

Wind-driven water can include storm surge, storm tide, and tidal surge, but any other wind-driven water is also excluded.

Mudslide or mudflow.

Water from any of the following, but only when water backs up through overflows, or otherwise discharges from it:

o Sewers or drains

o Sumps, sump pumps, or related equipment

o Other systems designed to remove subsurface water away from foundations

Water that is beneath the ground’s surface. Examples of the type of coverage that is excluded is when water exerts pressure on any of the following or when water simply flows, seeps, or leaks through or into them:

o Paved or unpaved basements

o Openings, such as doors and windows

o Paved surfaces, floors, walls, or foundations

o Structures including septic tanks and swimming pools

Material present in the water described above or being moved through any water described above.

However, fire, explosion, or sprinkler leakage may result from any of the causes described above. In that case, the resulting loss is covered.

b. This exclusion also applies in the following cases:

The material is carried or moved by water, as described above in 9.a., whether the water results from an act of nature or an act of man.
When the cause of water loss results from water or materials not remaining in a device designed to contain it, this exclusion remains applicable. Examples of such devices include dikes, floodgates, dams, seawalls, and similar structures. Water may exit these devices by escaping, flowing over the top, being released, or discharged in any manner.

No part of this exclusion applies to computers.

Example: Muddy Creek rises unexpectedly and floods Kathy’s Restaurant. The cook is so surprised that he forgets to turn off the oven and the burners on the stove when he flees. The flood extinguishes the fires on the burners but does not stop the flow of gas. When power is restored the next day, a spark ignites the gas, causing an explosion. The loss or damage the explosion causes is covered, even though the flood was the proximate cause of the loss.

NOTE: Coverage is available for some of the exclusions. BP 0330–Water Backup and Overflow Coverage is available for use with this policy. Flood insurance is available through the National Flood Insurance Program (NFIP).

Related Article: Overview of the National Flood Insurance Program

10. Weather

Loss or damage caused by weather conditions is excluded from coverage. However, this exclusion only applies if the weather is a contributing factor to a cause or event that falls under one of the nine exclusions mentioned above.

There is an exception to this exclusion: if a covered peril leads to a loss and the weather also contributes to that loss, coverage will still apply unless the loss is excluded for another reason.

Example: Torrential rainfall causes the Old Dam to give way, flooding Henry’s office building. Because flood is excluded, coverage does not apply to Henry’s loss, even though weather conditions could be considered the proximate cause of loss. However, when Henry’s steam boiler explodes because the flood disrupts the flow of fuel, the loss or damage caused by the explosion is covered.

ADDITIONAL EXCLUSIONS

The insurance company does not cover loss or damage if any of the following exclusions relate to the loss.

1. Animals

There is no coverage for loss or damage caused by nesting, infestation, discharge, or release of waste products or secretions by animals. Birds and insects are considered animals in this exclusion.

There are two exceptions:

· If such a loss or damage results in building glass breaking or a specified peril, the damage from that resulting peril is covered.

· No part of this exclusion applies to hardware.

Examples:

· A raccoon takes up residence in a vacant building. The damage that the raccoon’s waste and other bodily secretions cause is not covered. However, when it crashes through the glass window to escape when the building owners return, the glass damage is covered.

· A family of squirrels takes up residence in the attic of Sam’s Drug Store. There is no coverage for the infestation, but there is coverage for the fire damage caused when a squirrel chews through a wire and causes a fire.

2. Collapse

This exclusion encompasses many terms used in Additional Coverages—2. Collapse, as they are intended to blend together, so that coverage applies to various types of collapse. Loss or damage is not covered when collapse, caving in, or impaired structural integrity is involved.

Leaning, bending, sagging, and bowing are also examples of what is not covered. Other examples are when parts of the property separate or when the load bearing capacity of a structure is considered to be inadequate.

There are three exceptions.

When a covered peril results from a collapse as described above, the coverage does apply for loss or damage caused by the resulting covered peril.

Example: Harry’s porch suddenly separates from his house. The separation causes an electrical spark, which in turn produces smoke and fire. The damage caused by the smoke and fire is covered. The separation loss is not covered.

When any of the following causes a building, structure, or part of a building or structure to collapse, coverage is provided for direct damage resulting from that collapse.

This applies only if one or more of the following is the cause of the collapse:

o Specified perils or building glass breaking, but only if this policy otherwise covers the specified peril or building glass breaking.

Example: Vandals take delight in knocking out beams in the two-story building. The building starts to creak, and they run out just as it collapses. This loss is covered because vandalism is a covered peril. However, the collapse is not covered if vandalism is not a covered peril, as the vacancy restriction applies.

o The weight of personal property or people.

o The weight of rain that accumulates on a roof.

No part of this exclusion applies to computers.

3. Computer Virus or Computer Hacking

Coverage does not apply when computer virus or computer hacking cause any of the following:

a. Loss or damage, whether direct or indirect

b. Loss of access, use, or functionality

The excluded virus or hacking loss or damage may be to the named insured's computers, computer network, or web site due to a computer virus or computer hacking. However, coverage is not limited to only these items.

There is one exception: the coverage provided under Extensions of Coverage – Data Records and Programs and Additional Loss of Income Coverages – Destruction of Data Records and Programs.

4. Contamination or Deterioration

There is no coverage for loss or damage when property is contaminated or deteriorates. Examples are corrosion, rust, or any quality, fault, or weakness in property that causes it to damage or destroy itself.

There are two exceptions, as follows:

If the contamination or deterioration causes a specified peril or in building glass breaking, then any direct damage resulting from them is covered.

Examples:

Green wood is used to construct a building. The subsequent shrinkage of the wood distorts the walls and cracks the plaster. There is no coverage because green wood naturally shrinks as it dries.
The sign outside the building gives way because rust eats away at the supports. There is no coverage for the sign, but coverage applies to the glass damage the sign causes as it crashes into the building’s front window.

· Coverage applies to loss or damage caused by contamination or deterioration of hardware caused by direct physical loss or damage to the air-conditioning system that services the hardware.

Example: A wild car chase through town on a Friday night results in multiple damages. One of them is the air conditioning unit that was outside Billy’s office building. Billy was surprised when he arrived at his office on Monday to discover an overheated computer system because the air conditioning system had been out since Friday night. The damage to the computer system is covered.

5. Criminal, Fraudulent, Dishonest, or Illegal Acts (BP 0816 change)

Loss or damage caused by criminal, fraudulent, dishonest, or illegal acts by any of the following is excluded. The acts are excluded if committed by any one or in collusion with others.

a. The named insured.

b. Any party with an interest in the property.

c. Anyone who, with the named insured’s permission, is holding the property for safekeeping.

d. The named insured’s officers, directors, trustees, joint venturers, members, and managers.

e. Employees or agents of any of the above.

This exclusion applies regardless of whether such acts occur during work hours.

Example: Penelope is an employee of Jolly Rogers.

Scenario 1: Penelope takes money from her cash register and puts it in her pocket every time she makes change for a customer. This loss is not covered.

Scenario 2: Penelope works with a group of friends. When she checks them out, she returns incorrect change. They split the proceeds after work, but there is no coverage.

Scenario 3: Penelope and a friend break into the store on a weekend when she is not working and steal property. There is no coverage.

This exclusion does not apply to the following acts of destruction:

By the named insured’s employees or its authorized representatives. However, theft by either is excluded.
To accounts receivable and valuable papers and records while they are in the custody of carriers for hire.

Example: During a riot, an employee of Margo’s Cleaners steals money from a cash register, damages the store area to make it appear as if rioters were responsible, and sets a small fire to cover up the crime. The employee is subsequently captured, but the stolen money has been spent and is not recovered. The damage to the store and from the fire is covered, but the theft of the money is not.

6. Data and Computer Errors

Coverage does not apply to loss or damage caused by an error or omission in any of the following:

a. Data records storage, processing, or programming.

Example: Kraven decides to store records on the cloud and eliminate storage on hard disks. According to the cloud storage service agreement, he forgot to pay a few bills, and the data stored is eliminated. There is no coverage.

b. The installing, repairing, modifying, testing, designing, or specifications of the named insured’s computers

Example: Kraven receives a phone call that alerts him to the fact that his computer has a bug. He follows the caller’s instructions to “fix” the problem, but it only becomes worse. He continues to talk with the scammers to “fix” the problems. The resulting bill for $6,000 is not covered, and any further damage the scammers caused is also not covered.

There are two exceptions:

Any of the above may cause a specified peril to occur or building glass to break. If so, there is coverage for a loss caused by that resulting peril.
This exclusion does not apply to losses due to computer hacking or computer virus caused under either of the following:

o Extensions of Coverage–Coverage B–Business Personal Property 4. Data Records and Programs

o Additional Loss of Income Coverages 1. Destruction of Data Records and Programs

7. Defects, Errors, or Omissions

There is no coverage for loss or damage that results from any of the following:

a. Acts, errors, or omissions within this paragraph. These can be on or off the premises and can be considered either negligent or not. They are excluded if they relate to any type of land use.

Also, if they relate to the design, specifications, construction, repair, modification, workmanship, installation, or testing of property. Acts, errors, or omissions related to planning, zoning, development, siting, surveying, grading, or compacting are excluded.

Finally, acts, errors, or omissions related to the maintenance of the property and its land, structures, or improvements are excluded.

Example: Great Furniture’s building was constructed on improperly graded land. During a series of torrential spring rains, the ground softened and shifted, causing the building's foundation to shift and the walls and floor to crack. There is no coverage because the grading was improper.

b. Defects, weaknesses, inadequacies, faults, or unsoundness in the materials used to construct, modify, or repair property. This may take place either on or off the described premises.

c. Copying or processing errors or omissions. This applies only to valuable papers and records.

d. Any costs that are required to make good or correct design errors.

e. Errors or omissions made by any organization, group, person, or other party that negatively affect the form, function, quality, or nature of goods, products, or merchandise, or any of their parts.

The above exclusion e. applies to any error or omission occurring at any time to such goods, products, or merchandise or any of their parts during the following times:

Planning, development, or research
Manufacturing, producing, processing, or testing
Selling, marketing, packaging, or shipping
Using or installing
Repairing or maintaining

This exclusion also applies regardless of the person or party responsible for the error or omission. This includes those who have possession of the property under a subcontracted or outsourced work arrangement.

Example: Makem Fun Toys receives a shipment of toys from overseas. It tests the necklaces and discovers that the level of cadmium exceeds federal standards. Makem’s supplier refuses to take back the shipment and demands payment instead. Makem sustains a significant loss because it cannot sell the items. It must also defend itself against the demand for payment. There is no coverage because the processing of the product caused these losses, which are also excluded elsewhere in the policy.

To the extent that Additional Coverage – Collapse provides coverage, this exclusion does not apply to collapse resulting from the use of defective materials or methods in construction, renovation, or remodeling (or after such work is complete).

There is a final exception. If any of the items described above result in a covered peril, the loss or damage from that covered peril is covered.

8. Electrical Currents

The insurance company does not pay for loss or damage caused by manmade or mechanically produced electrical, magnetic, or electromagnetic currents or energy.

It also does not pay when arcing by any of the above results in damage to or disruption of any of the following:

a. Systems, devices, appliances, or networks that are electronic or electrically wired

b. Systems, networks, devices, and appliances that do not depend on electronic or electric wiring, using cellular, satellite, wireless, or microwave technology instead

This exclusion has the following two exceptions:

A fire may result from any of the excluded causes. In that case, the insurance company pays for the loss or damage the fire causes.
No part of this exclusion applies to computers.

Electrical, magnetic, or electromagnetic energy or currents, as this exclusion defines, including the following but not limited to:

Electrical flow and its arcing
Pulses of electromagnetic energy
Microwaves/electromagnetic waves
Electrical charges conducted through/generated by electromagnetic or magnetic fields.

Example: Jerry blew a fuse and does not have another one handy, so he inserts a metal coin instead and keeps working. The subsequent electrical arcing destroys the fuse box, the wiring, and Jerry’s computer. There is no coverage for the loss or damage to the fuse box or the wiring, but the damage to Jerry's computer is covered.

9. Electrical Damage

Coverage does not apply to loss or damage caused by electrical or magnetic damage, disturbance, or erasure to data records, applications, and programs. There are two exceptions:

This exclusion does not apply to the coverage that Extensions of Coverage–Coverage B–Business Personal Property 4. Data Records and Programs provides.
This exclusion does not apply when lightning causes the electrical or magnetic damage, disturbance, or erasure.

10. Explosion

This exclusion applies only to equipment owned by the named insured or leased and/or under the named insured’s control.

Loss or damage resulting from an explosion of steam boilers, steam pipes, steam turbines, or steam engines owned, leased, or operated by the named insured is not covered.

There are two exceptions:

If a combustion explosion or fire occurs as a result of the explosion, the damage caused by the subsequent combustion explosion or fire is covered.
If gas or fuel explodes in a firebox, combustion chamber, or flue and causes a loss, that loss is covered.

Examples:

The fuel mixture setting is not properly adjusted, and the fuel mixture becomes too rich. Unburned fuel accumulates in the flue and explodes. Coverage applies to the damage the explosion causes.
The exhaust fan belt breaks, exhaust and fumes accumulate, and the boiler explodes. The damage caused by the belt failing is excluded, but the resulting damage from the explosion is covered.

11. Freezing

There is no coverage for loss or damage caused by water, other liquids, powder, or molten material that leaks or flows from plumbing, heating, air-conditioning systems, appliances, or other equipment due to freezing.

There are exceptions:

This exclusion does not apply if the named insured did either of the following:

o Took reasonable measures to maintain heat in the building or structure.

o Drained equipment and turned off the supply in unheated buildings.

The exclusion does not apply to the following equipment:

o Computers

o Fire-protective systems

Example: Brington has a main building and a separate, unheated detached garage. Both buildings have plumbing systems. An ice storm causes the power lines to snap and fall, and the pipes to freeze. Brington cannot get to the buildings to arrange for substitute heating. The frozen pipes in both buildings burst when power was restored, resulting in water damage to both. The damage to the main building is covered because it had regular heat, but the damage to the unheated garage is not covered.

12. Indirect Losses

Loss or damage resulting from delay, loss of use, or loss of market is not covered. This specific exclusion is not applicable to Coverage C – Loss of Income.

13. Mechanical Breakdown

Loss or damage from mechanical breakdown or centrifugal force causing machinery parts to rupture is excluded.

There are three exceptions:

· Resulting glass breakage is covered.

· Loss or damage caused by a resulting specified peril is covered.

· No part of this exclusion applies to hardware.

Example: The centrifuge in Einstein's Laboratory rotates out of round, cracks, and explodes, spewing pieces of metal and quantities of chemicals throughout the laboratory. One piece of metal breaks out a window, and another knocks over a Bunsen burner, causing a small fire. The broken window and the fire damage are covered, but the damage from the airborne chemicals and other damage from the flying metal is not.

14. Neglect

Coverage does not apply if the named insured fails to take reasonable steps to save covered property at the time of loss and after the loss. This exclusion also applies if the named insured does not take action to protect property when a covered peril threatens covered property.

NOTE: The named insured is expected to act reasonably to protect its own property.

Example: A fire badly damages the building Bubbaz Bolts occupies, but little business personal property is damaged. The roof is mostly burned off, and heavy rain is predicted during the night hours. However, Bubbaz does nothing to save, protect, move, or cover the undamaged property to reduce the chance of further loss to it.

The rains arrive as promised, on time and in heavy amounts, and the water seriously damages the undamaged property, making it mostly unsalvageable. The fire damage to the building and business personal property is covered. The subsequent water damage to the previously undamaged personal property is not.

15. Pollutants

There is no coverage for loss or damage caused by or resulting from any release, discharge, seepage, migration, dispersal, or escape of pollutants.

There are two exceptions to this exclusion.

When a specified peril causes the event, this exclusion does not apply.
When a pollution event results in a specified peril and that specified peril causes loss or damage, the resulting loss or damage is covered, but not the pollution itself.

Example: A leak from an automatic sprinkler head (a covered specified peril) fills the open acid tank below, causing the tank to overflow and spill acid. This results in damage to the floor and some equipment. The pollution exclusion does not apply, and the loss to the floor and equipment is covered.

16. Seepage

Coverage does not apply to loss or damage that occurs due to water continuously or repeatedly seeping for 14 days or more. This exclusion also applies to the presence of vapor, humidity, or moisture that persists for 14 days or more.

Example: Moyer Construction stores tools and equipment in the back of the building, which it uses only during the summer months. Janice goes to the back of the building to pick out a few items and notices water damage to most of the equipment, the wall, and the floor.

She notices that a single drop comes from the water pipe, and then a second drop. She estimates that the pipe must have been leaking for at least the past two or three months. As a result, none of the damage is covered.

17. Settling, Cracking, Shrinking, Bulging, or Expanding

Loss or damage caused when pavement, footings, foundations, walls, ceilings, or roofs settle, crack, shrink, bulge, or expand is excluded.

There are two exceptions:

Hardware is not subject to this exclusion.
When building glass breaks or a specified peril occurs because of the settling, cracking, shrinking, bulging, or expanding, the resulting damage is covered.

Example: As Fred's foundation gradually settles, it causes a gas main to shift and loosen, eventually releasing gas. An adjacent welding operation then ignites this gas, resulting in a small fire that spreads to nearby combustibles. While the damage to the building from the foundation settling is not covered, the fire damage, classified as a specified peril, is included in the coverage.

18. Smog

Loss or damage caused by smog is excluded. There is one exception: no part of this exclusion applies to computers.

NOTE: Smog is fog that has become mixed and polluted with smoke.

19. Smoke, Vapor, or Gas

When smoke, vapor, or gas produced by industrial operations or agricultural smudging causes loss or damage, that loss or damage is excluded. There is one exception: computers are not subject to this exclusion.

NOTE: Agricultural smudging is an operation performed by filling an area (such as an orchard) with smoke from a smudge pot that burns kerosene to prevent damage from insects, frost, or freezing.

Example: The smudge pots in the apple orchard adjacent to the Apple Restaurant are operating at full blast due to warnings of freezing temperatures predicted to occur overnight. The prevailing winds blow the smoke from the pots directly over the restaurant.

As the smudge smoke mixes with freezing rain, it forms an acidic substance that falls on the rubberized flat roof of the building, damaging the rubber and creating openings in it. The damage to the roof is excluded from coverage because the smudging operations caused it.

20. Temperature/Humidity

When dampness, dryness, changes in, or extremes of temperature cause loss or damage to business personal property, there is no coverage.

There are two exceptions:

· When resulting building glass breaking or specified peril causes loss or damage, that resulting damage is covered.

· Loss or damage to the hardware caused by temperature or humidity is covered if the temperature or humidity change results from a covered direct physical loss or damage to the air-conditioning system serving it.

NOTE: BP 0327–Spoilage Coverage insures a number of changes in temperature situations and losses.

21. Voluntary Parting

There is no coverage for loss of covered property when that property was voluntarily given to others. Coverage does not apply even if the surrender was due to a fraudulent scheme, trick, or false pretense.

22. Wear and Tear

Loss or damage caused by wear, tear, marring, or scratching is excluded because such loss or damage is considered a cost of doing business.

There are three exceptions:

If building glass breaks because of these excluded perils, the loss caused by the building glass breaking is covered.
When a specified peril results from these excluded perils, the resulting damage from that specified peril is covered.
A loss to hardware resulting from mechanical breakdown is covered.

WHAT MUST BE DONE IN CASE OF LOSS

The named insured has certain duties that must be performed after a loss. Failing to perform these duties may result in an otherwise covered loss not being paid.

1. Notice

The named insured must promptly notify the insurance company or its agent of a loss. The notice must include a description of the property lost or damaged. Additionally, the appropriate law enforcement agency must be notified if a criminal act is suspected to have caused the loss.

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

Examples:

Foley’s building has a fire, so he submits a notice of loss to the insurance company as required. The fire department informs Foley that it believes arson may be involved. In this case, Foley must also notify the police department.
Fernando discovers that children are vandalizing his business. Instead of reporting them and the incident to the police, he takes the children to their parents, informs them of the situation, and then both he and the parents counsel the children. Fernando even has the children return to the business location to repair the damage they did.

Fernando then submits a written notice and proof of loss for the vandalism loss. The insurance company could deny the claim because it involved a crime that was not reported to the police.

2. Protect Property

The named insured must take all reasonable steps to prevent damage to property following a loss. The insurance company has the responsibility to pay reasonable costs that the named insured incurs for necessary repairs or emergency measures it takes.

The only repairs and emergency measures that are paid are those that are incurred solely to protect covered property from further damage by a covered peril. Amounts the insurance company pays do not increase the limit for the covered property.

NOTE: After a loss, the named insured must act as if there is no insurance and take every step possible to avoid further damage to covered property. This could involve making temporary roof repairs after wind and rain damage or boarding up windows to prevent looting after vandalism. Reasonable costs are reimbursed; however, costs that exceed what is necessary may not be paid.

Example: A thunderstorm with high winds accompanied by hail damages the walls and roof of Buster's building, as well as some business personal property inside.

Buster moves undamaged goods away from the damaged area, patches the roof, and braces and boards up the walls to minimize further damage until permanent repairs can be made.

These repair costs are covered. If such actions are not taken, further damage to the building and business personal property is not covered.

The insurance company does not pay for emergency measures taken or for any repairs made to property that has not yet been damaged by a covered peril or damaged by an excluded peril.

NOTE: This means that the insurance company does not pay for expenses incurred before a covered loss occurs, such as boarding up doors and windows in advance of a hurricane. Additionally, it does not cover any emergency measures following a loss that an excluded peril causes.

3. Proof of Loss

The named insured must submit proof of loss within 60 days of the insurance company's request. It must be signed and include the following information:

a. The time, place, and details of the loss

b. Disclosure of any other coverage or insurance policies that may apply to the loss

c. The named insured's interest in the damaged property. Others with an interest in the property, such as mortgagees and lienholders, must also be provided.

d. Any changes in the title or in the use of the covered property that took place during the policy period

e. Estimates for repairing or replacing the property. These estimates are expected to be provided in detail.

f. If available, the plans or specifications to be used in rebuilding or replacing the damaged buildings or structures.

g. Estimates of loss of income and expenses. These estimates are expected to be provided in detail.

h. Inventories of property.

· This involves not only an inventory of the damaged personal property but also of the undamaged personal property.

· Any uncovered property is not to be included in the inventory.

· Quantity, description, cost, actual cash value, and amount of loss must be included.

· Documentation must be provided, such as copies of bills, receipts, and other similar supporting information.

If the claim is for less than $10,000 and is also less than 5% of the total limit, the undamaged personal property inventory requirement is waived.

NOTE: The above clearly lists what tasks the named insured must complete to submit the loss. Due to the detailed requirements, the named insured should begin gathering the necessary information as early as possible. The sooner the better, especially when recording details and taking inventory.

4. Examination under Oath

The insurance company may require that an insured submit to examinations under oath as often as reasonably necessary. However, this applies only to questions relating to the loss or the insurance itself. Answers may take the form of signed sworn statements. When two or more insureds are questioned, the insurance company can request that each insured be interviewed apart from any other insured.

NOTE: This provision is used to determine fraudulent claims and to establish a legal basis to void the policy in case of fraud or misrepresentation of a material fact. It can also be used to initiate subrogation actions against others who may have caused or contributed to a loss.

5. Cooperation

The named insured is required to cooperate with the insurance company as it works on the investigation and settlement of the claim.

6. Records

The named insured is required to produce records related to the loss. The insurance company has the right to make copies and take extracts of them as often as it requests. However, those requests must be considered reasonable. Examples of records that may be requested are tax returns and bank copies of all related cancelled checks.

7. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection. The inspections can be performed repeatedly, but the requests must be considered reasonable. During the inspections, the insurance company is permitted to take samples of the property.

NOTE: Samples allow the insurance company to find matches or similar property to replace obsolete property or property that is no longer available and allows it to verify that the property is what it is purported to be.

8. Volunteer Payments

The named insured has the right to voluntarily make payments, assume obligations, pay, or offer rewards, and incur any other expenses. But the named insured does not have the right to force the insurance carrier to pay any of those unless the insurance company has provided written approval for the named insured to do so.

However, if the named insured incurs costs to protect property from further damage by a covered peril, those costs are covered as provided in Loss Condition 2. Protect Property.

Example: While the insurance company continues to investigate the claim, Herman becomes impatient and orders new stock and equipment to replace what was damaged. The company is not obligated to reimburse these payments because it may have other, less costly alternatives available. Although the company has an obligation to pay, it may be for less than Herman spent on his own, given the availability of other, less costly alternatives.

9. Abandonment

The insurance company is under no obligation to accept any property the named insured no longer wants.

10. Intent to Continue Business

The named insured is required to be expedient in returning to full or partial operations. However, this condition does not apply if the named insured does not plan on continuing its business.

NOTE: The named insured can decide to stay in business but discontinue a certain process or product line. In such a case, the company pays only the amount of the claim and the loss of income for the restoration period that would have been required to return the business or discontinued process or product back into operation.

Example: Rudolph's Stationery sustains a total loss, and it will take six months to fully resume operations. An adjacent property could be rented and used to continue operations until the original location is repaired, thereby reducing the restoration period to one month. However, Rudolph decides not to continue in business. The insurance company is obligated to pay for only one month of the restoration period.

VALUATION OF PROPERTY LOSSES

This section explains how insurance companies value property losses.

1. Replacement Cost

Property is valued based on its replacement cost without a deduction for depreciation. This valuation is subject to items 3 through 12 listed below. This applies only if the Actual Cash Value option is not selected.

Replacement cost valuation is subject to the following limitations:

a. The insurance company covers the cost to repair or replace property that has experienced loss or damage, provided that the insurance limit at the time of loss is 80% or more of the property's full replacement cost immediately before the loss. However, the amount actually paid will not exceed the smallest of the following:

The property’s limit of insurance.

The cost to replace the property with property of a similar kind and quality that is to be used for the same purpose and located at the same premises.
The amount the named insured spends to repair or replace the property. However, this is limited to only what is necessary.

NOTE: The interpretation of what constitutes "necessary" may give rise to discussions between the named insured and the insurance company.

The building is not required to be rebuilt at the same location. If it is built elsewhere, the cost to replace is limited to the cost required to rebuild at the location where the loss occurred.

b. The insurance company will not pay on a replacement cost basis if the insurance coverage limit at the time of the loss is less than 80% of the property's full replacement cost immediately preceding the loss. Instead, the company will compensate for the greater of either the property's actual cash value or the portion of the replacement cost that corresponds to 80% of the property's current replacement cost.

Under no circumstances will the payment exceed the property's insurance limit.

Example: Greg’s Repair Shop's building is insured for $120,000. The building's 100% Replacement Cost Value (RCV) is $200,000, while its 100% Actual Cash Value (ACV) is $100,000.

A fire causes $50,000 in damage to the building, with the ACV of the damage being $25,000.

Since the building is not properly insured, a calculation is performed to determine if the loss is to be paid as ACV or a portion of RCV, whichever is greater.

· $200,000 RCV x 80% = $160,000

o $160,000 is the minimum to meet the RCV for insurance requirements.

· $120,000 actual insured limit / $160,000 required insured limit = .75 penalty

o Since the building is insured for less than the minimum RCV requirement, there is a penalty. As calculated above (Actual / Required x Loss = Claim Payment).

$50,000 loss x 0.75 = $37,500

The loss payment is $37,500 since it exceeds the ACV payment of $25,000.

c. Replacement cost valuation will not be paid until after the named insured repairs or replaces the damaged or destroyed property. The repairs and/or replacement must be completed within a reasonable time frame.

There is one exception. A replacement cost valuation payment is made before the property is repaired or replaced if the cost is $2,500 or less.

The claim can be presented in two steps.

The first step is to submit a claim for the property’s actual cash value before it is repaired or replaced.
The second step is to then make a claim for the replacement cost value. The insurance company must be notified within 180 days after the loss or damage, so that a replacement cost valuation can be requested.

Related Court Case: Building Not Repaired: Replacement Cost Value Denied

d. Any increased costs due to enforcing codes, ordinances, laws, or decrees that regulate the construction, use, or repair of property are not included as part of the cost to repair, rebuild, or replace lost or damaged property.

2. Actual Cash Value

When the named insured selects Actual Cash Value (ACV) on the declarations for buildings and/or business personal property, the value of that property is its ACV at the time of loss. ACV is computed using a deduction for depreciation.

3. Property Not Eligible For Replacement Cost

Certain property is never valued on a replacement cost basis. Rather, its value is based on its actual cash value at the time of loss. This property includes the following:

a. Household contents. When the named insured is a landlord, this restriction does not apply to personal property the named insured places for use by tenants in apartments or rooms.

b. Manuscripts

c. Personal property that is an object of art, rarity, or antiquity

NOTE: This property should be covered under an Inland Marine Floater to be properly valued and insured.

d. Used or second-hand merchandise when it is being held in storage or is being held for sale

e. Personal property of others. However, if there is a written agreement between the named insured and the property’s owner that establishes the named insured’s liability for that property when it is in the named insured’s care, custody, or control, the following applies:

The property is valued at the least of the named insured's liability established in the agreement, replacement cost as outlined in 1. above, or the property’s limit of insurance. This applies only if Actual Cash Value for this type of property is not entered on the declarations.
When Actual Cash Value for this type of property is entered on the declarations, valuation is the lesser of liability the parties agreed to in the written agreement or the actual cash value at the time of loss.
Actual cash value includes a deduction for depreciation.

4. Glass

When required by law, code, ordinance or decree, the value of glass must include the costs of safety glazing.

5. Hardware

Computer hardware is valued based on its disposition:

NOTE: Technology is changing rapidly. Equipment purchased to replace damaged equipment may be smaller, less expensive, and still functionally superior.

a. The hardware replaced is valued based on the cost to replace it with new equipment and functionally comparable to the original hardware.

b. Hardware that is not repaired or replaced is valued based on its actual cash value at the time of loss. ACV includes a deduction for depreciation.

NOTE: The depreciation of some computer equipment is rapid. In some cases, a three-year-old computer’s actual cash value could be close to zero.

c. Partial losses are valued at the reasonable cost of restoring the property to its condition immediately preceding the damage.

6. Loss to Parts

The value of lost or damaged parts of a complete item, which is composed of several parts, is the value of only the lost or damaged part. This could be either the cost to repair or the cost to replace it.

NOTE: In other words, there is no coverage for the reduced value of the other parts because one part was lost or damaged.

PrintBinder6

Example: A beam that supports the roof falls, damaging printing equipment at Brad's Printing. Replacement cost valuation applies to buildings and business personal property.

The insurance company pays only the cost to repair or replace the damaged parts of the printing equipment; it does not cover the cost of replacing the entire equipment.

7. Money

Money is valued according to its face value.

NOTE: Rare coins or collectible money are also valued based on their face value, not their market or collectible value.

8. Pair or Set

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

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

Example: The King of a ceramic chess set falls off the board and shatters on the hardwood floor. The set is no longer being made, and a replacement King is unavailable, even on the Internet. The insurance company is obligated to reimburse the named insured only for an amount equal to the value of the King, in proportion to the value of the full set, even though the entire value of the set is now minimal because it lacks a King.

9. Securities

The value of securities can be challenging to determine due to their fluctuating values. As a result, this policy establishes a specific time to determine the value, which is the actual cash value of the security as of the close of business on the day the loss was discovered.

10. Software

Software has four different components, and their value is as follows:

a. Data Records

These are valued based on the cost of reproducing them from duplicate copies. One example is the cost of labor to copy or transcribe the information. Other costs are also covered, but they are not described.

If there are no duplicate copies, research must take place to duplicate the records. Therefore, the value is based on the research cost plus other necessary expenses involved in replacing, restoring, or reproducing the lost documents, files and information.

Even if data records are not restored or replaced, the loss has value. That value is based on the cost of replacing only the media on which the data records were stored. The value is based on the cost of blank media of similar quality or kind.

b. Media

The value of media is determined by the cost of repairing or replacing it with materials of similar quality or type.

c. Programs and Applications

These items are valued based on the cost of reinstalling them from the licensed discs used in the original installation. The bigger problem is when the original licensed discs are lost, damaged, and are no longer available. In that case, the value of programs and applications is based on the cost of their most recent version.

Some programs and applications may not be restored or replaced. In such cases, their value is based solely on the cost of replacing the media on which the programs and applications were stored with blank media of similar quality or kind.

d. Proprietary Programs

These are valued based on the cost of reproducing them from duplicate copies. The cost of labor to copy or transcribe the information from duplicate copies is part of the reproduction cost. When there are no duplicate copies, the value includes the cost of research or other expenses necessary to reproduce, replace, or restore those programs.

Some proprietary programs may not be restored or replaced. In such cases, their value is based solely on the cost of replacing the media on which the proprietary programs were stored with blank media of similar quality or kind.

11. Tenants' Improvements

Tenants' improvements coverage applies only when the named insured is a tenant. This coverage is for property added to the lessor’s property for the named insured’s benefit that becomes the lessor’s property because it is attached to the building the tenant occupies but does not own. The named insured tenant may make the improvements, or the lessor may make them for the named insured tenant’s benefit as part of its lease. The named insured tenant has a use value in the improvements but does not have ownership rights to them.

The value of losses to tenants’ improvements is based on the replacement cost if the improvements are repaired or replaced at the named insured's expense within a reasonable time. If they are not repaired or replaced, their value is based on the following proportional formula:

Step 1: Determine the number of days from the date the improvement was installed to the lease’s expiration date.

Step 2: Determine the number of days from the date of loss to the lease’s expiration date.

Step 3: Divide Step 2 by Step 1.

Step 4: Multiply Step 3 by the original cost of the improvement.

Example: The five-year lease expires on March 1, 2030, and does not have a renewal option. The improvements were installed on March 1, 2025, at a value of $100,000. The date of the covered loss is March 1, 2026.

Step 1: 1,835 days

Step 2: 1,460 days

Step 3: 1,460days/1,835 days = .795

Step 4: $100,000 X .795 = $79,500

If the lease contains a renewal option, the expiration date of the renewal option period replaces the expiration date of the lease in this calculation.

Tenants' improvements losses are not covered if another party repairs or replaces them at that party’s expense.

12. Valuable Papers and Records

The value of valuable papers and records is based on the cost of blank materials and the labor to transcribe or copy them from duplicates. It also includes the cost of research or other expenses necessary to reproduce, replace, or restore lost information on valuable papers and records that sustained loss or damage when there are no duplicates.

The value of valuable papers and records that are not restored, replaced, or reproduced is based on the cost of blank materials of similar quality and kind.

HOW MUCH WE PAY

This section provides limitations on how the insurance company pays losses.

1. Insurable Interest

The insurance company pays no more than the named insured’s insurable interest in the property.

Related Court Cases:

Buyer's Insurer Could Not Secure Contribution from Sellers' Insurer for Loss After Closing

Insurable Interest Created By Substantial Economic Interest

2. Deductible

The insurance company does not pay until the single occurrence loss exceeds the deductible amount specified on the declarations.

There are three exceptions:

a. If the only loss is an Optional Property Coverage included under this policy's terms, the highest deductible in any one occurrence is the Optional Property Coverages deductible amount on the declarations.

b. When there is more than one deductible that could apply to a single occurrence, the amount to be deducted is the largest deductible that applies.

c. The following are not subject to any deductible:

· Fire Department Service Charges

· Lock and Key Replacement

· Inventory and Appraisal Expenses

· Recharge of Fire Extinguishing Equipment

· Coverage C–Loss of Income

NOTE: Although this provision states that Loss of Income Earnings coverage is not subject to a deductible, it actually is. The 72-hour waiting period before paying any loss of earnings could be a significant deductible for some insureds.

3. Loss Settlement Terms

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

a. The amount determined based on the Valuation of Property Losses section

b. The actual cost incurred to repair, replace, or rebuild the property with materials that are of similar kind and quality.

c. The limit that applies to covered property. This limit may be on the declarations or may be provided within a coverage.

4. Insurance under More Than One Coverage

Certain property losses may be covered by more than one coverage within this policy. If that is the case payment for the loss will be for no more than the value of the actual claim, loss, or damage sustained.

Example: Otis Optical owns its building. A windstorm destroys both the building and all its business personal property. Otis reports losses of $250,000 for the building and $100,000 for the business personal property. He lists one item of equipment valued at $25,000 as both a building and business personal property because it meets the definition under both coverages. The adjuster informs him that he will be paid for that item of equipment only once.

5. Insurance Under More Than One Policy

Proportional Share

The named insured may have other coverage subject to the same terms as this policy. In that case, this policy pays only its share of the covered loss. This share is the proportion that its limit of insurance bears to the total limits of insurance on all policies covered on the same basis.

Example: Fred decides to move coverage from one insurance company to another mid-term. He purchases the new policy, notifies the other company, and requests cancellation. Before the cancellation takes effect, a loss that both policies cover occurs. The policies are the same, except Company A's limit is $100,000, and Company B's is $120,000.

To determine the proportional share, the coverage limits are added together and then divided by each policy's limit of insurance, and then multiplied by the amount of loss as follows:

· Company A pays $100,000/$220,000 multiplied by the amount of loss.

· Company B pays $120,000/$220,000 multiplied by the amount of loss.

Related Court Case: "Other Insurance" Clauses Held to Pro Rate

Excess Amount

There may be other coverage available to cover a loss, other than as described in the proportional share above. In that case, this policy pays on an excess basis. This means it will only pay the portion of the covered loss that exceeds the amount covered by any other insurance, regardless of whether that other insurance is collectible. Any payment made under this policy will still be subject to the applicable insurance limits.

Example: Precision Records has a Valuable Papers and Records Inland Marine Policy with a $500,000 limit. When a fire loss destroys all its valuable papers and records, this policy responds first. Precision also has an AAIS Businessowners Policy that will respond as excess, up to its limits.

Unfortunately, the primary insurance company that provides the Valuable Papers and Records coverage goes into receivership. The AAIS Businessowners Policy still does not respond until the loss exceeds $500,000.

6. Accounts Receivable

Accounts Receivable losses are subject to items 1, 2, 4, and 5 under the How Much We Pay section. The most the insurance company pays is the least of the following:

a. The total amount of accounts receivable due. However, to calculate how much will be available, the total amount must be reduced by:

Amounts considered due and based on accounts receivable that were not lost.
Amounts considered due, which can be established by a means other than the lost or damaged account receivables.
Amounts collected even though the records were lost.
Service charges and interest not yet earned.
An amount to allow for bad debts.

NOTE: Bad debt amounts are usually based on the named insured’s historical bad debt ratio.

b. The costs incurred to reconstruct the named insured's accounts receivable records. Only those costs that are reasonable are considered.

c. The limit that applies

There is an alternative method for valuing accounts receivable amounts due when the named insured is unable to provide a specific figure. In such cases, the insurance company calculates the total of the average monthly accounts receivable amounts from the 12-month period immediately preceding the month in which the loss occurred. This total is then adjusted for any verified variances within the month the loss occurred.

7. Automatic Increase

The building or business personal property limits increase automatically annually by the percentage entered on the declarations. If a limit is increased during the year, the increase is proportional based on the date the limit is increased.

8. Seasonal Increase

The limits for Coverage B – Business Personal Property entered on the declarations automatically increase by 25% to account for seasonal fluctuations. However, this must be considered cautiously and carefully. This increase applies only if the limit carried is at least 100% of the average monthly values for the insured business for the 12 months immediately before the date of loss or damage.

This condition is crucial. If the named insured experiences an unexpected inventory increase, the 25% increase might be lost if the limits are not adjusted accordingly.

Example: Johnny’s Toys has average monthly values of $100,000 for all months except October, November, and December, when the values peak at $150,000. Johnny carries a $120,000 limit to cover the peak values. During the summer, a supplier offers him the opportunity to sell the latest popular toy, and his inventory increases to $150,000 in June, July, and August. This raises his average monthly values to $125,000. As a result, Johnny does not receive the benefit of the 25% seasonal increase.

If the business has been in operation for less than 12 months at the time of loss, the insurance limit must be 100% of the average monthly values for the period the business has been in operation.

LOSS PAYMENT

The previous sections explain how the insurance company values property and how much it pays. This section explains how it pays losses.

1. Our Options

The insurance company has four loss payment options:

a. Pay the value of the property that sustained loss or damage.

b. Pay the cost to repair or replace the property that sustained loss or damage.

c. Rebuild, repair, or replace the damaged or lost property with similar property within a reasonable period of time.

If option c. is selected, the insurance company must notify the named insured of that decision within 30 days after receiving a properly completed proof of loss.

d. Take all or any part of the property at the agreed or appraised value. The named insured cannot demand that the insurance company take any of the property.

2. Your Losses

All losses are adjusted with and paid to the named insured unless there are other loss payees. The insurance company must pay covered losses within 30 days after it receives a properly prepared and executed proof of loss and one of the following takes place:

a. The parties agree in writing as to the amount of loss

b. An appraisal award is filed with the insurance company

NOTE: This refers to Additional Conditions 1. Appraisal.

c. A final judgment is entered

NOTE: This applies when the amount of the loss must be adjudicated to determine the payment owed by the insurance company.

3. Property of Others

There are two different ways to adjust losses to property of others:

a. The insurance company can work directly with the property owner and pay based on the property owner’s interest in the property.

b. The company can pay the named insured and let the named insured settle with the property owner.

The insurance company does not pay both the named insured and the property owner for the same item. If the property owner sues the named insured because of a loss payment, the insurance company has the option to defend the named insured at its own expense.

4. Common Wall

This condition explains the procedures that the insurance company will follow in cases where covered loss or damage involves a wall that is considered a common or party wall. This condition is subject to all other policy provisions and limits that apply.

a. The insurance company pays the share of the loss to the common wall that equals the named insured’s interest in it in proportion to the adjoining owner’s interest in the same wall.

b. There may be a circumstance whereby the named insured decides to repair or replace the covered damage to the common wall, but the adjoining owner does not. Under those circumstances, the insurance company pays the full value of the covered loss to the common wall.

c. The insurance company retains its right of subrogation against the owner of the adjoining property and its insurance company, as well as any other entity or person. However, this provision does not change this policy’s Subrogation Condition.

The definition of common or party wall used within this provision is a shared wall that divides two adjoining properties. It applies only when the properties are under different ownership.

Example: Jerry’s Fine Foods shares a common wall with Mindy’s Jewels. A fire at Jerry’s damages the common wall and other property in Jerry’s building. Jerry decides to take his actual value settlement and leave. Mindy wants the common wall to be repaired because it compromises her business. Mindy’s AAIS Businessowners Policy pays to repair the common wall. It then subrogates against the party that owns the property Jerry previously owned for its proportional cost of the repair.

ADDITIONAL CONDITIONS

This section explains how the insurance company handles certain situations and imposes certain restrictions on the named insured.

1. Appraisal

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

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

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

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

Appraisals are never used to determine whether a policy covers a loss, to determine the cause of a loss, or to interpret policy terms.

The insurance company still retains the right to deny the claim even after it has gone through the appraisal process.

2. Benefit to Others

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

3. Control of Property

Any act or neglect beyond the named insured's control does not affect the Property Coverages. If the named insured violates any policy condition, only coverage at the location where the violation took place is affected.

4. Death of an Individual Named Insured

The rights and responsibilities of the named insured under the Property Coverages are transferred to the legal representative or any person with proper temporary custody of the named insured's property upon the named insured's death.

NOTE: There are various arrangements available for different types of ownership, and these businesses may continue in some form. However, when the named insured individual passes away, it typically indicates that the legal representative will take steps to wind down and close the business.

5. Mortgage Provisions

Mortgage companies and trustees have special status with respect to the Property Coverages. The term mortgagee used in this provision also includes trustees.

When the policy lists a mortgagee with respect to covered building property, the insurance company pays any covered loss to the specific building or structure to the mortgagee and the named insured as their interests appear. If there is more than one mortgagee, they are paid in order of precedence.

If the named insured voids coverage because of its own acts or neglect, or if the named insured fails to comply with coverage terms or conditions, this coverage continues for the mortgagee’s benefit. This benefit does not apply if the mortgagee knew about changes in ownership or substantial increases in risk and did not notify the insurance company.

The insurance company may ask the mortgagee to do the following if the named insured fails to do so:

a. Pay the premium

b. Provide a signed and sworn proof of loss within 60 days if requested by the insurance company.

If the coverage for the named insured is void and the insurance company pays the mortgagee for a loss, the insurance company assumes the mortgagee's right to collect that portion of the mortgage debt from the named insured. The mortgagee still retains the right to collect the remaining amount of the mortgage debt from the named insured.

Additionally, the insurance company has the right to pay the mortgagee the remaining principal and accrued interest to fully assume the mortgagee's interest. In this case, the insurance company would also take over any instruments provided as security for the mortgage debt.

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Example: Glen intentionally burns down his building, resulting in a total loss of $1,000,000. The insurance company does not pay Glen but does pay the mortgagee $1,000,000 of the $1,100,000 loan against the property. The company can then pursue Glen for the $1,000,000 it paid, and the mortgagee retains the right to pursue and collect the remaining $100,000 on the mortgage.

The insurance company also has the option to pay the entire $1,100,000 plus earned interest to obtain a clear title to the property. Doing so could enhance its ability to sell the property.

The insurance company must give ten days’ notice to the mortgagee if it cancels the policy for non-payment of premium or 30 days advance notice if the cancellation is for any other reason. It must also notify the mortgagee at least ten days in advance if it decides not to renew the policy.

6. Policy Period

Covered loss or damage must begin during the policy period.

NOTE: This is especially important when property losses persist for several days and potentially result in overlapping coverage. The insurance policy in effect at the time the loss or damage begins is the only one that responds.

Example: Marilyn’s policy period was from January 1, 2024, to January 1, 2025. The insurance limit was $400,000. The renewal policy period was January 1, 2025, to January 1, 2026, and the insurance limit was $600,000. A fire began on December 31, 2024, but was not completely extinguished until January 2, 2025. Only the policy from January 1, 2024, to January 1, 2025, with a $400,000 limit responds to this loss.

7. Recoveries

Insurance is intended to indemnify the named insured, not to provide a profit. If the insurance company pays a covered loss and the lost or damaged property is recovered, or the party that caused the loss pays for it, the insurance company is entitled to be a party to such recovery. The following provisions explain how the recovery process works:

a. The named insured must notify the insurance company if they receive payment or recover the property.

b. The insurance company must notify the named insured if it receives payment or recovers the property.

c. The insurance company pays all recovery expenses and any expenses required to repair the recovered property, subject to the limit of insurance.

d. The named insured can decide to keep the recovered property. If it does, the insurance company and the named insured must agree on the amount of the claim payment to be returned to the insurance company. However, this amount cannot exceed the payment the named insured received for the loss.

e. If the claim paid is less than the agreed loss due to deductibles or other policy limitations, recoveries are prorated between the named insured and the insurance company based on their respective interests in the loss.

Example: $10,000 worth of cigarettes is stolen from Barney’s Fast Stop Shop. The thief resells them, and they are not recovered. However, the insurance company recovers $5,000 (half of the merchandise’s value) from the captured thief, who still has the money from the resale. The insurance company pays Barney only $9,000 because of the $1,000 deductible that applies to the loss.

In this case, the named insured's share of the loss is 10% (the $1,000 deductible amount), and the company's share is 90% (the $9,000 it paid). The insurance company pays Barney 10% (or $500) of the $5,000 cash recovered, as that amount represents Barney’s proportion of the total loss due to the deductible.

8. Subrogation

The insurance company assumes the named insured’s position when settling a property claim. It also takes on the right to act against any party the named insured may pursue for recovery related to the claim, up to the amount paid.

The named insured may not take any action after a loss that would impair the insurance company’s right of recovery. There is an exception. The named insured may waive its right to recover from any party in writing before a loss occurs without voiding coverage.

Example: Harvey's High-Flying Helicopters tells its next-door neighbor, Stan's Surface-To-Air Missiles, that it will not sue for the roof damage to his building caused by a tree that Stan cut down. Harvey then commits that verbal statement to writing. Coverage could be void because Harvey waived his recovery rights in writing after a covered loss occurred.

There are exceptions to the prior statement. The named insured may waive its rights of recovery after a loss if the waiver is with any of the following parties:

a. A person(s), entity, or organization this policy’s Property Coverage insures

b. The named insured's tenant

c. A business the named insured owns or controls

d. A business that owns or controls the named insured

Example: Change the example above slightly. The reason Harvey told Stan he would not sue is because Stan is Harvey’s tenant. Due to this relationship, coverage is not voided.

Related Court Case: Broad Subrogation Clause Waives All of Insurer's Rights

9. Suit Against Us

The two rules of when a lawsuit can be brought against the insurance company are as follows:

a. All terms of the Property Coverages must be satisfied.

b. The lawsuit must be brought within two years after the date the direct loss or damage took place.

This period only applies if state law permits. If any state law invalidates this provision, the lawsuit must commence within the shortest period allowed by the law.

Example: Fair and Square Insurance Company and Jerry disagree on the value of a claim. Jerry is furious over the amount offered and decides to sue. However, Fair and Square points out the appraisal provision must be exercised first. A suit cannot commence until the appraisal is concluded and all other terms and conditions of the policy are met. If the appraisal affirms Fair and Square's offer, Jerry can then commence a suit if he does so within two years after the date of loss.

10. Vacancy Restriction

The insurance company does not pay for any loss or damage caused by attempted theft, building glass breakage, sprinkler leakage, theft, vandalism, or water damage if the building or structure was vacant for more than 60 consecutive days prior to the time of the loss. However, sprinkler leakage is covered if the named insured protected the system against freezing.

The insurance company reduces the amount it pays by 15% for any loss not otherwise excluded.

Example: Vandals break into Ferguson Realty’s building, which has been vacant for 90 days. The vandals pry open the back door and spray graffiti throughout the premises before leaving without closing the door.

Scenario 1: The sprinkler system was unprotected against freezing. The system freezes and starts to leak because the door was left open. There is no coverage for either the vandalism or the sprinkler leakage.

Scenario 2: The sprinkler system was protected against freezing. A bird flies in through the open door and crashes into a sprinkler head, causing it to leak. The vandalism damage is not covered. However, the sprinkler leakage damage is covered, though it is reduced by 15%.

Vacancy is not the same for all properties.

A property is considered vacant when the occupants of a building or structure move out and leave it completely empty or with only a minimal amount of business personal property remaining.

When the named insured owns the building or structure, it is considered vacant when 30% or less of the total square foot area is occupied. When the term occupied is used, it means that the space is occupied as it was intended to be occupied. This means that a retail space within the building that the owner uses to store building materials remains a vacant space. The named insured could also be the general lessee of the building or structure.

Example: The Howe Strip Shopping Center has five tenants. When the two largest tenants move out, the building becomes 75% vacant, despite the fact that three tenants remain. As a result, the building is considered vacant. Howe decides to randomly store some leftover items in the open spaces, but this does not change the fact the building is vacant.

When the named insured is a tenant, the building or structure is considered vacant for that named insured only if the rented area does not contain sufficient business personal property to conduct business, perform customary activities, or operate.
Buildings or structures are not considered vacant while they are under construction or being renovated.

Example: Naylor Realty constructs a building for its tenant, Dean’s Delicious Donuts, but Dean’s declares bankruptcy before ever occupying the building. Construction ends on May 1. When the fire occurs on August 12 and destroys the building, the claim settlement is reduced by 15% because the building had been vacant for more than 60 days.

OPTIONAL PROPERTY COVERAGES

Three Optional Property Coverages are available and apply only if they are listed in the declarations. All are subject to the policy’s Common Policy Conditions, Common Policy Definitions, and Property Coverages, except where a provision within them applies more specifically.

1. Employee Dishonesty (BP 0816 change)

a. Coverage

Dishonest acts committed by an employee of the named insured can result in direct loss or damage to the named insured's business personal property, as well as money and securities. This Optional Property Coverage provides protection for such losses or damages. It also applies to business personal property and money and securities for which the named insured is legally responsible. For coverage to take effect, the dishonest act must occur during the policy period. These acts can be committed by an individual employee or by employees acting in collusion with others, including non-employees.

Importantly, the definition of a single occurrence is not limited to a single action. Instead, it encompasses the total number of related, cumulative dishonest actions, regardless of the number of separate losses that occur or the number of individuals involved.

Dishonest acts have the following characteristics:

They must be dishonest or fraudulent

They must be done with the intent to cause the named insured to sustain loss or damage

The act must be to obtain financial benefit for any employee, other person, or organization. It is not necessarily limited to the person who commits the act. This financial benefit does not include salaries, commissions, bonuses, fees, profit sharing, or similar employee benefits that have been earned.

Examples:

·         Paul pilfers money from Scrooge's cash register over a period of months to pay for the operations his sick child needs. This dishonest act damages Scrooge but benefits Paul's child and is covered.

·         Peter behaves unscrupulously by hounding clients. He shows disrespect toward his employer and makes deals that violate the company’s ethics. Although he is eventually fired, the money he earned in bonuses and salary cannot be considered a loss resulting from his numerous dishonest actions.

The limit on the declarations for this coverage is the most the insurance company pays for Employee Dishonesty in any one occurrence, regardless of whether the occurrence spans multiple policy periods.

Example: Four accounting employees devise a scheme to skim $200,000 over a four-year period. The limit of insurance was $50,000 for each of the four years that coverage was in force. The most the insurance company pays is a total of $50,000.

b. Perils Covered

The Perils Covered section does not pertain to this Optional Property Coverage.

c. Exclusions

The Additional Exclusions section does not apply to this Optional Property Coverage.

Only the exclusions for Civil Authority, Nuclear Hazard, and War and Military Action in the Businessowners Policy Perils Excluded section apply.

The insurance company does not pay for loss or damage due to any of the following:

Actions of the named insured, its partners, directors, trustees, joint venturers, members, or managers. The actions are excluded whether they act alone or act with others.

Example: Jake is a partner in the C H & W law practice. He and his administrative assistant collaborate to manipulate billings.

The act is discovered, and C H & W submits the loss to the insurance carrier. The carrier denies the loss because Jake is involved.

When the only proof that a loss has occurred, or the amount of the loss, depends on an inventory or a profit or loss statement

NOTE: These can be used to substantiate or document a loss, but not as the only proof that a loss occurred.

Actions of an employee for whom coverage similar to this was previously cancelled and never reinstated. The cancellation may have occurred with the current employer or an employer that the named insured acquired.

Example: Martin worked for Jasmine and Sons. Jasmine discovered that Martin had been stealing items and submitted a claim for the loss to the company's insurance provider. The insurance company paid the loss. Martin provided restitution and continued to work for Jasmine and Sons. Coverage for his actions was canceled once the loss was discovered. Miller, Inc. subsequently acquired Jasmine and Sons and retained Martin along with other employees.

Martin became a highly trusted employee of Miller, utilizing his prior talent for thievery at the company and was quite content with his additional income until an audit revealed his thefts. The insurance company was about to pay the large loss when the claims adjuster’s investigation uncovered the previous loss at Jasmine and Sons. Because of this exclusion, the loss was not paid.

·         Any loss not discovered within one year after the policy expires

·         Loss or damage that occurs outside the basic territory. There is an exception for the coverage that
1. Employee Dishonesty e. Supplemental Coverages provides.

·         Legal expenses or indirect losses. An example is loss of income.

·         The theft or other dishonest act by an employee who was known to have committed theft or dishonest acts prior to this policy’s effective date. This applies only if the named insured, a partner, director, trustee, joint venture, member or manager had this knowledge. It does not apply if the one with such knowledge colluded with that employee.

d. Additional Conditions

The following Additional Conditions apply along with the other policy terms and conditions:

The named insured is required to keep adequate records of covered property. This is because the insurance company uses those records to verify the amount of loss.

As soon as the named insured or any of its partners, officers, directors, trustees, joint venturers, members, or managers discover that an employee committed a dishonest act, this coverage is immediately cancelled with respect to any action that employee commits after the date of discovery.

The date of the dishonest act does not affect this cancellation. It could have happened many years earlier and may or may not have been related to work. The only exception to this condition is when any of the persons listed in this condition makes the discovery and then acts in collusion with that employee.

Example: Jerry is a partner in J & B Construction Company. Someone informs him that Leslie, the newly hired bookkeeper, bears a resemblance to a bookkeeper convicted of embezzling from another company. When Jerry confronts Leslie, she admits that it is true. At that point, Jerry recruits her into his scheme to embezzle from J & B.

Leslie takes action and steals company property. She is caught, and the investigation reveals her past, as well as Jerry’s embezzlement scheme. The theft of company property is covered because Jerry kept her past activities a secret to collude. However, the embezzlement is not covered because Jerry is a partner, and such dishonest actions are excluded, even those in collusion with another employee.

Member is defined as a person who has an ownership interest in the named insured limited liability company.

Manager is defined as a person who provides direction to the limited liability company.

e. Supplemental Coverages

Three Supplemental Coverages apply only if this Employee Dishonesty coverage replaces previous Employee Dishonesty coverage as of its expiration or termination date.

NOTE: This supplemental coverage does not apply if there is a gap in coverage.

The coverage provided is not a separate limit. It is part of the Employee Dishonesty limit that applies.

Coverage applies to loss or damage that results from dishonest acts committed by any employee of the named insured who is temporarily outside the basic territory for up to 90 days.

Example: During a two-week trip to Italy, an employee trades samples of merchandise for cash and claims that the airline lost the samples. Coverage applies because the employee was outside the basic territory for less than 90 days.

Coverage applies to losses the named insured sustained before this coverage's policy period that could have been recovered under the prior insurance, except that its discovery period ended. This coverage applies if the effective date of this insurance coincides with the cancellation or termination date of the prior insurance.

Furthermore, this insurance would have covered the loss if it had been in effect at the time the act or event causing the loss occurred. The maximum payment will be the lesser of the limit for insurance under this Employee Dishonesty coverage as of the effective date of the prior insurance.

Example: Darryl’s Interiors maintained continuous employee dishonesty coverage for the past three years. Coverage was written with Honest and Forthright Indemnity during the first two years with a $50,000 limit of insurance. For the current year, coverage is now with More Honest Mutual, with a $100,000 limit of insurance.

Darryl discovers a loss two years after it occurred and one year after Honest and Forthright's discovery period ended. The coverage provided by both companies applies to the loss. More Honest's policy paid the loss, but only up to the $50,000 limit in Honest and Forthright's policy.

There is coverage for direct loss or damage to business personal property and money and securities when a covered loss is partly covered by this Employee Dishonesty coverage and partly covered by prior insurance issued by the same insurance company or any of its affiliates. The most paid is the greater of the amount that can be recovered under this Employee Dishonesty coverage or any prior coverage cancelled or terminated (and the insurance company or any of its affiliates issued to the named insured).

Example: Referring to Darryl’s Interiors, instead of coverage being with Honest and Forthright, it was with Little Honest Mutual, an affiliate of More Honest Mutual. Consequently, the $100,000 insurance limit is available to cover the loss.

2. Money and Securities

a. Coverage

This Optional Coverage applies specifically to money, securities, and lottery tickets that the named insured does not hold for sale. The named insured may own these items, be legally responsible for them, or simply hold them for the coverage to apply. This coverage protects against disappearance, destruction, or theft. Theft is defined as any act of stealing and includes, but is not limited to, burglary and robbery.

Examples of covered losses:

Money stolen from the named insured’s safe.

A fire destroys the winning $1,000,000 lottery ticket the named insured business purchased to benefit a charity.

Mary, the named insured, drives to the bank with several Bearer Bonds she intends to cash. It is an enjoyable day, and Mary rolls down the vehicle’s windows. While driving across the river on a bridge, a sudden gust of wind blows a number of these securities out the window, off the bridge, and into the river below.

b. Condition

This Optional Coverage has an additional condition: the named insured must keep adequate records of the covered property. This is important because the insurance company uses these records to verify the amount of loss.

c. Perils Covered

The Optional Property Coverage section applies only to theft, disappearance or destruction of money, securities and lottery tickets (not held for sale). Therefore, the Perils Covered section is not applicable.

d. Exclusions

In the Perils Excluded and Additional Exclusions sections, only the following exclusions apply to this Optional Coverage:

Under Perils Excluded, only the following exclusions apply: Civil Authority, Earth Movement, Nuclear Hazard, and War and Military Action.

Under Additional Exclusions, only the following exclusions apply: Criminal, Fraudulent, Dishonest or Illegal Acts, and Voluntary Parting.

The following loss or damage is also excluded:

Errors or omissions resulting from inaccurate arithmetic computations or accounting.

If loss or damage is caused by any device that operates on money, such as a vending machine, this situation is considered an exclusion. However, this exclusion is not limited to vending machines alone. The exclusion does not apply if the device continuously records the money, such as an ATM.

Loss or damage resulting from property left in an unattended vehicle. However, there is coverage if there is evidence of forced entry into a securely locked compartment within the vehicle.

e. Exceptions

The provisions outlined in the following do not apply:

·         Under “How Much We Pay”

o   7. Automatic Increase

o   8. Seasonal Increase

f. Coverage Limits

·         Inside Premises

The limit listed on the declarations is the most paid for loss occurring inside the premises or inside a bank or savings institution.

·         Outside Premises

The limit listed on the declarations is the most paid for losses at other locations.

These limits apply to the actions of an individual person or multiple persons who commit either a single act or a series of acts.

Examples:

·         Melanie robs Happy Hippo. This action is subject to one limit.

·         Melanie and her friend Bob rob Happy Hippo. Two persons are involved, but this is a single act, and only one limit applies.

·         Melanie and Bob rob Happy Hippo. They later return with the keys they took during the robbery and steal additional cash and some securities from the back of the store. There are two actions, but they take place in a series, so only one limit applies.

3. Outdoor Signs

a. Coverage

This Optional Coverage covers outdoor signs the named insured owns or has in its care, custody, or control. The signs must be located on a described premises, and the loss or damage must be caused by a covered peril. This coverage applies to signs attached to the building or not attached to the building.

b. Perils Covered

The Perils Covered section of the policy does not apply to this Optional Property Coverage. For this section, Outdoor Signs, unless the peril is excluded, the loss is covered.

c. Exclusions

In the Perils Excluded and Additional Exclusions sections, only the following exclusions apply to this Optional Coverage:

Under Perils Excluded, only the following exclusions apply: Civil Authority, Earth Movement, Nuclear Hazard, and War and Military Action.

Under Additional Exclusions, only the following exclusions apply: Electrical Currents, Mechanical Breakdown, and Wear and Tear.

The following loss or damage is also excluded:

Any loss resulting from contamination or deterioration. Examples include corrosion, rust, decay, fungus, mold, mildew, rot, or any quality, fault, or weakness in property that causes it to damage or destroy itself.

However, coverage applies if deterioration or contamination causes a specified peril or causes the building glass to break, the resulting loss or damage is covered.

d. Coverage Limit

This Optional Coverage replaces any and all limitations in the Businessowners Policy applying to outdoor signs. Furthermore, the most paid for loss in any one occurrence is limited to the amount stated in the declarations for Outdoor Signs.

Examples:

Scenario 1: A brush fire causes $10,000 in damage to Cynthia's Healthy Fitness sign. The limit for Optional Coverage–Outdoor Signs is $7,500. You've Gotta Be Kiddin' Insurance Company pays only $7,500 because the limit for this Optional Coverage supersedes and replaces the additional coverage for signs limit.

Scenario 2: This time, Cynthia selects a $10,000 limit to apply to Optional Coverage–Outdoor Signs. Cynthia has three signs on the premises, each valued at $10,000. A windstorm causes $17,000 in damage to all three signs. You've Gotta Be Kiddin' pays only $10,000 because the limit of insurance applies per occurrence, and the same occurrence damaged all three signs.

COMMERCIAL LIABILITY COVERAGES

This section provides definitions, descriptions of coverage, exclusions, limitations, and conditions specifically related to the liability coverages offered by the AAIS Businessowners Policy.

ADDITIONAL DEFINITIONS

The following definitions apply to the Commercial Liability Coverages and are in addition to the Common Policy Definitions.

NOTE: The Editors added titles to enhance clarity.

1. Advertisement

An advertisement must be public and can take various forms, such as print, verbal, or electronic announcements. Its main purpose is to promote the goods, products, or services of the named insured to:

a. Prospective clients, patrons, customers, or buyers, encouraging them to purchase, rent, lease, or engage in other business activities.

b. Potential supporters, so they may consider or promote these offerings.

For websites, only sections that specifically promote the named insured’s goods or services to the above-mentioned audiences in a. and b. are considered advertisements.

2. Auto

a. Is a land-based motor vehicle designed for use on public roads. It includes trailers and semi-trailers. Any machinery or equipment attached to the aforementioned vehicles is also considered part of the definition of an auto.

b. Land-based vehicles subject to any type of financial responsibility, mandatory insurance, or similar motor vehicle insurance laws are classified as autos. These laws vary by state, so this definition relies on the regulations of the state where the vehicle is primarily garaged or licensed.

It is important to note the term "auto" does not encompass mobile equipment.

3. Bodily Injury

Bodily harm, sickness, or disease sustained by a person is considered bodily injury. When death results from any of these, death is bodily injury. Mental or emotional injury, suffering, or distress is considered bodily injury only when it is a direct result of a physical injury.

Example: A ceiling fixture falls on Bobby while he is shopping at Lighting, Inc. His injuries are extensive, and he requires special rehabilitative services in addition to regular medical care and lost wages for time away from work. Bobby sustained bodily injury. Sally was across the street when the accident happened and heard about it from her neighbors. Because of this information, she will not enter a room with a ceiling fixture. Her mental distress is not considered bodily injury.

4. Coverage Territory

The following make up the coverage territory:

a. The basic territory, as defined in Common Policy Definitions, which includes the United States of America, its territories and possessions, Canada and Puerto Rico.

b. International waters or airspace. This definition is limited to bodily injury, property damage, or personal and advertising injury that occurs in such waters or airspace while traveling between places within the basic territory.

c. Other parts of the world. This definition is limited to bodily injury, property damage, or personal and advertising injury arising out of one or more of the following:

Products the named insured made or sold in the basic territory.

Activities of a resident of the basic territory who is temporarily away for short periods while conducting business for the named insured.

Personal and advertising injury that arises from offenses committed through electronic communication or the Internet.

Damages are paid only in cases where the suit is tried in the basic territory or if the insurance company decides to settle with the claimant.

Example: HiFalootin Clothing Store in New York City sells a blouse labeled as flame retardant to Gretchen during her visit from Germany. After returning to Germany, she wears the blouse to a party, and it suddenly bursts into flames when a cigarette touches it. Gretchen suffers third-degree burns and files suit against HiFalootin in Germany. Garment Guaranty Insurance Company denies coverage because Gretchen did not bring the action in the basic territory.

5. Covered Contract

NOTE: Many contracts attempt to transfer liability from one party to another. The exclusions section in the Businessowners Policy excludes such assumed liability. One exception to the exclusion broadens coverage to apply to only liability assumed in a covered contract. This definition explains the exact amount of contractual liability coverage available.

a. This means the following:

Leases of premises

License or easement agreements. However, agreements related to construction or demolition operations within 50 feet of a railroad are excluded.

Duties an ordinance imposes to indemnify a municipality. This excludes work done for the municipality.

Sidetrack agreements

Elevator maintenance agreements

The part of other contracts or agreements whereby the named insured assumes the tort liability of another. However, this is only when that liability is for damages due to bodily injury or property damage to a third party. This type of contract includes indemnification agreements with a municipality provided in conjunction with work done for the municipality.

Tort liability refers to liability imposed by law, as opposed to liability imposed by contract. Contracts where the named insured assumes another party’s contractual liability are excluded.

b. Covered Contract does not include the part of any contract or agreement:

That compensates a railroad for bodily injury or property damage. However, this is only when such compensation arises from construction or demolition operations conducted within 50 feet of any railroad property. Such operations must affect railroad bridges, trestles, tracks, roadbeds, tunnels, underpasses, and/or crossings.

That compensates an architect, engineer, or surveyor for injury or damage resulting from preparing or approving maps, drawings, opinions, reports, surveys, change orders, designs, or specifications. This also includes failing to prepare or approve such documents. Additionally, it includes providing or failing to provide directions or instructions, which is the primary cause of the injury or damage.

When the insured is an architect, engineer, or surveyor and assumes liability for injury or damage resulting from providing or failing to provide professional services, including the services listed above, as well as any supervisory, inspection, or engineering services.

When a person or organization compensates for damage by fire to any premises rented or loaned to the named insured.

6. Damages

This constitutes monetary compensation for an organization or individual who claims to have incurred an injury.

7. Designated Insured

This is anyone listed in 12.a. in this section’s definition of insured. It also includes employees authorized to provide or receive notice of occurrences or claims.

8. Employee

This term includes leased workers, but does not include temporary workers.

9. Executive Officer

This refers to an individual in an officer role defined by the charter, constitution, by-laws, or another comparable governing document of the named insured.

10. Impaired Property

This cannot be the named insured’s product or work. It is tangible property that meets the following criteria:

It must be less useful, or it cannot be used at all, because it includes the named insured’s products or work. That product or work must be considered either deficient or dangerous.

It must be less useful, or it cannot be used at all, because the named insured failed to complete the terms of a contract or agreement.

It must be capable of being rendered useful again if the products or work of the named insured are repaired, replaced, adjusted, or removed, or if the named insured adheres to the terms of its contract or agreement.

Example: Circuit Board, Inc. distributes a part included in the circuit board in a refrigerator’s thermostat. The part malfunctions, causing the refrigerator to shut down. This is an example where the refrigerator is impaired property.

11. Indemnitee

This term refers to an organization or person and is used when an insured assumes that organization or person’s liability for damages due to bodily injury or property damage under a covered contract.

12. Insured

There are several types of insureds.

a. This first group is based on entries on the declarations. If the entity is:

Individual

This includes the named insured and the named insured's spouse. However, insured status is limited to the conduct of the business the named insured solely owns.

Partnership or Joint Venture

This includes the named insured and all its partners or members, as well as their spouses. However, insured status is limited to the conduct of the named insured's business.

Limited Liability Company

This includes the named insured and all its members. However, insured status is limited to the conduct of the named insured’s business. The named insured’s managers are also insureds, but only when they are carrying out their duties as managers.

Trust

This includes the named insured and all trustees. However, insured status applies only when trustees act within the scope of their duties as trustees.

Organization

This is not a partnership, joint venture, or limited liability company. It is the named insured, its executive officers and its directors. However, this insured status is only while they exercise their duties as executive officers or directors. Stockholders are also insureds, but only for their liability as stockholders.

b. The second group has a relationship with the named insured:

The named insured's real estate managers are insureds. A real estate manager can be either a person or an organization, but is considered an insured only while performing work in the capacity of a real estate manager. However, an employee or volunteer who acts as a real estate manager for the named insured is not an insured. That insured status is defined below.

If the named insured is an individual and that individual dies during the policy period, someone must carry on for that individual, at least temporarily. To ease the transition, two different persons or groups of persons are insureds under limited circumstances:

o   The person or organization appointed as the legal representative is an insured, but only while carrying out the duties of a legal representative. The legal representative has all the named insured’s rights and responsibilities.

o   Persons or organizations with temporary custody of insured property at the time of death are also insureds, but only with respect to liability resulting from maintaining or using the property. This status ends once the legal representative is appointed.

The named insured's employees are insureds for acts they perform within the scope of their employment. Both employees and volunteer workers are insureds but only while performing duties as a part of conducting the named insured’s business.

Managers of limited liability companies and executive officers of organizations that are not partnerships, joint ventures, or limited liability companies are not considered insureds under this part of the definition of insured. This is because they are insureds under part a. of this definition.

Employees and volunteer workers are not insureds for the following:

a. Bodily injury or personal and advertising injury:

·         To the named insured, its partners, or its members.

·         To a fellow employee while performing duties related to the named insured’s business or while in the course of employment with the named insured.

·         To a fellow volunteer while that volunteer performs duties related to the named insured’s business.

Examples:

Scenario 1: Jesse, Frank, and Sherry are working in the backroom. Jesse throws a box from the top shelf, striking both Frank and Sherry. Jesse is not an insured for that action because Frank is in the course of his employment, and Sherry is a volunteer performing duties related to the named insured’s business.

Scenario 2: Frank had already clocked out but is still in the store to purchase some items to take home. Jesse throws a box to Frank, which knocks him out. Jesse is an insured because Frank was not on duty at the time of the accident.

Scenario 3: Sherry comes into the store to confront Jesse about some private issues. Jesse pushes Sherry to get away from her, and Sherry falls. Because Sherry was on the premises for her own purposes, Jesse is considered an insured for the accident.

To reimburse a third party for damages described in the three items immediately above or for the item described in b. below. This applies even when there is an obligation for such reimbursement.

When the bodily injury or personal and advertising injury arises from an employee or volunteer providing or failing to provide professional health care services.

b. Consequential injury claims by the child, spouse, parent, brother, or sister of any person described in the first three items of paragraph a. above because of an injury to that described person.

c. Property damage to property owned or controlled in any way by the named insured, its employees, volunteers, or any of its partners or members.

No person or organization is an insured with respect to any current or past partnership, joint venture, or limited liability company not listed on the declarations as an insured.

13. Leased Worker

This is a person the named insured leases from a labor-leasing firm under a contract or agreement. The contract or agreement details the duties the person performs with respect to the conduct of the named insured's business.

Leased workers are not the same as temporary workers.

14. Loading or Unloading

a. Loading is handling property. It begins when the property is moved from the place where it is accepted for transit in an auto, aircraft or watercraft. It continues as the property moves in or on the mode of transportation. It ends when the property is removed from the transporting mode of transportation at the point of final delivery.

b. It includes movement of property by mechanical devices. However, mechanical devices are limited to either hand trucks or devices attached to the transporting vehicle.

Example: Louie places a pallet of lumber at the end of the loading dock. Loading begins when the Anchor Transport driver begins to lift the pallet to place it on the truck.

15. Mobile Equipment

a. This is any machinery or equipment attached to any land vehicle that meets any of the following criteria:

Used only on the named insured’s owned or rented premises. Premises includes all adjoining ways.

Designed for use primarily off public roads, some examples include bulldozers, farm machinery, and forklifts.

Travel on crawler treads

Provide mobility for permanently attached power cranes, shovels, loaders, diggers, drills, graders, scrapers, rollers, and other road construction or repair equipment. This equipment may be self-propelled or non-self-propelled.

Any land vehicle that does not meet any of the criteria above and is not self-propelled but provides mobility for air compressors, pumps, and generators. Such items may also provide mobility for spraying, welding, and building cleaning equipment, geophysical exploration, lighting, and well servicing equipment, or cherry pickers and similar devices used to raise and lower workers.

Any land vehicle that does not meet any of the criteria above but is kept for reasons other than to transport persons or cargo.

b. Self-propelled vehicles that meet the criteria above may still not be considered mobile equipment. A vehicle with any of the following permanently attached equipment is considered auto, not mobile equipment:

Snow removal, street cleaning, or road maintenance equipment. However, this exclusion does not apply to equipment used for building or resurfacing roads.

Devices mounted on an automobile or truck chassis and used to raise or lower workers.

Air compressors, pumps, and generators, along with any spraying, welding, or building cleaning equipment.

Equipment utilized for geophysical exploration, lighting, and well servicing.

Mobile equipment does not include land vehicles subject to financial responsibility or similar compulsory or motor vehicle insurance laws, which are state-specific. This means the laws of the state where the vehicle is licensed or principally garaged must be reviewed to determine their status. Such vehicles are considered autos and should be covered as autos.

Related Article: ISO Business Auto Coverage Form Overview

16. Occurrence

This is an accident involving continuous and repeated exposures to similar conditions.

Example: Joan hits Mary. This is a single occurrence. Joan hits Mary several times. This is also a single occurrence.

17. Personal and Advertising Injury

This means injury resulting from one or more of the following offenses. This definition also includes bodily injury resulting from such offenses.

a. Publishing any material that slanders or libels a person or organization, disparages the goods, products, or services of a person or organization, or violates any person’s right of privacy. The publication can be verbal, written, or electronic.

NOTE: Slander is an oral or spoken offense, while libel is the same offense committed in writing.

b. False arrest, detention, or imprisonment

Example: Carmen thinks she sees a woman shoplifting and asks her to stop. When the woman continues walking, Carmen follows her and confronts her. Carmen gets the answer she needs in less than a minute and lets the woman leave. Even though the incident lasts less than a minute, Carmen is considered to have detained and imprisoned the woman.

c. Deliberately harmful or malicious prosecution

Example: Raymond files a claim against his neighbor for stepping on his lawn. The claim is denied. He files a second claim, and it is also denied. Raymond eventually files seven claims, and each is declined. Raymond's neighbor then sues Raymond for malicious prosecution.

d. The named insured's advertisements that use advertising ideas of others without their permission

e. The named insured's advertisements that use copyrighted information, slogans, or trade-dress of others without their permission

f. Any entry into, eviction from, or invasion of privacy related to a room, dwelling, or premises a person occupies is an offense. However, this applies only if committed by the landlord, owner, or lessor or by those acting on their behalf.

18. Products/Completed Work Hazard

a. Products Hazard

This is bodily injury or property damage that arises from products. However, this is only after the named insured physically releases the product(s) to others. In addition, the injury or damage must occur away from premises the named insured owns or rents.

There is an exception. If the business of the named insured includes the sale of products consumed on the premises, those consumable items are considered products even when the injury or damage occurs on the premises. The requirement that the item must have been released to others remains.

Example:

·         Paul chokes on a bone in the chicken salad sandwich he is eating at Danny’s Delicatessen. This is an example of a products hazard exception.

·         John works as a salesman at J & J Appliances. During a demonstration of the latest dishwasher, it shorts out and shocks a customer. While this incident doesn't pose a products hazard for J & J since it happened on their premises, it would be considered a products hazard for the appliance manufacturer.

b. Completed Work Hazard

This is bodily injury or property damage that occurs at premises other than ones the named insured owns or rents. The injury or damage must result from the named insured’s work. This does not include work not yet completed or work that has been abandoned. Work is considered completed when one of the following first occurs:

All work in the named insured’s contract is completed

All work at a specific job site is completed. This applies even if other work under the named insured’s contract that includes work at two or more sites is not completed.

When any person or organization puts that part of the work at a job site to its intended use. This does not apply if the only party that puts the work to use is another contractor or subcontractor performing work at that same jobsite.

Example:

J & J Appliances contracts to install high-definition televisions at its customers’ three high-rise apartment buildings. When work is completed at one building, the employee assigned to the project moves on to the next one.

When an installation job at the first building causes a fire, it is a completed work hazard. The worker makes the same mistake at the second building, but the fire occurs before he leaves the site. The incident at the second site is not a completed work hazard.

Work requiring further service, maintenance, correction, repair, or replacement because of a defect or deficiency that is otherwise complete is still considered completed.

Example: J & J’s high-definition television contract requires them to periodically service the units. The repair technician cleans the unit and leaves. The television then shocks an apartment tenant. This is a completed work hazard. The work is complete, and periodic maintenance is all that remains.

c. Transportation of Property

Products hazard and completed work hazard does not include bodily injury or property damage occurring when property is being transported. However, this does not apply if an insured is loading or unloading a vehicle the named insured does not own or operate, and a condition in or on the vehicle causes the injury or damage. It also does not include bodily injury or property damage caused by tools, uninstalled equipment, or unused material.

Example: Jerry decides to leave his welding equipment at Kelly’s house after completing a job for her. His plan is to drop by and pick it up the next day. Kelly’s son attempts to use the equipment but burns down the house. This is not a completed work hazard.

19. Products

a. Any good or product the named insured manufactures, sells, handles, disposes of, or distributes. It also includes goods and products of others who trade under the named insured’s name. In addition, goods or products manufactured, sold, handled, disposed of, or distributed by persons or organizations whose business or assets the named insured acquires are also products.

b. The definition of products includes the following:

Any warranty or statement addressing the products’ quality, fitness, durability, performance, or use, regardless of when such warranties or statements were made.

Items associated with or related to the product, such as containers, materials, parts, and other equipment furnished. A vehicle is not considered a container.

Any warnings or instructions provided or should have been provided but were not.

Example: Shirley purchases a Shelving Made Easy kit from Do It Yourself retail store. She carefully follows the instructions that accompanied the kit, but the bookcase collapses when she places her vast collection of books on its shelves.

This is a products loss because Do It Yourself retail store failed to provide her with the weight restrictions information sheet.

c. Products does not include the following:

Any property rented to others or placed for their use but not sold. An example is a vending machine.

Real property. This includes buildings, structures, and dwellings, even if they are not specifically listed on the policy.

20. Property Damage

a. This is physical injury to tangible property and the resulting loss of use of that damaged property. Physical injury includes destruction of the property. Loss of use is understood to occur at the same time as the physical injury that caused it.

b. Property damage also includes the loss of use of tangible property that is not physically damaged. Loss of use is understood to occur at the same time as the occurrence that caused the loss.

Data records are not considered tangible property under Commercial Liability.

Example: Norm’s Nursery has a shed with unlabeled chemicals that catch fire due to an employee's negligence, releasing harmful fumes and particulates. A hazardous materials team evacuates the area for three days to assess the danger.

Neighboring businesses must close and undergo cleaning, suffering property damage and loss from the shutdown. The particulate matter also causes financial damage to businesses that are not physically harmed, but must close for three days.

21. Short-Term Rented Premises

This is any location or premises an insured rents for seven days or less. This definition includes the contents of the premises.

22. Suit

This is not limited to only civil or administrative proceedings where damages are alleged for covered bodily injury, property damage, or personal and advertising injury. It also includes alternative dispute resolution and arbitration proceedings. These are either of the following proceedings:

a. Any insured must submit to comply with a law or regulation.

b. Any proceeding the insured submits to, as long as the insurance company agrees.

23. Temporary Worker

This is a person an outside company furnishes to the named insured. These workers substitute for employees on leave or who are used to meet seasonal or short-term workloads.

NOTE: The keyword is temporary. Also, note that no time period is specified. If an employee is on a leave of absence due to illness or military service, the time period could be lengthy.

24. Volunteer Worker

This is a person who gives their time or services. The following applies to them:

a. They act at the named insured’s direction, and within the scope of duties it determines.

b. They do not receive a salary, fee, or any other remuneration or compensation. However, they may be reimbursed for out-of-pocket expenses.

Employees, leased workers, and temporary workers cannot also be volunteer workers.

NOTE: The volunteer may derive benefits for the service provided, such as public notice or recognition by the company or agency represented. However, they are not directly remunerated for the service provided.

25. Your Work

a. This term includes all work or operations the named insured performs. It also includes the work or operations others do on behalf of the named insured. Materials, parts, and equipment necessary for the work or operation are also considered your work.

b. This term also includes any warranty or statement provided with respect to the work’s quality, fitness, durability, use, or performance and any warnings or instructions that should be provided, regardless of whether they were actually provided.

Example: Magnificent Draperies makes and installs window coverings, including draperies, blinds, and hardware. Its crews typically consist of four employees, but the company often utilizes subcontractors for more specialized installations. The work the crews and the subcontractors perform, including the ladders, hammers, drills, and other tools used, are considered Magnificent Draperies' work. Instructions and information concerning blind pulls and other hazardous situations are also considered part of Magnificent Draperies’ work.

COVERAGE L–BODILY INJURY LIABILITY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. The insurance company pays those amounts an insured is required to pay as damages resulting from bodily injury or property damage this insurance covers. The insurance company has the right but also the duty to defend suits seeking damages. This right and duty does not exist if coverage does not apply.

The insurance company has the right to investigate occurrences and to settle claims or suits as it sees fit. It is not required to consult with the named insured or obtain its consent or approval to do so.

b. The insurance company pays amounts as damages based on provisions in the How Much We Pay section.

c. The insurance company is not obligated to provide a defense after the policy’s limits of insurance has been exhausted through the paying of judgments, written settlements, or medical expenses.

The Supplemental Payments section describes the payments that the insurance company will pay while investigating or settling a claim or defending a suit.

d. The insurance company may choose to defend the insured in a lawsuit or pay for their defense, but later it may determine that the policy does not cover the allegations made in the lawsuit. In such cases, the insurance company has the right to be reimbursed for the defense costs incurred when no coverage exists.

However, there are limitations to the insurance company's right to seek reimbursement. The insurance company must provide written notification to the named insured, indicating that there is a possibility of coverage not being available, and explain that it is continuing the defense under a reservation of rights. Only defense costs incurred after this written notification has been issued are eligible for reimbursement.

e. Coverage applies to bodily injury or property damage that occurs during the policy period and is caused by an event that takes place within the coverage territory. However, there is an exception: bodily injury or property damage is not covered if it is a continuation, resumption, or change of an injury or damage that was known to a designated insured prior to the start date of the policy. Please refer to the Knowledge of Bodily Injury or Property Damage Condition for clarification regarding this exception.

Example: An employee's negligent act at 11:00 p.m. causes a fire at the local drug store. This is one hour before Leslie’s insurance policy takes effect. At 1:00 a.m., as a result of the fire, one of the building walls falls and kills a bystander. Coverage applies, even though the fire started before the policy inception date, because the occurrence that caused the bodily injury (the wall falling) occurred after the policy was in effect.

On the other hand, property damage caused by fire to an adjoining business is not covered because the occurrence (the fire) that caused the property damage is considered part of the entire fire event that began before the inception date.

f. Bodily injury or property damage that occurs during the policy period is covered, including any continuation, resumption, or change of that injury or damage that occurs after the policy period ends.

However, there is an exception: coverage does not apply if the bodily injury or property damage is a continuation, resumption, or change of an injury or damage that was known by a designated insured prior to the start date of the policy. Please refer to the Knowledge of Bodily Injury or Property Damage Condition for further details on this exception.

Related Court Case: Known Injury or Damage Not Excluded in Continuous or Progressive Damage Loss

g. Damages due to bodily injury extend beyond the definition of bodily injury, encompassing damages that any person or organization claims for care, loss of services, and death resulting from the bodily injury at any time.

NOTE: These may not be the only items included, as the policy does not specify that damages are limited to these alone.

2. Exclusions

NOTE: The Editors added titles to enhance clarity.

a. Professional Services

The insurance company does not pay for bodily injury or property damage that arises from either of the following:

Rendering or failing to render professional services

Negligence on the insured’s part for hiring, training, or supervising of another who rendered or should have rendered professional services.

NOTE: This exclusion does not specify who the party is rendering service or should have rendered the service. As a result, it applies to all professional services.

Related Court Case: Adjuster's "Damaging Statements" Not Covered by Businessowners Policy

b. Employment-related Practices

There is no coverage for bodily injury to any person resulting from a refusal to employ that person or from the termination of that person's employment. Coverage also does not apply if bodily injury is caused by malicious prosecution, coercion, demotion, performance evaluations, reassignment, disciplinary actions, defamation, harassment, humiliation, discrimination, sexual misconduct, or other similar employment-related practices, policies, acts, or omissions directed at that person.

Furthermore, there is no coverage for bodily injury to any immediate family member of the person mentioned above, if such injury results from the aforementioned employment-related practices.

The timing of the injury does not affect the application of this exclusion. The injury is excluded whether employment-related practices occurred before, during, or after that person’s employment.

This exclusion applies regardless of the relationship between the insured and the injured party, and it remains in effect even if the insured is obligated to reimburse a third party.

NOTE: Only bodily injury is excluded. Property damage due to employment-related practices would be covered.

Related Article: BP 0623–Employment Practices Liability–Claims Made Basis

c. War and Warlike Action

There is no coverage for any loss or damage caused directly or indirectly by any of the following:

War: This encompasses any war, including civil war and undeclared war.

Warlike action by any military force. Actions to stop or hinder the actual or expected warlike action are also excluded. The military force must be part of a governmental, sovereign, or other authority that uses military personnel or agents.

Insurrection, rebellion, revolution, and usurped power. This exclusion also applies to responses by a governmental authority to hinder or defend against these actions.

d. Intentional Acts

Bodily injury or property damage the insured expects, directs, or intends is excluded. There is also no coverage if the insured performs an intentional, malicious act causing bodily injury or property damage.

The exception to this exclusion covers bodily injury resulting from the use of reasonable force to protect persons or property.

NOTE: There is no exception for property damage caused by such reasonable force.

Related Court Case: Intentional Damage Exclusion Barred Claims against Liability

Example: Pat observes Paul attempting to set Pat's building on fire. Paul is about to strike the match when Pat jumps on him, struggles briefly, and manages to end his attempt. Paul sues Pat for the injuries he suffered in the scuffle and for his ruined leather jacket. The insurance company defends Pat because his actions to keep the fire from being set were reasonable under the circumstances. However, the defense and any settlement will not apply to the damaged jacket.

e. Contractual Liability

There is no coverage for bodily injury or property damage the insured assumes in a contract or agreement.

This exclusion does not apply to liability for damages under any of the following circumstances:

When an insured would have been liable even if there was no such contract or agreement

When the liability is assumed in a covered contract as this policy defines. However, this applies only if the contract was entered into prior to the occurrence of such bodily injury or property damage.

Damages due to bodily injury or property damage with respect to liability assumed in a covered contract include litigation costs and attorney fees an indemnitee incurs but only if both of the following apply:

The same covered contract that assumed the liability also assumed the cost of its defense.

The costs and fees are to defend the indemnitee against legal proceedings alleging damages this insurance covers.

Litigation costs and attorney fees must be both necessary and reasonable.

NOTE: This portion of the exception covers defense costs. However, it places the fees for the indemnitee’s defense within the limit of insurance. This means every dollar paid for defense reduces the limit of insurance available to pay for the loss.

On the other hand, these defense costs can be paid without reducing the liability limits if the requirements in Supplemental Payments, item 3.b. are met.

Example: Mary and Peter enter into an agreement in which each agrees to accept the other’s liability in the event of a liability issue arising. This agreement meets the definition of a covered contract. An accident occurs, Mary is sued, and Peter is brought into the action. According to the contract, Peter turns to Mary’s insurance for coverage. The insurance company defends the suit. The limit of insurance available is $300,000.

Scenario 1: The contract did not address defense costs. The insurance company defends Mary outside the policy limit, but Peter must pay for his entire defense. The case is settled for a total of $300,000. Mary is made whole; however, Peter must still pay his defense costs of $25,000.

Scenario 2: The contract addresses defense costs. However, Peter does not meet the requirements in Supplemental Payments. The insurance company defends both Mary and Peter. Mary’s defense costs are outside the limit, but Peter’s defense costs of $25,000 are inside the limit. This means that only $275,000 is available to pay the $300,000 settlement.

Scenario 3: The contract addresses defense costs, and Peter meets the requirements under Supplemental Payments. The insurance company defends both Mary and Peter. However, both Mary’s and Peter’s defense costs are outside the limits. The entire $300,000 limit is available to pay the settlement.

f. Mobile Equipment Racing

There is no coverage for bodily injury or property damage caused by mobile equipment being used in racing or similar events. Coverage also does not apply when the bodily injury or property damage caused by the mobile equipment occurs during any practice or preparation for such events.

NOTE: Mobile equipment is covered when used for its intended purpose. It is not covered for racing, speed, pushing, pulling, demolition, stunts, contests, or other activities.

Example: George uses his bulldozer at work and runs over a child’s wagon. The property damage to the wagon is covered.

George takes the same bulldozer to the fairgrounds, enters a bulldozer-pulling contest, and runs over a child’s wagon. This property damage to the wagon is excluded.

g. Mobile Equipment Transportation

There is no coverage for bodily injury or property damage that is caused when mobile equipment is being transported. However, this exclusion does not apply when the transporting auto is not owned by, or rented or loaned to, an insured.

Example: Gloria rents a truck to tow her bulldozer on her trailer. The trailer strikes a large pothole, causes the trailer to upset, and the bulldozer falls off. Several vehicles swerve attempting to avoid the bulldozer and are damaged. None of this damage is covered. However, if Gloria hired Marty to tow the bulldozer and the same damage occurred, coverage applies to any liability against Gloria because of the mobile equipment.

h. Auto, Watercraft, and Aircraft

Coverage does not apply to bodily injury or property damage arising from the following:

Any insured owning, renting, operating, occupying, maintaining, supervising, entrusting, using, loading, or unloading any auto, watercraft, or aircraft. This applies only if that insured owns, operates, rents, or has been loaned the auto, watercraft, or aircraft.

Negligent hire, training, or supervision. This applies if any person who is owning, renting, operating, occupying, maintaining, supervising, entrusting, using, loading, or unloading any auto, watercraft, or aircraft causes bodily injury or property damage. This applies only if an insured owns, operates, rents, or has been loaned the auto, watercraft, or aircraft.

Related Court Case: Business Liability Policy Cannot be Construed as Automobile Policy

This exclusion does not apply to bodily injury or property damage that arises from any of the following:

1)a) The following equipment included in the definition of mobile equipment but only for bodily injury or property damage that is a result of its operation:

Devices that are mounted on automobile or truck chassis and used to raise or lower workers

Air compressors, pumps, and generators and any spraying, welding, or building cleaning equipment

Equipment used for geophysical exploration, lighting, and well servicing

While these vehicles are considered autos the operations of the equipment are covered.

1)b) Bodily injury or property damage due to the operations of equipment or machinery attached to a vehicle subject to financial responsibility or similar compulsory or motor vehicle insurance laws. These laws are state specific. This means the laws of the state where the vehicle is licensed or principally garaged must be reviewed to determine their status.

NOTE: The two exceptions above apply only to damages related to the equipment being operated. This means damages related to owning, occupying, renting, using, entrusting, loading, and unloading are excluded. In addition, only the equipment’s operation is covered, not the operation of the land vehicle to which it is attached.

2) Parking autos on premises or immediately adjoining the premises when the named insured owns, rents, or controls the premises, provided the autos are not owned by, rented to, or loaned to the insured.

Example: Folksy Restaurant provides valet parking. Phil, one of the valets, strikes Sally while driving a customer’s vehicle. Folksy’s is covered if the accident takes place on its premises. It is not covered if Phil uses the customer’s vehicle to make a side trip to the next block to purchase a candy bar.

3) When liability is assumed under a covered contract with respect to owning, maintaining, or using aircraft or watercraft.

4) When watercraft is on shore and on a premises owned, rented or controlled by the named insured.

NOTE: It's important to understand that watercraft must be on shore and the premises at the same time.

5) Watercraft the named insured does not own. However, this provision applies only if the watercraft is less than 51 feet in length and is not used to carry persons or property for a fee.

i. Liquor Liability (BP 0816 change)

There is no coverage for bodily injury or property damage for which any insured may be liable due to any of the following:

Caused or contributed to a person becoming intoxicated

Furnished alcoholic beverages to a person who was already intoxicated

Furnished alcoholic beverages to a person under the legal drinking age

Violated any regulation or law that regulates using, selling, distributing, or giving alcoholic beverages

Negligence or misconduct related to the hiring, monitoring, retaining, or training of individuals that leads to bodily injury or property damage, whether it contributed wholly or partially.

Any action or failure to act when providing or failing to provide transportation, detaining or failing to detain, or assisting or failing to assist any person who is or was intoxicated, that results in bodily injury or property damage due to any of the above actions, regardless of whether it contributed fully or partially.

This exclusion applies only to businesses that manufacture, distribute, furnish, sell, or serve alcoholic beverages. There has been confusion as to businesses that allow customers to bring alcohol to the premises, but that business itself does not sell, serve, or distribute any alcoholic beverages.

Wording has been added to clarify that this exclusion does not apply in such circumstances. This applies even when a license is required to operate this way or if the named insured charges a fee for the beverages to be consumed on the premises.

NOTE: A business that is not technically in the alcohol business may still be subject to this exclusion due to the amount of alcoholic beverage activities conducted at the business.

Related Court Case: 270_C045, Liquor Liability Exclusion Held Applicable to Nonprofit VFW Post

j. Pollution

This exclusion has five parts. Four have significant exceptions.

1) Bodily injury or property damage arising from the actual, alleged, or threatened transfer or leakage of a pollutant is excluded.

The following explains where it is excluded and the exceptions that apply at that location:

a) At or from any location or site any insured ever possessed. This part of the exclusion has three exceptions:

·         Bodily injury or property damage due to heat, smoke, or fumes from a hostile fire.

·         Bodily injury (this does not include property damage) caused by smoke, soot, fumes, or vapors from heating, cooling, or dehumidifying equipment, or from equipment used to heat water for the building’s occupants, is covered. This exception applies only if the injury occurs in the building where the equipment is located.

·         Bodily injury or property damage when all the following apply:

o   The named insured is a contractor.

o   The named insured is liable to the owner or lessee of the premises.

o   The owner or lessee of the premises is an additional insured on the policy for the operations of the named insured.

o   No insured other than the additional insured can have at any time possessed the premises.

b) At any site, premises, or location that has ever been used for the management of waste in any manner.

NOTE: This completely deletes coverage. Any location that involves waste is excluded, regardless of how an insured might be held liable. There is no exception.

c) If the insured or another party for whom the named insured is legally liable ever managed waste in any way at any time.

NOTE: This provision continues to completely delete coverage for any pollution involving waste, with no exceptions.

d) If an insured party, contractor, or subcontractor brings pollutants to the premises, job site, or location, coverage will not apply if those pollutants are associated with the work being conducted there.

However, this exclusion includes three exceptions:

·         Bodily injury or property damage due to heat, smoke, or fumes from a hostile fire.

·         Bodily injury or property damage resulting from the unintended release of fuels, lubricants, or other fluids from mobile equipment. It also applies only when their discharge was from the part of the vehicle designed to contain, store, or receive the fluids. However, it does not apply if the fluids are brought onto the site with the intent to discharge or release them.

Examples:

A bobcat loader overturns and the oil escapes from the engine. This pollution loss is covered.

A bobcat loader needs an oil change. The contractor drains the oil on the site and then adds new oil. The pollution loss due to the drained oil is excluded.

·         Bodily injury or property damage caused by materials brought into the building, when those materials release gases, vapors, or fumes. This applies only if the materials were intended for the named insured’s operation or for the operations of a contractor or subcontractor working on behalf of the named insured. Additionally, the bodily injury or property damage must occur inside the building where the materials were brought.

e) When the insured is required to test for, mitigate, respond to or assess the effects of pollutants in any way. This applies to any premises, site, or location where any insured or anyone on the insured's behalf is working.

2) There is no coverage for any loss, cost, or expense due to the following:

a) When the insured or others must address the effects of pollutants, such as through testing or mitigation, this requirement can arise from a demand, a request, or even a statute, order, or regulation.

b) When any governmental authority files a claim or suit that deals with the effects of pollutants, such as testing for, abating, monitoring, cleaning up, removing, containing, treating, detoxifying, or neutralizing.

However, the exclusion does not apply to liability for property damage the insured would have incurred regardless of any request, demand, order, statute, regulation, or claims or lawsuits initiated by any governmental authority.

k. Workers Compensation

There is no coverage for the following:

Bodily injury to the insured’s employee when the injury arises from and occurs during their employment or while performing duties related to the insured’s business.

Consequences of an injured employee's bodily injury for an immediate family member.

This exclusion is absolute and applies regardless of whether the insured is liable as an employer or in any other capacity. It also applies when there is an obligation to reimburse another for damages as described above.

This exclusion has an exception for liability the insured assumes under a covered contract.

Example: Emily is a sales clerk at Sweet Things Bakery. While working, she samples a cookie from a freshly made batch. She begins to feel ill and then starts convulsing. She is rushed to hospital and the cookies she still has with her are taken away from her to be analyzed. The lab discovers that bleach was inadvertently added to the cookies.

Emily sues Sweet in its capacity as a cookie maker, but Sweet Things Bakery’s insurance company denies coverage because of this exclusion. Emily’s husband must take time away from work to help Emily and he sues Sweet Things for his consequential loss of income due to Emily’s injury. Coverage is denied again because of this exclusion.

NOTE: Coverage should be obtained through a workers compensation policy.

Related Article: WC 00 00 00 C–Workers Compensation and Employers Liability Insurance Policy Analysis

l. Employee Benefits

The insurance company does not cover bodily injury if the insured provides workers compensation, disability benefits, occupational disease, unemployment compensation, or any similar benefits. This exclusion also applies if the insured is required to provide such benefits but fails to do so.

m. Owned, Occupied, or Rented Property

There is no coverage for property damage to property the named insured owns, occupies, or rents. Expenses incurred by the named insured or anyone else to improve, repair, or maintain the property are also excluded, even if the reason for such expenses is to avoid injuring a person or damaging non-owned property.

There is an exception to this exclusion. Property damage to premises rented on a short-term basis is covered. This exception is subject to the short-term rented property limit in How Much We Pay item 5.

Example: The steps at the entrance to Priscilla’s Place tend to ice over. Priscilla decides to install heat elements in the steps to keep her customers from slipping. She submits the cost to her insurance company because this is a loss prevention expense. The company denies the claim because of this exclusion.

n. Alienated Premises

There is no coverage for property damage that occurs at a premises previously owned or occupied by the named insured, even if that property has been sold, given away, or abandoned. However, there is one exception: property damage coverage does apply if the premises is considered part of the named insured's work. This exception is limited and only applies if the named insured never occupied, rented, or offered the premises for rental.

NOTE: The insurance company’s obligation ends when the named insured is no longer involved with a premises or location. This exclusion caused problems for homebuilders because it eliminated coverage for the actual work they completed. As a result, the exception was developed specifically for them.

Example: Old Town Builders constructs five houses. It decides to lease two of them and sell the other three. Property damage liability coverage does not apply to the two leased properties but does apply to the three sold houses.

o. Loaned Property

Coverage does not apply to property damage to property loaned to the named insured. There are two exceptions.

Coverage applies to the following:

Liability assumed in a sidetrack agreement.

Property damage to premises rented on a short-term basis. This exception is subject to the short-term rented property limit in How Much We Pay item 5.

p. Care, Custody, or Control

There is no coverage for property damage to either business or non-business personal property in the insured's care, custody, or control. There are two exceptions.

Coverage applies to the following:

Liability assumed in a sidetrack agreement

Property damage to premises rented on a short-term basis. This exception is subject to the short-term rented property limit in How Much We Pay item 5.

Related Court Case: Care, Custody, or Control Exclusion Held Applicable

q. Property Being Worked On

When the named insured works on real property, there is no coverage for property damage to the specific part of the real property being worked on if the named insured’s work causes the damage. This exclusion applies whether the named insured performs the work or if a contractor or subcontractor working on the named insured’s behalf does so.

There is one exception. This exclusion does not apply with respect to liability assumed under a sidetrack agreement.

Example: Larry is hired to fix Maggie’s front door. While working on the door, his hammer falls out of his tool belt and breaks a basement window. This damage is covered because Larry was not working on the window when the damage occurred. Coverage would not apply if he had been working on the window.

r. Faulty Workmanship

There is no coverage for property damage to the specific part of the property that must be replaced, restored, or repaired because the work performed on it was faulty. However, this exclusion has two exceptions.

Coverage applies if either of the following applies:

The products/completed work hazard covers the property damage

Liability is assumed in a sidetrack agreement

Example: John is hired to install four windows in a house.

Scenario 1: One pane in a window breaks while John is installing it. John’s Businessowners Policy does not cover the cost to replace the pane of glass.

Scenario 2: The windows are installed. However, during a heavy rainstorm, the property owner notices water pouring into the house from beneath one of the newly installed windows. Coverage could apply under the Businessowners Policy’s Products/Completed Work Hazard.

s. Defective Products

The insurance company does not cover property damage to products if the damage is caused by the product itself or any part of it.

Example: Tip-Top Tables sells a line of round tables with Lazy Susans inserted in the middle. One of Rita’s children decides to see how fast it can spin. The centrifugal force causes it to separate from the table, causing the table to collapse and dinnerware to crash to the floor. Rita and two of her children go to the hospital and are treated for cuts and bruises they sustained in the accident. The property damage to the table is excluded, but coverage applies to the resulting bodily injuries and property damage.

t. Defective Work

Property damage to the named insured’s work is excluded if the reason for the damage is the work itself or any part of it. This applies only if the damage is within the products/completed work hazard.

Example: Ken is redoing Barbie’s kitchen. He installs the flooring first and then the cabinets and counters. While installing the counters, water leaks on the flooring before it is fully cured.

Six months after the installation is complete, Barbie informs Ken that the flooring is buckling. There is no coverage because the buckling is due to the water that leaked on the floor and it is part of the products/completed work hazard.

This exclusion has one exception. Coverage applies if a subcontractor working on the named insured's behalf causes the damage.

Example: Continuing the example above, instead of Ken doing all the work, he installs the floor and hires Otto to install the cabinets and counters. Otto causes the water damage, and the floor buckles six months later. The property damage to the floor is covered because of this exception to the exclusion. Ken’s carrier will subrogate against Otto for his negligence in causing this loss, but Barbie’s kitchen will be repaired, and Ken will not have to pay for it.

u. Impaired Property

This is more of a loss of use property damage exclusion than a physical damage exclusion. There is no coverage for property damage (think loss of use) to property that has not been physically damaged or that is impaired. This applies if the loss of use property damage is because of either of the following:

The named insured, or a party acting on its behalf, delaying or failing to execute a contract or agreement according to its specifications

The named insured’s product or work is defective, inadequate, deficient, or just unsafe

Example: Ollie's Oyster Bar Restaurant purchases a hot water heater from Archibald’s Appliances. He pays to have it delivered and installed. The hot water heater is delivered, but no one shows up to install it.

Ollie’s downtime because he cannot operate without hot water is not a covered property damage loss under Archibald’s Businessowners Policy.

Continuing the example above, the contractor arrives, installs the hot water heater, and leaves. When Ollie inspects the work, he discovers that the release valve was not installed.

This leaves the hot water heater in an unsafe condition to the extent that it cannot be used. Ollie’s downtime because he cannot operate without hot water is not a covered property damage loss.

This exclusion has an exception. The named insured’s work or product may be put to its intended use and then sustain sudden or accidental physical damage. In that case, any loss of use to other property is covered.

Example: Changing the second example above, Ollie does not notice that the release valve was not installed and uses the water heater. An incident occurs three months later, the pressure builds up, and the water heater ruptures because it does not have a release valve. Ollie must close the restaurant until the water heater is repaired because he cannot use his dishwasher. This loss of use is covered property damage under Archibald’s Businessowners Policy.

v. Product Recall

The insurance company does not pay the following expenses, losses, or costs that the named insured (or others) incur as they relate to the named insured's products, work, or impaired property:

Loss of use

Disposal

Withdrawal

Recall

Inspection

Repair

Replacement

Adjustment

Removal

This exclusion applies when any organization or person recalls or withdraws the product, work, or impaired property from use because it has an actual or suspected defect, deficiency, or unsafe condition. This could include a voluntary recall.

NOTE: This is usually referred to as product recall or warranty coverage.

w. Personal and Advertising Injury

Coverage for bodily injury that arises out of personal and advertising injury is excluded.

NOTE: Coverage P – Personal and Advertising Injury Liability covers consequential bodily injury resulting from personal and advertising injury.

x. Electronic Data Records (BP 0816 change)

There is no coverage for loss, cost, expense, or damages resulting from corrupted, damaged, altered, or manipulated data records. Additionally, this policy does not cover any losses or damages that occur when data cannot be accessed or utilized.

This exclusion does not apply to bodily injury.

NOTE: The definition of data records states that this is only electronic data records when stored on any type of media.

Example: Jeremy counts on Merris Tax Service to prepare his taxes every year. Jeremy does not keep copies of the records for himself. The Internal Revenue Service (IRS) contacts Jeremy about a tax audit. Jeremy contacts Merris and finds out that its records have been corrupted.

Merris attempts to recreate the records, but it will take a while. Jeremy misses his audit deadline, is fined, and submits the fine to Merris to pay. Merris does not have coverage for this loss because it is due to corrupted data records.

y. Information Distribution and Recording Violations

Coverage does not apply to property damage or bodily injury that is due to actual or alleged direct or indirect violations of any of the following:

The Telephone Consumer Protection Act of 1991 (TCPA)

The CAN-SPAM Act of 2003

The Fair Credit Reporting Act (FCRA)

Similar local, state, or federal ordinances, statutes, laws, or regulations that pertain to, prohibit, or restrict any of the following as they relate to information or material:

o   recording

o   collecting

o   transmitting

o   communicating

o   sending

o   disposing of

o   distributing

Amendments to any of the specific acts above and any similar federal, state, or local laws or regulations are also excluded.

COVERAGE M–MEDICAL PAYMENTS

1. Insuring Agreement

a. Medical expenses are covered when bodily injury due to an accident occurs on premises the named insured owns or rents, or on ways adjacent to it. Such expenses are also covered when the bodily injury is caused by the named insured’s operations.

NOTE: It is not required that anyone be legally liable for the expenses. Additionally, the term accident is used but not defined. Unexpected or undesirable events are typically considered accidents.

Example: Sam is having a really bad day. His hat almost blows off as his cell phone rings, so he does not notice as he walks headfirst into the closed exit door at Bob’s Guns and Sports. He is knocked unconscious, and the store manager calls an ambulance, which transports him to the hospital. All expenses incurred are covered, even though Sam was the only one negligent.

b. Medical expenses are paid without regard to fault, subject to the following three conditions:

The accident resulting in medical expenses must occur within the coverage territory and during the policy period.

The expenses must be incurred and reported to the insurance company within one year of the accident date.

The injured party must agree to medical examinations by doctors the insurance company chooses. The party must agree to the exams when the insurance company requests them, if the requests are reasonable.

c. The How Much We Pay section describes the amount the insurance company pays towards medical expenses.

d. The following medical expenses are covered only if they are considered both necessary and reasonable:

·         Medical, surgical, x-ray, and dental services, which include prosthetic devices and eyeglasses.

·         Ambulance services, hospital stays, and professional nursing care.

·         Funeral services.

·         Any first aid provided at the time of the accident.

Example: Continuing the example above, Sam demands to be transferred from the first hospital to another closer to his home. The ambulance ride's expense to the second hospital is not covered because it is not a necessary expense.

NOTE: This coverage is quite limited. It does not extend to lost wages, pain and suffering, or damage to personal property that is worn or carried. Medical expenses are confined to those typically offered within the medical field, which means that any unconventional expenses will require prior approval through consultation with the insurance company’s doctors.

2. Exclusions

The insurance company does not pay the following medical expenses:

a. Medical expenses for bodily injury that Coverage L–Bodily Injury Liability and Property Damage Liability excludes.

b. Bodily injury to any insured. However, this exclusion does not apply to volunteers.

NOTE: This exclusion applies because coverage only extends to injuries to third parties. Volunteers are exempt because even though they are insureds, they are not being compensated.

c. Medical expenses resulting from bodily injury to any person hired by an insured or to any individual who works for an insured or an insured’s tenant.

d. Medical expenses for bodily injuries sustained by individuals on the part of the premises owned or rented by the named insured, which the injured person typically occupies.

NOTE: The important word is occupies. The injured person may not have a written agreement with the named insured, may not be a tenant, and may even occupy the premises without permission.

Example: Billy is a tenant at Eddie’s Apartments. His friend, Joe, moves in with him, but his name is not on the lease. Joe falls in the apartment and breaks his arm. His medical expenses are not covered.

e. Medical expenses for bodily injuries incurred by any individual participating in, training for, or teaching any sports or athletic activities sponsored by the named insured.

NOTE: Athletic activity remains a broad and open-ended term, subject to various interpretations.

f. If the bodily injury is caused by a hazard associated with the Products or Completed Work Hazard.

NOTE: Medical payments coverage is primarily premises-oriented. However, it can be confusing in some cases, such as a restaurant or any operation that involves consumption on the premises.

Example: Lindsay walks into Gino’s restaurant and trips on her shoelaces. Medical expense coverage applies. However, coverage does not apply when Lindsay chips her tooth on a piece of bone in a hamburger because that would be part of the products/completed work hazard.

g. Medical expenses for bodily injury to club members if the named insured is a club.

h. Medical expenses for bodily injury to guests of a hotel, motel, or other lodging facilities the named insured owns and/or operates. This exclusion also applies if others operate the hotel on the named insured’s behalf.

i. Medical expenses for bodily injury when benefits are required under workers' compensation, non-occupational disability, occupational disease, or similar laws, or that are actually provided, even if doing so is not mandatory.

NOTE: The named insured is not required to provide the coverage, nor does it state that the benefits must be mandatory. However, there is no coverage if the benefits are required to be provided, and there is also no coverage if the benefits are actually provided.

Example: Freddy works for Fanny’s Florists and delivers flowers to Doug’s Drive-In. He spills some water from the flowers, slips on it, and falls. Doug’s Drive-In is not required to provide medical expense coverage for Freddy’s injury because Fanny’s Florists should provide workers compensation coverage for Freddy.

j. Medical expenses for bodily injury to the following:

·         Students or campers enrolled in a program at a facility the named insured owns or operates.

·         Patients or inmates being treated or detained in a facility the named insured owns or operates.

COVERAGE O–FIRE LEGAL LIABILITY

1. Insuring Agreement

a. Coverage applies to those amounts an insured is legally required to pay as damages when fire or explosion causes property damage to buildings the named insured rents from others. This applies to the building as well as to its parts and any fixtures permanently attached. It also applies to buildings loaned to the named insured.

NOTE: This coverage is needed because Coverage L–Bodily Injury Liability and Property Damage Liability—2. Exclusions—m. Owned, Occupied, or Rented Property excludes property damage to property rented to the named insured.

Related Court Case: Hotel Property Damage Held Covered Only Outside Room

Similar to Coverage L–Bodily Injury Liability and Property Damage Liability, the insurance company has both the right and duty to defend the insured against any suit demanding damages this coverage may insure. There is no duty to defend if coverage does not apply. The insurance company controls claims and decides how and when it investigates an occurrence and settles claims or suits.

Examples:

Barry rents office space in the Grand Building. He forgets to turn off the coffee maker when he leaves for the weekend. As a result, it overheats, catches fire, and causes damage to Barry’s office and three other offices. Barry’s Businessowners Policy’s coverage applies.

Peragin, another tenant in the same building, negligently drives the forks of the forklift through a building wall. Peragin’s Businessowners Policy excludes this loss because it was not caused by either fire or explosion.

b. How Much We Pay—6. Coverage O describes the limit and amount paid for damages.

Related Court Case: Fire Legal Liability Limit Specified in Form

c. The insurance company is not obligated to provide a defense after it has exhausted its insurance limits by paying judgments, written settlements, or medical expenses.

The Supplemental Payments section describes the payments that the insurance company will pay while investigating or settling a claim, or defending a suit.

d. The insurance company may defend the insured against a suit or pay for its defense, but later determine the policy does not provide coverage for the types of allegations brought in the suit. The insurance company has the right to be reimbursed for the defense costs it incurred when no coverage existed.

There is a limitation on the insurance company’s right to be reimbursed. The insurance company must, in writing, notify the named insured there is a possibility coverage does not exist and explain it is proceeding with the defense under a reservation of rights. Only defense costs incurred after the written notification has been provided are reimbursable.

e. For coverage to apply, the property damage must result from an occurrence that takes place within the coverage territory and occurs during the policy period.

2. Exclusions

NOTE: The Editors added titles to enhance clarity.

The insurance company does not pay for the following:

a. Contractual

Property damage liability an insured assumes under a contract or agreement to indemnify others for fire damage to the premises.

NOTE: This contractual limitation appears to mean the insured cannot assume legal obligation of another.

Example: Roger’s lease requires that he assume the property damage liability if a fire of any kind starts anywhere in the building. When a fire in the building occurs on another floor, from another tenant, the property damage loss is denied because of this exclusion.

b. Professional

Property damage may result from either the act of providing, or failing to provide, professional services, or from negligence by the insured in hiring, training, or supervising another person tasked with delivering those professional services.

NOTE: This exclusion does not specify the party that rendered or should have rendered the service. As a result, it applies to all professional services.

Related Court Case: Policy Does Not Cover Suit against Law Firm

Example: Kermit, a professional firefighter, rents space in the Grand Building. When a fire breaks out, Kermit decides not to assist in fighting the fire.

The Grand Building sues Kermit for the property damage caused because he did not provide professional services to fight the fire. Coverage is denied.

c. Intentional Acts

Property damage the insured expects, directs, or intends to occur is excluded. Additionally, there is no coverage for property damage resulting from the insured's intentional and malicious acts.

COVERAGE P–PERSONAL AND ADVERTISING INJURY LIABILITY

1. Insuring Agreement

a. The insurance company pays those amounts an insured is required to pay as damages resulting from personal and advertising injury, which this insurance covers. The insurance company has the right but also the duty to defend suits seeking damages. This right and duty do not exist if coverage does not apply.

The insurance company has the right to investigate offenses and to settle claims or suits as it sees fit. It is not required to consult with the named insured or obtain its consent or approval.

b. The insurance company pays for damages according to the provisions outlined in the How Much We Pay section.

c. The insurance company is not obligated to provide a defense after the policy’s limits of insurance have been exhausted through the paying of judgments or written settlements. However, Supplemental Payments may provide additional coverage in addition to the limit of insurance listed on the declaration.

The Supplemental Payments section outlines the payments the insurance company will provide while investigating or settling a claim, or defending against a suit.

d. The insurance company may defend the insured against a suit or pay for its defense, but later determine the policy does not provide coverage for the types of allegations brought in the suit. The insurance company has the right to be reimbursed for the defense costs it incurred when no coverage existed.

There is a limitation on the insurance company’s right to be reimbursed. The insurance company must, in writing, notify the named insured there is a possibility coverage does not exist and explain it is proceeding with the defense under a reservation of rights. Only defense costs incurred after the written notification has been provided are reimbursable.

e. The personal and advertising injury must result from an offense. The offense must be committed in the course of the named insured's business and take place in the coverage territory during the policy period.

NOTE: Offenses cause personal and advertising injury. The policy does not define the term, but one dictionary definition states that an offense is an annoyance or resentment brought about by a perceived insult to or disregard for oneself or one's standards or principles.

2. Exclusions

Many of these exclusions apply to the insured’s intentional and premeditated acts, some of which are criminal in nature. Others may have social or moral implications or may constitute transgressions of the law.

NOTE: The Editors added titles to enhance clarity.

a. Professional Services

Property damage may result from either the act of providing, or failing to provide, professional services, or from negligence by the insured in hiring, training, or supervising another person tasked with delivering those professional services.

NOTE: This exclusion does not specify the party that rendered or should have rendered the service. As a result, it applies to all professional services.

b. Employment-related Practices

There is no coverage for any person’s personal or advertising injury resulting from a refusal to employ that person or from the termination of that person's employment. Coverage also does not apply to any employment-related misconduct, or employment-related practices, policies, acts, or omissions directed towards that person, which causes the personal and advertising injury.

In addition, there is no coverage for personal and advertising injury to the following:

·         An immediate family member of the person described above, resulting from an employment-related practice injury.

·         Regardless of when the injury occurs, the injury is excluded if employment-related practices occurred before, during, or after that person’s employment.

·         Regardless of the relationship the insured has to the injured party, the exclusion applies even if the insured has an obligation to reimburse a third party.

Related Court Case: Wrongful Termination Covered, Defamation Excluded

Related Article: BP 0623–Employment Practices Liability–Claims Made Basis

c. War and Warlike Action

There is no coverage for any loss or damage caused directly or indirectly by any of the following:

War: This encompasses any war, including civil war and undeclared war.

Warlike action by any military force. Actions to stop or hinder the actual or expected warlike action are also excluded. The military force must be part of a governmental, sovereign, or other authority that uses military personnel or agents.

Insurrection, rebellion, revolution, and usurped power. This exclusion also applies to responses by a governmental authority to hinder or defend against these actions.

d. Intentional Acts

Personal or advertising injury that the insured expects, directs, or intends is excluded. This exclusion applies if the insured either committed the act or directed others to commit the act, and the insured knew the act would result in personal or advertising injury.

e. Criminal Acts

Coverage does not apply when a criminal act is committed or directed by the insured that causes personal and advertising injury.

Example: Lyle and Pat, business partners, decide to stage a kidnapping as a joke on one of their competitors. With Lyle in the driver’s seat, Pat grabs Felix as he walks by. Lyle and Pat then call Felix’s office and demand that it issue a statement to the effect that Lyle and Pat’s business is superior to theirs as a precondition to releasing Felix. After being released, Felix sues Lyle and Pat. Coverage does not apply because kidnapping is a criminal offense.

f. Contractual Liability

No coverage applies for personal and advertising injury liability assumed in a contract or agreement by the insured, except in cases where coverage would have existed without the contract or agreement.

g. Publication of False Information and Publication Prior to the Policy Period

No coverage applies if information an insured knew was false is published, either orally or in writing, by that insured or at their direction.

Example: Millie is a paper sales representative who visits both Clay’s Copy Center and Liston Book Binding, Inc. During her visit to Clay's office, she informs Rita (the office manager) that Jennifer (an employee of Clay’s) is interviewing for a position at Liston’s.

As a result of this information, Clay fires Jennifer after Rita tells him about the interview. Subsequently, Jennifer files a lawsuit against Millie and Millie's company. The insurance company denies coverage once it discovers that Millie was aware that Rita was not actually interviewing anyone.

Additionally, coverage does not apply to material published orally or in writing before the policy period.

Example: Let’s change the example from above:

While at Clay's, Millie informs Rita that Jennifer is interviewing at Liston’s. Clay terminates Jennifer after Rita reveals the interview details to Jennifer's boss. Consequently, Jennifer sues both Millie and her company. In this instance, Rita is truthful. However, the insurance company declines coverage upon discovering that Millie had previously communicated this information to Jennifer’s boss four weeks prior, but this conversation occurred during the prior policy period.

h. Breach of Contract

Coverage does not apply if a breach of contract causes a personal and advertising injury. The single exception is when it is a breach of an implied contract that relates directly to the named insured's advertisement.

Example: Preston has a great idea for an advertisement and mentions it to Willis at a party. Willis agrees with Preston's assessment. Two years later, Preston sees an advertisement using his great idea. He discovers that Willis now works at the company using the advertisement and sues it for breach of contract. Coverage applies since the contract was, at most, implied.

i. Quality of Goods, Products, or Services

Claims alleging that products, services or goods do not conform to the named insured advertised quality or performance are not covered.

Related Court Case: Advertising Injury Coverage Held Not Applicable to Misleading Investment Advice

j. Excluded Business Operations

The insurance company does not pay for personal and advertising injury arising from offenses committed by an insured engaged in any of the following businesses:

Telecasting, broadcasting, publishing, or advertising

Coordinating, developing, or designing website content belonging to other parties

Providing content, access, service, or search capabilities for the Internet

However, this exclusion does not apply to the following offenses:

False arrest, detention, or imprisonment

Malicious prosecution

Any entry into, eviction from, or invasion of privacy related to a room, dwelling, or premises a person occupies is an offense. However, this is only if the landlord, owner, lessor, or another party acting on behalf of the insured commits the offense.

Placing advertisements and related materials on the Internet does not necessarily mean the insured is in the business of advertising or publishing.

k. Incorrect Pricing

There is no coverage if the named insured’s advertisement states the incorrect prices of goods, products, or services.

l. Pollution

This is a total pollution exclusion, which does not include any exceptions found in the corresponding exclusion under Coverage L – Bodily Injury Liability and Property Damage Liability. Personal and advertising injury arising from the actual, alleged, or threatened discharge, dispersal, seepage, migration, release, escape, or emission of pollutants is excluded. In addition, there is no coverage for loss, cost, or expense for either of the following:

Because of any requirement that the insured or others must test for, abate, monitor, clean up, remove, contain, treat, detoxify, neutralize, or in any other way address the effects of pollutants.

Any governmental authority's claim or suit that involves testing for, abating, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, or addressing the effects of pollutants in any way.

NOTE: Although it is difficult to imagine personal or advertising injury arising from pollutants, the pollution exclusion is included in case there is any way to exploit the coverage.

Related Court Case: Pollution Exclusion Not Applicable to Personal Injury Claim

m. Infringement of Intellectual Property Rights

Coverage does not apply to personal and advertising injury that arises out of violating intellectual property rights of others. Examples of such rights include trademarks, trade secrets, patent rights, and copyrights; however, this exclusion is not limited to just these specific examples.

There is an exception. Coverage applies when such infringement takes place within the named insured’s advertisement.

n. Internet Social Media Sites

There is no coverage for personal and advertising injury arising from electronic chat rooms, bulletin boards, gripe sites, blogs, social networking sites, or other electronic forums the insured manages or controls.

NOTE: This exclusion does not apply to an insured who makes comments on another party’s forum.

Examples:

Scenario 1: Kirby sells musical instruments. To encourage customer loyalty and instill a sense of community, he sets up a chat room for customers to discuss music. While Kirby monitors the chat room, he allows it to be fairly open. In one of the forums, a user utters some defamatory statements about another company.

The defamed company sues Kirby for setting up the chat room where the remarks were made. There is no coverage in this case.

Scenario 2: Instead of Kirby controlling the site, his friend Martin controls the site. One day, Kirby makes some defamatory statements about a competing company. That company sues Martin and Kirby. The insurance company will defend Kirby.

o. Other Names and Products

Coverage does not apply if names or products of others are listed on the named insured's website without permission. There is also no coverage if the named insured uses those names or products in its e-mail address, domain name, or metatags with the intent to mislead potential customers of others.

NOTE: Getting a website on the Internet is easy. Getting customers to that website is the hard part, but there are many ways to do so legally.

Related Court Case: Carmaker's Website Features Qualify As Advertising Injury

p. Information Distribution and Recording Violations

Coverage does not apply to personal and advertising injury due to actual or alleged direct or indirect violations of any of the following:

The Telephone Consumer Protection Act of 1991 (TCPA)

The CAN-SPAM Act of 2003

The Fair Credit Reporting Act (FCRA)

Similar local, state, or federal ordinances, statutes, laws, or regulations that pertain to, prohibit, or restrict any of the following as they relate to information or material:

o   recording

o   collecting

o   transmitting

o   communicating

o   sending

o   disposing of

o   distributing material

Amendments to any of the specific acts above and any similar federal, state, or local laws or regulations are also excluded.

SUPPLEMENTAL PAYMENTS

1. Covered Expenses

The insurance company pays certain costs and expenses when it investigates or settles claims or defends suits against an insured. They are as follows:

a. Costs related to a suit taxed against the insured. However, attorney fees and expenses are specifically not covered.

NOTE: These are not the attorney fees of those defending on behalf of the insurance companies. These are the fees and expenses the court hearing the case specifically taxes against the insured.

b. All expenses the insurance company incurs.

c. Up to $250 per day in lost earnings when the insured must be away from work at the insurance company's request.

NOTE: The insurance company must request that the insured take time off. It does not pay anything if the person voluntarily takes time off or if another party requests that the insured take time off.

d. Reasonable and necessary expenses the insured incurs when the insurance company requests it to assist in investigating the claim or defending the suit.

Example: D&L sues Craig’s Fine Menswear. The insurance company that represents Craig’s Fine Menswear asks Craig to testify at the trial. Craig lives just minutes away from the courthouse, but decides to stay at a plush hotel adjacent to the courthouse the night before. The $300 room bill he submits to the insurance company will probably be denied because it was unnecessary. If the trial were at a distant location, the company would probably pay the bill, along with Craig's transportation expenses.

e. Pre-judgment interest against the insured that is awarded on the part of the judgment the insurance company pays is covered. If the insurance company offers to pay its full limit, it does not pay pre-judgment interest for the period of time after it makes the offer.

f. Interest that accrues on the entire amount of a judgment, not just the insurance company’s portion of it. This accrual begins when the judgment is entered and ends when the insurance company pays its portion of the judgment, even if the other parties have not yet paid their portion.

g. Appeal bonds and bonds to release attachments are common requirements in court proceedings. The insurance company pays the costs of such bonds, but only up to the limit of insurance. The company is not required to supply the bonds.

h. Up to $500 toward the cost of a bail bond required for an insured. This applies only when an accident or traffic violation arises out of using a vehicle that is covered for bodily injury under Coverage L. The company is not required to supply the bonds.

Example: Michael and Norman work at an ice skating rink. They are feeling bored and hungry, but the roads are icy. To solve their dilemma, they decide to drive the Zamboni machine, which is used to clear the ice rink, to a local fast food restaurant's drive-thru. After successfully making it to the drive-thru, they place their orders and receive their food. However, on their way back, they collide with an oncoming car. As a result, they are arrested, and their boss has to post bail to release them from jail and to retrieve the Zamboni. The cost of the bail bonds is covered.

2. Payments

The payments made in this section are in addition to the limits for the Commercial Liability Coverages.

3. Indemnitees

This supplemental payment item explains the circumstances under which the insurance company pays the defense costs for an indemnitee as part of Supplemental Payments.

a. The insurance company will do all the following:

Defend the indemnitee.

Pay attorney fees it incurs to defend the indemnitee.

Pay necessary litigation expenses it incurs.

Pay necessary litigation expenses the indemnitee incurs at the insurance company’s request.

b. However, the insurance company performs the acts in paragraph a. above only if all the following conditions are met:

The suit that demands damages against the indemnitee involves a covered contract.

This policy covers the liability the insured assumed.

The insured assumed the obligation or cost to defend the indemnitee in the same covered contract in which the liability was assumed.

There is no apparent conflict between the insured’s interests and the indemnitee’s interests in the suit’s allegations based on what the insurance company knows about the occurrence.

Both the insured and the indemnitee must do the following:

o   Ask the insurance company to conduct and control the indemnitee’s defense against the suit

o   Agree to let the insurance company assign the same counsel to defend both the insured and the indemnitee

In addition, the indemnitee must agree to all the following:

o   Cooperate with the insurance company as it investigates, settles, or defends the suit.

o   Send the insurance company copies of anything it receives related to the suit immediately. This includes, but is not limited to, demands, summonses, notices, and legal papers.

o   Notify any other insurance company that insures the indemnitee.

o   Cooperate with the insurance company to coordinate any of the indemnitee’s other available insurance.

o   Give the insurance company written approval to obtain records related to the suit.

o   Give other information related to the suit to the insurance company.

o   Give the insurance company written approval to conduct and control the indemnitee’s defense in the suit.

Such payments are not considered damages for bodily injury and property damage and do not reduce the limits if these conditions are met, regardless of the provisions of Coverage L Exclusion 2.e.2.

The insurance company’s obligation to both defend an insured’s indemnitee and to pay its costs of defense and litigation as Supplemental Payments ends when either of the following takes place:

The company pays an amount equal to the limit that applies based on a judgment or settlement.

When one of the requirements under b. above is no longer met.

NOTE: If an indemnitee does not agree to the terms in this section, the insurance company is still obligated to defend it. However, all costs the insurance company incurs are within the limits of insurance. This means the costs reduce the amount available to pay for coverage.

WHAT MUST BE DONE IN CASE OF LOSS

The following are the obligations of the named insured in the event of a loss.

1. Notice

a. The named insured is responsible for making sure the insurance company is aware of any occurrence or offense that could potentially result in a Commercial Liability claim. As soon as an insured becomes aware of a situation that may result in a Commercial Liability claim, the named insured is also responsible for notifying the insurance company.

The named insured is not obligated to provide excessive notification but must do so as soon as practicable. Informing the agent is equivalent to notifying the insurance company.

b. A notice is not a complete loss explanation. Instead, the notice must provide sufficient information for the insurance company to begin its investigation. It should include the policy number, the name of the insured, and the names and addresses of all known and potential claimants and witnesses. Additionally, it must provide details about the incident, including the time, place, and circumstances surrounding the occurrence or offense, along with any situation that might give rise to a claim.

Related Court Case: Ten Year Delay of Claim Relieved Insurer of Defense and Indemnification of Housing Authority

2. Cooperation

Cooperation is required not only from the named insured but also from all other insureds involved in an offense or occurrence. This cooperation with the insurance company is required during the investigation, settlement, and defense of a suit.

Related Court Case: Insured Did Not Fail to Cooperate

3. Volunteer Payments

If the named insured makes any payments or incurs expenses without the insurance company's express approval, it does so at its own expense. The only exception is for first aid administered to others at the time of bodily injury.

NOTE: While the insurance company does not reimburse the named insured for voluntary payments it made, it also does not void coverage because the named insured made such payments.

4. Other Duties

When a claim is made or a suit is brought against any insured, the named insured and that insured involved in the claim must do all of the following:

a. Send copies of all legal papers, demands, and notices to the insurance company. Only those related to a particular claim or suit must be sent, but they must be sent promptly.

b. Provide the insurance company with written authorization to obtain records and any other information that is legally available based on this authorization.

NOTE: The material available may vary based on state law. Authorization is not required until the insurance company requests it.

c. Cooperate with and help the insurance company when they ask for help in doing the following:

Claim settlement

Attend trials, hearings, and other proceedings and actions as the insurance company investigates claims and participates in various legal procedures and hearings.

Enforce the rights the named insured and other insureds have against other parties for injury or damage this insurance covers.

Obtain and provide evidence.

Ensure all witnesses are present at proceedings.

HOW MUCH WE PAY

This section explains how the limits of insurance are paid.

NOTE: The Editors added titles to enhance clarity.

1. Limits

The limits of insurance on the declarations are the most paid for loss, regardless of the number of insureds, parties that sustain injury or damage, claims made, or suits brought.

When the insurance company pays claims under Coverage M–Medical Payments, it cannot be interpreted as an admission of liability under other coverages.

Example: Clevon was retrieving his dog from the vet’s office when he slipped and fell on the sidewalk leading into the Veterinary Clinic. The clinic's insurance company pays Clevon’s medical expenses under Coverage M. Clevon then sues the clinic.

The insurance company investigates and informs Clevon that his fall was due to his tripping over his own shoelaces, not because of the clinic’s negligence. As a result, the company does not pay more than the medical expenses already paid.

2. General Aggregate Limit

The General Aggregate Limit is the most paid for all non- products/completed work hazard losses. This is the sum total of the following:

Damages under Coverage L–Bodily Injury Liability and Property Damage Liability

Medical expenses under Coverage M–Medical Payments

Damages under Coverage P–Personal and Advertising Injury Liability

NOTE: Once the General Aggregate Limit is exhausted, no limits remain for any additional claims or suits related to covered occurrences or offenses during the policy year, except for losses covered under the Products/Completed Work Hazard.

Example: Genesse's General Aggregate Limit is $600,000. Two personal and advertising injury liability offenses amount to $400,000, and a medical expense loss adds another $10,000 to the total. $190,000 remains to apply to any additional losses during the policy year ($600,000 - $400,000 - $10,000 = $190,000).

3. Products/Completed Work Hazard Aggregate Limit

The Products/Completed Work Hazard Aggregate Limit is the maximum amount paid for all losses related to products or completed work that occur during the policy year. Once this aggregate limit is exhausted, there will be no remaining coverage for any additional claims or lawsuits regarding products or completed work that arise during that policy period. However, all other coverage limits will remain unaffected.

Related Court Case: Aggregate Limit Held Applicable to Products and Completed Operations Injuries Combined

Example: In the example mentioned earlier, Genesse's Products/Completed Work Hazard Aggregate Limit is set at $600,000. The company receives a demand for $300,000 due to a products loss. Since this is the first products/completed work loss of the year, the full $600,000 limit is available. However, if there is another loss during the policy period, only $300,000 will be available to cover it.

4. Each Occurrence Limit

The Each Occurrence Limit is subject to the General Aggregate Limit and the Products/Completed Work Hazard Aggregate Limit. It represents the maximum amount paid for all damages due to a single bodily injury or property damage occurrence, including medical expenses under Coverage M. Additionally, it encompasses all damages resulting from personal and advertising injury to a single person or organization.

Example: Genesse's occurrence limit is $300,000. When a $500,000 judgment due to a personal and advertising injury is awarded, the most the insurance company pays is $300,000. However, the amount of its liability is further capped, as shown above in the first example, since only $190,000 of the General Aggregate Limit remains.

5. Property Damage to Short-Term Rented Premises Limit

The limit for property damage to short-term rented premises is $50,000 for each occurrence. However, any payment made is subject to the Each Occurrence Limit. Higher limits are available. This limit does not apply to damages covered under Coverage O–Fire Legal Liability.

Example: Magnificent Miles rents out the ballroom at the Hotel Grand for an evening of celebration. Unfortunately, a battle of wills turns into a terrible occurrence. Fifteen clients are injured, and flying debris damages the ballroom walls, ceiling, and floors.

The hotel presents a claim for $25,000, which is well within the coverage limit, but the bodily injury claims have already exceeded the occurrence limit. As a result, this claim is denied.

6. Coverage O–Fire Legal Liability Limit

The most paid for property damage covered under Coverage O–Fire Legal Liability is $50,000. However, any payment made is subject to the Each Occurrence Limit. Higher limits are available. An unusual feature is that while Coverage O limit is subject to the each occurrence limit, it is not subject to the General Aggregate Limit or the Products/Completed Work Hazard Aggregate Limit.

Example: Genesse sustains a $30,000 fire legal liability loss. While the General Aggregate Limit has been exhausted by paying prior claims, this loss is covered and paid in full because Fire Legal Liability is not subject to the General Aggregate Limit.

7. Coverage M–Medical Payments Limit

The Coverage M – Medical Payments Limit is the most paid under Coverage M for all medical expenses resulting from bodily injury sustained by any one person. It is important to note that Coverage M does not state that it is subject to either the Occurrence Limit or the Aggregate Limit.

Example: Chris asks Chrissie to marry him just as the flaming Cherries Jubilee arrives at their table. When Chrissie jumps up to hug Chris, the flaming dessert tips over onto both of them. Chris and Chrissie each have the entire medical payments limit available to pay for their injuries.

8. General Aggregate Limit and Products/Completed Work Hazard Aggregate Limit

The General Aggregate Limit and the Products/Completed Operations Hazard Aggregate Limit are annual aggregates that apply separately for each consecutive 12-month period, starting from the policy’s inception date. They also apply to any policy period that is shorter than 12 months, unless the Commercial Liability Coverage was extended after it was originally written. In such cases, the extension will be considered part of the previous period when determining the applicable aggregate limit.

Example: Genesse's policy is for a three-year term, running from January 1, 2022, to January 1, 2025. The losses in the examples occurred during the period from January 1, 2023, to November 1, 2025. The full aggregate limits are restored and are available for new losses as of January 1, 2025.

ADDITIONAL CONDITIONS

These apply to both the named insured and the insurance company in the event of loss.

1. Bankruptcy

The insurance company is not relieved of its obligations if an insured declares bankruptcy or becomes insolvent.

2. Insurance under More Than One Policy

These conditions apply to all coverages except Coverage M–Medical Payments.

a. This coverage is primary, subject to the exceptions in 2. c. below. The insurance company's liability is not reduced because excess coverage is available.

b. If other insurance policies are also primary, the insurance companies share the loss in one of two ways. The first method is called contribution by equal shares. In this approach, each insurance company pays an equal amount alongside all other companies that provide coverage on the same basis until either the lowest limit of any one policy is exhausted or the total loss is fully paid.

Once the lowest limit is reached, the remaining companies will share the remaining part of the loss equally until the next lowest limit is depleted, or the total loss is paid. This process continues until all policy limits have been exhausted or the entire loss is fully compensated.

Example: Company A's limit of insurance is $300,000, Company B's is $200,000, and Company C's is $100,000. Each policy is written on a primary basis, and Company A’s policy requires contributions by equal shares. The covered loss amount is $500,000. Each company pays $100,000 for a total payout of $300,000.

At this point, Company C is no longer involved because its limit is exhausted. Company A and B then each pay an additional $100,000 to complete the loss payment.

This results in the following payments of each insurance carrier:

·         Company A pays a total of $200,000

·         Company B pays a total of $200,000

·         Company C pays a total of $100,000

If contribution by equal shares is not required, the companies share based on the proportion that each company’s limit bears to the total limits available to pay the loss.

Example:

How to calculate company share based on proportion:

From the example above, use the total policy limit available for each company and add together as shown below:

Company A ($300,000) + Company B ($200,000) + Company C ($100,000) = $600,000

To determine each company’s contribution, divide the totaled liability limits of $600,000 by each company’s liability limit, then multiply by the amount of the loss as follows:

·         Company A pays 300/600 X 500,000 = $250,000

·         Company B pays 200/600 X 500,000 = $166,667

·         Company C pays 100/600 X 500,000 = $ 83,333

c. This insurance is excess over any other insurance in very specific situations:

When other insurance, whether primary, contingent, excess, or on any other basis, provides any of the following:

o   Fire, extended coverage, builders risk, installation risk, or other coverage for the named insured’s work

NOTE: Extended coverage is an old insurance term that refers to certain specified perils.

o   Fire insurance when fire or explosion causes property damage to buildings or building parts rented or loaned to the named insured

o   Any insurance the named insured purchased specifically to protect against property damage to short-term rented premises

When other insurance covers loss or damage from an aircraft, auto, or watercraft, this insurance also covers

When the named insured is an additional insured on another primary policy for its liability due to premises or operations or products and completed work, the other policy is primary, and this coverage is excess.

d. If this insurance is excess:

The insurance company is not obligated to provide a defense if another carrier has that responsibility. However, it may choose to defend if the other company fails to do so. If the insurance company does offer a defense that it is not required to provide, it is entitled to the insured’s rights against the other company that declined the defense.

This insurance does not pay until the amount of loss exceeds the total limits available from all primary insurance. Primary insurance includes payment of deductibles and self-insured retentions. If the primary insurance does not respond for any reason, this coverage still does not pay until the amount of loss exceeds that limit.

e. The insurance company will share the remaining loss with any other insurance not described in section 2.c. and not specifically purchased as excess coverage of limits to this liability coverage.

Related Court Case: Other Insurance Clauses Do Not Cancel Each Other Out

3. Knowledge of Bodily Injury or Property Damage

It is important to know exactly when an insured is considered to be aware of bodily injury and property damage because the timing of such knowledge determines the policy that responds to a loss. Coverage under this policy does not apply to any bodily injury or property damage loss that occurred and was known to have occurred before the policy period. A loss is considered known at the earliest of the following:

When any designated insured receives suit papers, a claim, or a damage demand related to an alleged bodily injury or property damage.

When any insurance company receives a report from any designated insured about bodily injury or property damage.

When any designated insured first becomes aware of or learns about anything that suggests that bodily injury or property damage either has occurred or is actively occurring.

Example: Golden Hill Flour’s policy period is January 1, 2024, to January 1, 2025. Jill purchased flour on October 15. She uses the flour starting that day and finishes using it with her Christmas cookie baking.

Jill gives cookies to many friends and is surprised when she is notified of illnesses that appear to be related to the cookies. They are tested, and it is discovered that the flour was contaminated.

Jill notified the grocery store where she purchased the flour on December 27, but they did not notify Golden Hill until January 2. Because Golden Hill’s first notice of bodily injury is January 2, the current policy period will respond.

Had the notice been received on December 31, only the prior policy period would have responded.

4. Premium

When the premium on the declarations is a deposit, it is considered only an estimate, which means it is not final. At the end of the audit or policy period, the insurance company will perform an audit and then calculate the final premium. The audit period, if not the policy period, must be on the declarations or stated on a separate endorsement.

When the calculated premium is more than the deposit premium, the insurance company bills the named insured for the difference. However, it returns the difference to the named insured when the calculated premium is less.

The insurance company relies on the named insured to provide the information needed to complete the audit. As a result, the named insured must maintain needed records. The named insured is required to send copies of the records to the company at the end of the audit period or when the insurance company requests them. When additional premium is due, an invoice will be sent to the named insured, and the date on the invoice is the due date.

5. Separate Insureds

The policy may have many different insureds, but coverage applies equally and separately to each one. Also, the number of insureds does not affect the limits in How Much We Pay.

6. Subrogation

The insurance company has the right to require an insured to assign its rights of recovery to the company after it pays a loss. The insured must not take any action after the loss that would impair those rights. Coverage M–Medical Payments is not subject to this condition.

NOTE: An insured can waive their right to recover against others in writing before a loss occurs, but they cannot do so after the loss.

Example: Ben owns a building that has numerous tenants. Paula, the primary tenant, causes a fire. Since Ben and Paula do not have a written lease, there is no cross waiver of subrogation clause, as found in most written leases. However, they have always had an unwritten understanding that neither would sue the other. Because they do not have a written agreement, the insurance company has the right to pursue a cause of action against Paula, and Ben could lose his coverage if he does anything to impede such an action.

7. Suit against Us

No lawsuit may be brought against the insurance company unless both of the following apply:

All Commercial Liability Coverage terms are complied with

A trial has resulted in a final judgment against an insured, or there is a written agreement between the claimant, the insurance company, and the insured

The insurance company does not pay for any injury or damage that Commercial Liability Coverage does not insure or that exceeds the limit of insurance that applies. Additionally, the insurance company cannot be brought into any action taken to determine the liability of an insured.

NOTE: This means the insurance company cannot be named as a party in any court action alongside an insured party.

NUCLEAR ENERGY LIABILITY EXCLUSION

This exclusion has two parts. The first part is the exclusion, and the second part is eight definitions used only with this exclusion.

1. Exclusion

a. There is no coverage for the following bodily injury or property damage:

If an insured is also an insured under a Nuclear Energy Liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Insurance Association, Mutual Atomic Energy Liability Underwriters, Nuclear Insurance Association of Canada, or any of their successors. This applies if there would be coverage under any such policy except for the policy being terminated because limits are exhausted.

That results from the hazardous properties of nuclear material with respect to any person or organization required to maintain financial protection, as explained in the Atomic Energy Act of 1954, or any subsequent amended laws.

That results from the hazardous property of nuclear material, and that the insured would, without this policy existing, be entitled to indemnity from the United States of America because of agreements between the United States of America and any person or organization.

Example: Lillian wants to build on a site formerly used to enrich uranium. The United States Government previously removed all nuclear material waste and cleaned the site, but Lillian is still concerned. She enters into an agreement where the United States government agrees to indemnify her for any liability that results from the nuclear aspects of the property due to abandoned nuclear material.

The parents of children who played near the site for 20 years sue her for their alleged injuries due to the nuclear properties. This policy does not respond, and Lillian turns the case over to the United States government.

b. Coverage M–Medical Payments does not apply to bodily injury resulting from the hazardous properties of nuclear material and arising from any person or organization operating a nuclear facility.

c. There is no coverage for bodily injury or property damage resulting from the hazardous properties of nuclear material if:

The nuclear material is at a nuclear facility an insured owns or operates, or that others operate on its behalf, if the material was discharged or dispensed from such a facility

The nuclear material is contained in spent fuel or waste and an insured, or others on its behalf, possessed, handled, used, stored, processed, transported, or disposed of it at any time

The bodily injury or property damage results because an insured furnishes services, materials, parts, or equipment as part of planning, constructing, maintaining, operating, or using any nuclear facility. If the facility is located within the United States of America, its territories or possessions, or Canada, this exclusion applies only to property damage to the specific nuclear facility and any property at that facility.

2. Definitions

The following eight definitions apply only to this Nuclear Energy Liability Exclusion:

a. Hazardous Properties

This includes, but is not limited to, radioactive, toxic, or explosive properties.

b. Nuclear Material

This is source, special nuclear, or by-product materials. These are all defined terms within the Atomic Energy Act of 1954.

c. Source Material, Special Nuclear Material, and By-product Material

The definitions of these terms are as specified in the Atomic Energy Act of 1954 or any subsequent amended laws.

d. Spent Fuel

This is any solid or liquid fuel element or component used or exposed to radiation in a nuclear reactor.

e. Waste

This material is classified as waste because it contains by-product material. By-product material does not include tailings or waste generated from the extraction or concentration of uranium or thorium from any ore that is primarily processed for its source material content. Additionally, waste encompasses any material produced when an individual or organization operates any nuclear facility, as defined in the section below regarding nuclear facilities.

f. Nuclear Facility

This is a nuclear reactor and equipment designed or used to separate uranium or plutonium isotopes or for spent fuel processing, utilization, or waste handling, or processing or packaging. It also includes equipment or devices used in special nuclear material processing, fabricating, or alloying.

This is subject to the total amount of such material at any time consisting of (or containing not more than) 25 grams of plutonium or uranium-233 (or any combination thereof) or more than 250 grams of uranium-235. It also includes any structure, basin, excavation, premises, or place prepared or used to store or dispose of waste. This includes sites where all such operations are conducted, and all premises used for such operations.

g. Nuclear Reactor

This device maintains nuclear fission in a self-sustaining chain reaction and contains a critical mass of fissionable material.

h. Property Damage

These are all types of radioactive contamination affecting property.

NOTE: The Nuclear Energy Liability Exclusion is a comprehensive exclusion of all incidents related to nuclear energy. It aims to exclude bodily injury or property damage covered by nuclear liability insurance and removes coverage for companies mandated to maintain financial protection under federal nuclear laws. This exclusion encompasses all medical payments and excludes nuclear discharges, leaks, waste, and work at nuclear facilities.

It is unlikely that many businesses eligible for the AAIS Businessowners Policy will be involved with or exposed to any nuclear issues, with the possible exception of medical offices and laboratories.

BP 0100–BUSINESSOWNERS STANDARD POLICY ANALYSIS

This section of the analysis identifies only the differences between BP 0200–AAIS Businessowners Special Policy and BP 0100–AAIS Businessowners Standard Policy Property Coverages. Everything else is identical in both policies.

PROPERTY COVERAGES

ADDITIONAL DEFINITIONS

BP 0100 does not define Specified Perils since it is not included in the policy. This is because BP 0100 is a named peril policy.

ADDITIONAL PROPERTY EXCLUDED AND LIMITATIONS

This section is not in BP 0100. This is because BP 0100 is a named peril policy.

ADDITIONAL COVERAGES

BP 0100 does not include the following:

·         Collapse

·         Lock and Key Replacement

·         Tearing Out and Replacing

All other coverages are identical except Limited Fungus and Related Perils coverage in BP 0100 does not include collapse, hidden decay causes.

EXTENSIONS OF COVERAGE

BP 0100 is nearly identical to BP 0200, except where exclusions are removed that do not apply to BP 0100. This neither broadens nor restricts coverage but simply matches the coverage to the policy.

·         Accounts Receivable – BP 0100 does not include Voluntary Parting.

·         Business Personal Property - Off Premises – BP 0100 does not include theft from unattended vehicles.

·         Valuable Papers and Records – BP 0100 does not include Voluntary Parting or the Item c. under Defects, Errors or Omissions.

COVERAGE C–LOSS OF INCOME

BP 0100 is nearly identical to BP 0200. However, BP 0200 has an additional restriction that eliminates perils that apply only to computers. BP 0100 does not have any perils that apply only to computers.

Additional Loss of Income Coverages

Destruction of Data Records and Programs

·         Item 1. The terms “computer virus” or “computer hacking” are included in BP 0100 but not BP 0200 since BP 0100 is a named peril policy.

·         Under Restrictions, because the BP 0100 is a named peril policy, it does not include the limitations for “computer virus,” “computer hacking,” and the Additional Coverage for Collapse.

PERILS COVERED

BP 0100 covers risks of direct physical loss or damage caused by named perils. In contrast, BP 0200 provides coverage for risks of direct physical loss or damage on an open peril basis. The only losses not covered by BP 0200 are those that are limited or excluded. This is the key distinction between the two. BP 0100 covers 12 perils, as follows:

1. Explosion

Coverage applies when an explosion causes loss or damage. Gas or fuel in a firebox, combustion chamber, or flue that explodes is considered an explosion, though there are many other types of explosions. Loss or damage resulting from a pressure release device rupturing, bursting, or operating is not covered, even if it may resemble an explosion. Additionally, when water causes contents within a building or structure to expand to the point of rupture or bursting, that is also not covered under this peril.

2. Fire or Lightning

Coverage applies when fire or lightning causes loss or damage.

3. Riot or Civil Commotion

Loss or damage resulting from a riot or civil commotion is covered. Looting and pillaging that take place simultaneously and in the same location as the riot or civil commotion are also included. Additionally, coverage extends to loss or damage caused by employees striking against either the owner or a tenant of the designated premises.

4. Sinkhole Collapse

Loss or damage caused by a sinkhole collapse is covered.

The definitions section of the Businessowners Policy specifies that sinkhole collapse excludes the land's value, the expenses related to filling the sinkhole, or sinkhole collapses from man-made cavities, instead of those that form naturally. Consequently, there is no coverage for a structure that collapses into an abandoned coal mine, since a coal mine is categorized as a man-made cavity.

5. Smoke

Only sudden and accidental loss or damage caused by smoke is covered.

6. Sonic Boom

Loss or damage caused by sonic boom is covered.

7. Sprinkler Leakage

Four types of sprinkler leakage loss or damage are covered:

Leakage or discharge of water or other substances from within the system.

Collapse or the falling down of a tank that makes up part of the system.

Costs associated with repairing or replacing the system if it is damaged by freezing or breakage.

Expenses for removing or replacing sections of a covered building as necessary to repair the system.

This peril defines a sprinkler system to encompass both automatic fire protection systems and non-automatic fire protection equipment supplied by the sprinkler system.

8. Transportation

Loss or damage to insured property during transit is included in coverage. The loss or damage must result from events such as collisions, derailments, or overturning of vehicles, as well as stranding or sinking of vessels, or the collapse of bridges, culverts, piers, wharves, or docks.

9. Vandalism

Damage to or destruction of the described premises that is willful and malicious is covered. Theft, however, is excluded. Coverage does include intentional damage caused by burglars when they break into or out of a building.

10. Vehicles and Aircraft

There is coverage for loss or damage caused by physical contact of aircraft, objects falling from aircraft or vehicles, or objects thrown by vehicles with covered property. Aircraft is broadened to include spacecraft and self-propelled missiles. The one exception is that vehicle damage caused by the named insured’s owned or leased vehicles or by vehicles operated in the course of the named insured's business is not covered.

11. Volcanic Action

Coverage applies to loss or damage caused by volcanic action. All losses occurring within a 168-hour time period are considered one loss.

12. Windstorm or Hail

Loss or damage caused by windstorm or hail is covered, subject to three exceptions. There is no coverage for the following:

Loss or damage caused by frost, winter weather, ice (except hail), sleet, or snow, regardless of whether it is driven by wind.

Loss or damage to the interior of the building or its contents caused by dust, rain, sand, sleet, snow, or water—regardless of whether it is driven by wind. However, coverage applies if the wind or hail first creates openings in the building that allow the elements to enter.

Loss or damage to fabric or slat constructed awnings, canopies, or their supports.

PERILS EXCLUDED

This section of BP 0100 mirrors BP 0200, with exceptions specified in BP 0200. BP 0200 exempts computers from exclusions related to Earth Movement, Fungus or Related Perils, Utility Failure, and Water, while BP 0100 does not. Additionally, BP 0200 excludes collapse due to hidden decay from the Fungus or Related Perils exclusion, which BP 0100 does not.

BP 0100 does not cover item 10.—Weather. Weather is not included since the named perils form is not intended to provide coverage for weather-related issues.

ADDITIONAL EXCLUSIONS

BP 0100 has 14 exclusions, while BP 0200 has 22. However, this doesn't indicate that BP 0100 offers broader coverage. In fact, BP 0200 provides broader coverage, which requires additional exclusions to clarify the specific coverage it includes. Out of the exclusions, BP 0200 has ten that are not present in BP 0100, whereas BP 0100 has three exclusions that are not found in BP 0200.

a. The following exclusions are included in the BP 0200, but not the BP 0100:

·         Animals

·         Collapse

·         Freezing

·         Pollutants

·         Seepage

·         Settling, Cracking, Shrinking, Bulging or Expanding

·         Smog

·         Temperature/Humidity

·         Voluntary Parting

·         Wear and Tear

NOTE: Freezing, Missing Property, and Smog were listed as exclusions in the BP 0100 01 04 edition but removed in the 06 12 edition.

b. The following exclusions are in both policies, but with some differences:

Boiler Explosion

This is Explosion in BP 0200. BP 0100 does not include loss or damage caused by gas or fuel in a firebox, combustion chamber, or flue that explodes.

Contamination or Deterioration

BP 0100 does not include the exception found in BP 0200. This exception addresses loss or damage resulting from a covered peril that impacts the air conditioning system servicing the computer system, leading to either contamination or deterioration.

Electrical Currents

BP 0100 does not have BP 0200’s exception for computers.

Mechanical Breakdown

BP 0100 does not have BP 0200’s exception for computer hardware.

Smoke, Vapor, Or Gas

BP 0100 does not have BP 0200’s exception for computers.

c. The following additional exclusions are in only BP 0100.

Rupturing Or Bursting

If water pipes that are not part of a sprinkler system burst or rupture, coverage does not apply to any resulting loss or damage. However, coverage does apply to bursting or rupture caused by a covered peril.

Water Damage

If water or steam discharges or leaks because a system or appliance cracks or breaks, coverage does not apply to the resulting damage unless a covered peril causes the cracking or breaking. This does not apply if the sprinkler system cracks or breaks.

OPTIONAL PROPERTY COVERAGES

BP 0100 and BP 0200 both offer three optional coverages. BP 0100 does not include Money and Securities Optional Coverage. Instead, BP 0100 provides Burglary and Robbery Coverage. The other Optional Coverages, Employee Dishonesty and Outdoor Signs, remain identical.

Burglary and Robbery Coverage

NOTE: It is important to remember that BP 0100 does not cover theft. As a result, this Optional Coverage is used to provide burglary and robbery coverage for money and securities as well as business personal property.

a. Definitions

The following definitions apply only to Burglary and Robbery Optional Coverage:

Burglary involves the unlawful taking of property by an individual who enters or exits the specified premises using force. There must be clear evidence, such as visible signs of forced entry or exit.

Messenger refers to the named insured, any partner, or an employee responsible for the custody of the property when it is outside a described building.

Robbery involves the unlawful taking of property from an individual who possesses it, using force or intimidation.

Safe burglary refers to the illegal act of taking property from within a locked safe or vault inside the described building. The perpetrator must either forcefully enter the safe or vault or remove the entire safe from the premises. The exterior of the safe or vault must show visible signs of forced entry.

b. Coverage

Coverage applies to direct physical loss to the named insured's business personal property due to burglary, robbery, or safe burglary occurring within the described building. It also extends to incidents of robbery involving a messenger outside the building.

NOTE: The word is building, not premises. There is an important difference.

c. Property Not Covered

Under Property Not Covered, section 8.—Money and Securities—does not apply to this optional coverage, this means money and securities is included for this Optional Property Coverage.

d. Extensions of Coverage:

Armored Motor Vehicle Company

The named insured’s business personal property under an armored vehicle carrier’s control is covered for burglary or robbery as though it is still in the described building.

Lock and Key Replacement

In case of a covered burglary loss, the insurance company pays the necessary expense to repair or replace exterior or interior door locks and keys. However, only the doors and locks at the premises where the loss occurred are covered. There must be actual property damage or the named insured’s keys must have been stolen. Payment is limited to $1,000. There is no deductible.

e. Exclusions and Limitations

Furs

Coverage is limited to a $2,500 limit in any one occurrence that involves theft of furs or fur garments.

NOTE: Furs are subject to the same limitation in BP 0200.

Jewelry, Watches, Jewels, Pearls, Precious Stones, or Metals

Coverage is limited to a $2,500 limit in a single occurrence that involves theft of jewelry, watches, watch movements, jewels, pearls, and precious or semi-precious stones. This limitation also applies to bullion, gold, silver, other precious alloys or metals, or items that consist primarily of precious metals. It does not apply to jewelry or watches worth $100 each or less.

NOTE: This property is subject to the same limitation in BP 0200.

Lottery Tickets, Money, and Securities

There is no coverage for lottery tickets, money, or securities lost or damaged in an actual or attempted burglary within the described building.

NOTE: This means money and securities lost in a robbery in the building is covered but not a burglary.

Patterns, Dies, Molds, Models, or Forms

Coverage is limited to a $2,500 limit in any one occurrence that involves theft of patterns, dies, molds, models, or forms.

NOTE: This property is subject to the same limitation in BP 0200.

Unattended Vehicles

There is no coverage if property is lost from an unattended vehicle unless there are visible signs of forced entry into a securely locked compartment in the vehicle.

NOTE: This same limitation applies to off-premises property in BP 0200.

f. Coverage Limit

The Burglary and Robbery coverage limit on the declarations is the most paid for loss caused by actual or attempted burglary, robbery, or safe burglary, as this Optional Coverage provides.